My first investment property, 2 unit multifamily in Texas

3 Replies

Hi Everyone,

I wanted to get the take of some seasoned investors on this deal. I'm currently on the hunt for my first investment property, and i'm looking at Multifamily properties. I'll be using an FHA loan to make this purchase, which i'm starting to become a little concerned about because my cash flow won't be nearly as good compared to if i could afford to put 20% down. I'm looking at a Duplex in Texas, obviously since i'll be using an FHA loan, i'll be living in one unit for at least a year.

  • Property type: Duplex
  • Potential Offer: 180k
  • PITI: $1455/month
  • Current Rents: 875 per unit (1750/month)
  • Water: Tenants pay $70/month for water
  • Electricity: metered for each unit
  • Taxes: $4100
  • Repairs: Advertised as being is good condition but i won't know repairs until I have the property inspected
  • Property management: 10% or 175/month (i'm guessing the management is going to be around 10%, i have to do more research on this)
  • GRM (gross rent multiplier): I'm told by my realtor that the current GRM for the area is 9.28 (based on annual income, not monthly income). If i get this property at 180k, the GRM would be 8.57.
  • Cap Rate: At 180k, my cap rate would be 9.79%

Any input on this deal is greatly appreciated!

Howdy @Christopher Oliva

Not having positive cash flow is normal for a House Hack deal on a Duplex.  Do the analysis based on after you move out.  If it cash flows then its worth looking into.

A Duplex (or any 1 - 4 unit property) is considered a Residential property not a commercial one.  Therefore, you should be using recently sold comps to determine the value of this property.  Cap Rates are used for commercial deals.

When you mentioned repairs are you meaning an initial Rehab budget, or, monthly withholding for Maintenance and CapEx reserves? If the latter you should use 5% to 10% for each depending on age and current condition of the property.

10% is standard for PM.  So you are okay there.

Why are you showing PITI(Principal, Interest, Tax, Insurance) and a separate $4,100 for Tax?

You did not include PMI (Private Mortgage Insurance) as an expense. It is required when you have less than 20% equity in the property. With an FHA loan deposit of 3.5% to %5 you are definitely below 20%.

You also did not include Vacancy.  Recommend using a minimum of 8.34% (one month rent).

@Christopher Oliva this is not as difficult as it sounds.  You live in Buda, so a couple quick questions.  What are your cost not to live.  Are you renting or owning or living with family?  I advise all newbies, especially those starting out and house hacking to manage the property yourself and save the 10%.  Your numbers seem fine especially if your spending any were close to $1000 to rent now or $500 for a room.  If you rent one unit and live in the other you will be out of pocket about $500.  If your spending that or more now renting then buying this duplex is an easy peasy decision.  If your inclined to rent out a room on your side you could be living for free.  Take the plunge!

Originally posted by @Christopher Oliva :

Hi Everyone,

I wanted to get the take of some seasoned investors on this deal. I'm currently on the hunt for my first investment property, and i'm looking at Multifamily properties. I'll be using an FHA loan to make this purchase, which i'm starting to become a little concerned about because my cash flow won't be nearly as good compared to if i could afford to put 20% down. I'm looking at a Duplex in Texas, obviously since i'll be using an FHA loan, i'll be living in one unit for at least a year.

  • Property type: Duplex
  • Potential Offer: 180k
  • PITI: $1455/month
  • Current Rents: 875 per unit (1750/month)
  • Water: Tenants pay $70/month for water
  • Electricity: metered for each unit
  • Taxes: $4100
  • Repairs: Advertised as being is good condition but i won't know repairs until I have the property inspected
  • Property management: 10% or 175/month (i'm guessing the management is going to be around 10%, i have to do more research on this)
  • GRM (gross rent multiplier): I'm told by my realtor that the current GRM for the area is 9.28 (based on annual income, not monthly income). If i get this property at 180k, the GRM would be 8.57.
  • Cap Rate: At 180k, my cap rate would be 9.79%

Any input on this deal is greatly appreciated!

My recommendation would be to see if you can get enough saved for a conventional loan. Maybe do a 80%, 15% loan with a second and then put 5% down, or do a 95% loan with PMI. The reason being is as I understand it, the FHA loan requires PMI for the entire life of the loan, AND most importantly, sellers hate buyers who are doing FHA loans, they take longer, are more likely to fall thru etc.

In most cases your offer will look stronger to a seller if you do a conventional loan.  You will be more likely to get the deal in a competitive market, AND you will end up with a lot cheaper loan.