Starting out with single family home or duplex?

Question

Hello everyone,

So I finally have 2yr work experience, 778 credit, and about $10,000 saved up. I’m waiting until I have $18,000 - $20,000 to move out. I’m expecting a promotion within the next year as well. So I’ve got a little bit of time to decide. I’m approved for 130K right now. And would like the pay around that much even if I get approved for more in the future.

The big question is: Should I buy a a duplex or single family home? I definitely know I don’t want to rent. I still live with my dad at the moment. And I want my money to be going towards a mortgage instead of to a Landlord. I also know that I don’t want to get emergency calls to fix the neighbors toilet right after work either. I know it a lot easier to afford the duplex most of the time unless something breaks.

Idk for my first house do you think it smarter to be able to charge a tenant most of what the bank is charging me for mortgage. Then only end up paying like $250 a month if nothing goes wrong??

Chace Fraser · Answer

Hi @Ben Harhager

House hacking is an incredible way to get into buy and hold real estate investing with a relatively low financial barrier to entry… plus the added benefit of reducing housing costs!

Deciding on whether you want to purchase a SFR or multi-family property to house hack really depends on your goals, how you want to live, the amount of work you want to put in, and your exit strategy for the property. There are a ton of pros and cons to SFR and MFR house hacking. Here are just a couple to keep in mind:

SFR Pros

• Wonderful opportunity to live for free, or be paid to live, if you rent out rooms
• Typically less expensive
• If you want to transition to living in a single family home without roommates, you already own the home and you don’t have to move.
• Typically, SFR’s are easier to sell and appreciate faster (but not always!)

SFR Cons

• Shared space with your tenants/roommates
• Occupancy limits: each town and county has different occupancy limits. In some municipalities, you're only allowed to have 3 unrelated people living together.
• Could be more difficult to cash flow as an investment property once you move out (if not renting out by the room)
• More affected by a vacancy (if not rented out by the room)
• More labor intensive if you rent out by the room.
• Not able to apply rents to increase buying power

MFR Pros

• Privacy/separation from your tenants
• Still have the ability to rent out rooms in your unit for extra income
• Less affected by vacancies
• Ability to apply rental income to your income thus allowing you to increase your purchasing power
• Ability to scale faster

MFR Cons

• More expensive
• Can be difficult to live rent free in high cost of living markets
• Can be more difficult to sell (but not always and/or if priced correctly)
• Lending rules change when purchasing 3+ units

Deneuve Brutus · Answer

@Ben Harhager To answer your last question, it all depends on what the market is willing to pay for the apartment/room. To find that out contact a realtor and ask for a rent analysis on the location you're looking to buy. One reason investors purchase duplexes is that it balances out the risk and increases cash flow. For instance a $2500/month mortgage, with tenants paying $2000/month each.

Your big question about the SFR or duplex also depends on your long-term and short-term goals. You could stay with your dad put the $18,000 to $20,000 towards a few deals where you partner with a few other individuals. This will "stretch" your dollars and potentially increase your ROI.

All across the board make sure you are cash flowing, hire a great property manager to manage the property for you. They will deal with the clogged toilet calls, etc... All you have to as is give them the okay to do repairs.

Options with Duplex:

• House hack - live on one side and rent the rest
• If your market will support it rent out each room for better cash-flow. 
• More stability, more complaints about neighbors (to your PM - but you're paying them for your peace of mind). 
• I'm unsure about the condo conversion rules where you are, however that may be an option. This provides cash-flow without property ownership headaches as well.

Options with Single Family:

• House hack - live in one room and rent the rest. 
• If your market will support it rent per room.
• You may also be able to provide seller financing to potential tenants
• You can do a lease option, with an addendum that the tenants will be responsible for repairs

Let me know if you have any other questions! Good Luck!

John Alosio · Answer

@Ben Harhager

I'm happy to hear that you are interested in real estate investing.

But there is no simple answer to your question.

if you don't want to get calls at random times of the day to "fix toilets",  then perhaps you might want to consider investing in the stock market. Unfortunately this comes with the territory unless you can afford the luxury of a property manager cutting into your profits.

How bad do you want this? And what are you willing to sacrifice?