Does building a Duplex or Triplex to house hack make sense?

Question

Hello,

Just looking for advice on if this makes sense. I'm looking to buy an empty lot or old building that needs demolished to build a duplex or triplex to house hack. Based on the price per sqft a builder gave me a duplex would be $280k and Triplex $420K roughly. That doesn't include land cost which could be anywhere from 60K to 120K. Each unit should easily get $1300 in rent but keep in mind I would be living in one of the units.

With an FHA loan I would easily be able to buy the land cash and have the down payment. It would be easier to buy an existing duplex or triplex but nobody is willing to sell because they cash flow so well.

Any thoughts are appreciated.

Thanks,

Alecia Loveless · Answer

@Javan Jackson I just can’t imagine where you could build a duplex for $280,000.

I think if you’re a new investor as the others have said this is not a good idea.

There are too many variables.

For instance I have a great contractor. He doesn’t do new construction. New construction where I am is out at least 2 years. And the better companies 3 years.

I would recommend existing construction. You will get more bang for your buck hands down.

Account Closed · Answer

Building a duplex or triplex for house hacking could be a solid investment strategy, especially considering the potential rental income and your ability to live in one of the units. However, it's crucial to thoroughly evaluate all costs involved, including land expenses, construction costs, and potential challenges with financing. Additionally, consider the long-term prospects and market demand in your area to ensure the investment aligns with your financial goals and risk tolerance.

Keith Mintz · Answer

Development may seem like it can make sense in the big picture, but all the little details in between and the time spent may not be worth it as much compared to buying an exiting property good for ADU adds, extensions, and add ons. I have a client now wanting to do something similar, so we bought a house ready for renting with a large backyard zoned for multi-family and a garage that can be converted and rented out. The ROI makes much more sense and also this process can be easier and faster to do than a development for a beginner.

Rick Albert · Answer

If they are that rare then what are the odds of finding land/tear downs where you can legally created 2-4 units? That is another hurdle to consider. If it isn't realistic, then pivot.

In some states Accessory Dwelling Units are allowed through converting a garage. This gives you single family home options and building out the second unit.

Javan Jackson · Answer

The reason I thought about building is because in the town I live in (which has a little under 30k people) nobody sells them you can’t find them on the market. But I have been thinking of maybe sending hand written letters directly to the owner to try to get one under contract.

Jonathan Greene · Answer

If you are new to real estate, this is a definite no. You are simplifying the process into a paragraph, but there are about a million ways this could go wrong. You need suitable land to build that is zoned for multi. You need a qualified and reliable builder (almost impossible for a new investor to find). You need a firm budget (you would be outsourcing too much of this to someone else.)

If you want to house hack, but a multi and do it, but make sure the numbers look good for when you leave because in most markets they won't look great while you are there unless you can get 3 or 4 units.

Rick Albert · Answer

Building from scratch is much more complicated than I think many people say.

Some builders/contractors don't give you a full picture. If you buy vacant land, where are the utilities? Septic tank versus public sewer? Public electricity or solar panels?

It will likely be easier to do the FHA 203(k) loan on an existing structure. Keep in mind if you remodel versus new construction, there are likely different building codes.

Andrew Postell · Answer

@Javan Jackson yeah, this is a really hard nut to crack.  For every 1,000 people who try...maybe 1 can execute.  And it certainly isn't as easy as just going out to buy a house that already exists.  Would certainly encourage you to get prequalified for a loan next.  That will tell you if this is reachable or not.

Does building a Duplex or Triplex to house hack make sense?

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