Should I purchase a non cash flowing duplex?

Member since 2019 · 15 posts · 10 votes

Hello,

I have been thinking on buying a duplex in putting 5% down, it will be cash flowing -$300-$400/month (negative)

Right now prices are thru the roof and I found a nice duplex for significantly lower than the rest of the market and even so it doesn’t cashflow with the amount of downpayment im giving.

I have been thinking on using the cashflow from the other one to cover it while I wait for interests to come down and refinance.

Even if I didn’t have the other duplex, I could cover the cost out of pocket.

For context, all the other duplexes in the area are going for at least $100k more.

I appreciate your input.

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Andrew PostellPro Member

Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes

@Antuan C. I love house hacking. That's how I started out my investing career and I probably couldn't be where I am today without doing it. I would suggest to keep 3 things in mind when thinking of house hacking:

1. Cash Flow - Keep in mind that house hacking REDUCES my cost of home ownership. You will NOT cash flow on any property that you purchase. I'm not sure if anybody has said anything different to you but I need this to be your expectation. Remember, you are occupying one of the units...it would be impossible to cashflow in that scenario. Ok, maybe if you rented out each room and maybe did everything Short Term or something like that. But if it's long term renting, then you won't cashflow. But it will still allow you to afford a SIGNIFICANTLY higher price point than if you did not house hack.

Appreciation - So, if real estate appreciates 5% per year, then a $500,000 property will have $138,000 in additional value after 5 years. A $1million home will have $276,000 in value increase after 5 years (using that same 5% appreciation per year). The higher our value, the higher the equity gain is - even if the % of gain is equal between the properties...the dollar amount is higher on the higher valued home because the property is worth more. That's how house hacking helps us gain wealth. We certainly aren't gaining $276,000 with $200 of cashflow. So, don't sweat the "no cashflow" thing. If you were to give me $50 per month, and after 5 years I would give you $50,000...would you be ok with that? Of course you would! That's a great deal! And that means you would even be ok with having negative cashflow too. Appreciation and principle buydown provide us WAY more income than cash flow does.

Buying your primary home - when I buy my primary home it has to fit my PERSONAL needs. Maybe I personally need a good commute time. Maybe I personally need a certain school zone. Maybe I want this home because of how safe I feel in the neighborhood. So I'm addressing a primary home with a different perspective. Just focus on purchasing a good home that you feel comfortable with living in. Your commitment is to live in it for 12 months...and then you can do it again and again!

Hope all of that makes sense. Thanks!

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Antuan C.
OP
Member since 2019 · 15 posts · 10 votes
1y
@David Fern thanks for your input, I think I’m going to do that. Appraisal just came back today 80k more than asking price.
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Antuan C.
OP
Member since 2019 · 15 posts · 10 votes
1y
@Kerlous Tadres
Thank you for your input Kerlous.
The property needs minor rehab in one of the units <10k. Roof and water heaters are brand new.
Appraisal came back today 80k above asking price.
The property is 15years old. I think I’m going to take your advise and move forward
1 Reply
- Kerlous TadresBusiness Member
  Realtor · Columbus, OH · Member since 2023 · 1k+ posts · 1k+ votes
  1y
  Quote from @Antuan C.:
  
  @Kerlous Tadres
  Thank you for your input Kerlous.
  The property needs minor rehab in one of the units <10k. Roof and water heaters are brand new.
  Appraisal came back today 80k above asking price.
  The property is 15years old. I think I’m going to take your advise and move forward
  I think it's a smart play especially since you already have equity in the place as well!
  [email protected]614-490-1163
  Kerlous Tadres | Reafco Real Estate540 Reviews
  Website View Page
  0 Reply
Scott ScovilleBusiness Member
Real Estate Agent · Sacramento, CA · Member since 2019 · 497 posts · 272 votes
1y
Quote from @Antuan C.:

Hello,
I have been thinking on buying a duplex in putting 5% down, it will be cash flowing -$300-$400/month (negative)
Right now prices are thru the roof and I found a nice duplex for significantly lower than the rest of the market and even so it doesn’t cashflow with the amount of downpayment im giving.
I have been thinking on using the cashflow from the other one to cover it while I wait for interests to come down and refinance.
Even if I didn’t have the other duplex, I could cover the cost out of pocket.
For context, all the other duplexes in the area are going for at least $100k more.
I appreciate your input.

Where's the duplex located? I purchased a non cashflowing 4 plex in Sacramento, but was able to fix up the property over the course of a year and bring most of the units up to market rent. If it's a good deal, in a good location, and you have the reserves to whether the storm, it can work. Buying turnkey multi family with market rents is an option, but you'll most likely pay a premium for it. I always prefer buying value add where I can come and fix the problems and increase ARV and rents over time. Best of luck in your decision.
[email protected]415-933-2202
Scoville Realty & Investments LLC
Website View Page
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David M.
Member since 2022 · 66 posts · 68 votes
1y
I would do it. A temporary monthly shortfall can be managed in order to realize a long-term gain in value.
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