An Easy, Slow, Low-Risk, & High-Reward Way to Buy Your First Investment Property


When I first read Brandon Turner’s article, “How to ‘Hack’ Your Housing and Get Paid to Live for Free,” it was like a light switch flipped in my head. That was the first article that truly made sense to me as a wannabe investor. It seemed so clear, so right, so obvious that everyone’s first real estate investment should be in a small multi-family property.

I immediately set out to implement this strategy — to buy a property, to move into it, rent out the accompanying units, and to start living for free. Unfortunately, I quickly ran into a little problem: I had set myself up to attempt to meet four seemingly impossible criteria:

  1. The property needed to be affordable with conventional financing.
  2. The property needed to be in a location that I wanted to live in.
  3. The property needed to generate positive cash-flow.
  4. The property needed to offer a reasonable chance at appreciation.

After spending six months looking for an investment property to acquire house-hacking style, I’m not convinced that the truly difficult thing for a first time investor is in getting financing, or even in finding properties that cash-flow sufficiently. The truly difficult problem for me was deciding on where I wanted to make that commitment. Buying a rental property that you intend to live in and actively manage is more than just a financial commitment. You are likely going to live, work, and invest in that area for at least the next few years.

I actually feel that I had plenty of opportunities to purchase duplexes and fourplexes that would have been decent from a cash-flow and appreciation standpoint within 20-50 miles of Denver. Those opportunities seemed almost too easy. The real trick in my opinion is buying those types of properties right downtown. I’m talking inside the city limits.

I’ll admit it, I’m a spoiled, immature 24-year-old, and I refuse to live in an area that isn’t near the heart of my city (Denver, CO). I want to be close to where my 20-something friends live — by Coor’s Field, downtown restaurants and nightlife, convenient to I-70 (the highway that grants easy access to the awesome Rocky Mountains), and, of course, right by my workplace.

In this article, I want to walk through why I believe that all four of those previously mentioned criteria are so important to first time investors and explain some of the basic things that I did to buy a property that I believe meets each of them. I think that this approach is possible for many people who live in urban environments and are willing to be patient and methodical.

Here are four questions that I believe every first time house-hacker should ask themselves, and how I personally answered them.

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4 Questions for First Time House Hackers

Question #1: Can I afford the property with conventional financing?

There are two obvious followup questions to the “can I afford this?” question:

  • How much money do I have?
  • How much money does property in the area I want to buy in cost?

If you want to house-hack and still live in a reasonable place in an urban area, you need some cash. Even with great owner-occupier financing terms, you’ll need a substantial amount for the downpayment if you want to live in a somewhat desirable spot near a happening city. I’m not interested in living in Detroit and putting down $500 for that $10,000 home. I want to live and invest in Denver, CO, where a comparable structure might cost 10,20, or even 50 times more than that.

I spent a full year working hard and living frugally to save up an amount that would comfortably cover a 5% down payment on properties in the area that I wanted to live in. If you don’t like this strategy for gathering funds for your first downpayment (the “save more money” strategy), then I’d suggest that you seriously question whether you want to get into real estate investing in the first place.

Another critical thing to keep in mind is that if you are purchasing a property that needs repairs, minor or major, you will need cash to pay for them. Among other expenses, I’ve shelled out thousands in plumbing and electrical work, appliances, and DIY tools and materials. If you are transitioning from renting to an owning property, then there might be a chance that, like me, you don’t own a robust set of tools and don’t have familiarity with the materials needed to work on even relatively simple projects like painting and drywall repair. By ensuring that I bought the property with a good $10,000 cash cushion, I was able to easily cover all the little repairs and contractor costs that came up, and I now have a pretty solid little toolset that has proved to be much more enjoyable to work with than I previously would have thought.

Related: A New Way to Look at the Concept of “House Hacking”

Question #2: Will I be happy living there?

I think that many of us as investors, new and experienced alike, have to acknowledge that we are investing to improve our financial position and in doing so, to improve our lives. I believe that house-hacking does not work if it means that you have to live in an area that you don’t want to be in!  For me to be happy with my living situation, I needed to live in the city. It was not acceptable to purchase property in the boonies and move far away from the places I enjoy going to on a regular basis just to get a good return on my first investment. For me, that meant I had to limit my purchasing area to properties close to the heart of downtown Denver, CO.

Buying property actually downtown (less than 5-10 blocks away from Coor’s Field in my mind) was simply not a reasonable option — the only properties that most newbies can reasonably purchase might be condos, which are not a traditional type of investment from which one can generally expect great rental cash-flow. It’s just too expensive in the true heart of the city, and the only properties that are being purchased there are multi-million dollar homes and swanky apartment complexes. There’s a reason why buildings go straight up in big cities.

Fortunately, Denver has several surrounding neighborhoods with properties at price points affordable to folks making less than $50K per year. These neighborhoods are convenient to downtown with good bike routes and cab/Uber rides that are less than $10 a pop. I ended up picking two areas to search for property. Both areas were roughly equidistant from downtown Denver and my workplace (BiggerPockets HQ happens to be about 5 miles directly Southeast of Lower Downtown Denver).

Question #3: Will the property cash-flow?

Here in Denver, CO, we’ve got a little bit of a tough housing situation. Houses and investment properties are being listed for less than one day and then selling for ten, fifteen, or even $20,000 more than asking price.  I’ve heard from some readers that cities with similar characteristics, like Austin, TX, have similarly tough markets for investors.

Luckily, as an owner-occupier looking to buy multifamily property, I had a couple of serious advantages over the competition. First, I was looking at properties that most other would-be homeowners weren’t interested in; first-time buyers usually aren’t looking to purchase a duplex, triplex, or fourplex. Second, I had the opportunity to bid on properties before investors that did not intend to inhabit the property because of a special government program — the First Look program from Fannie Mae.

In my opinion, these two advantages that I had as an owner-occupier house-hacker are the trump cards that gave me an edge in looking for great multi-family deals in an urban environment. After months of searching, my agent suggested a duplex to me. This property was listed on the MLS and was like a lot of other opportunities out there that I had looked at, but with one small difference: this property was part of that “First Look” program.

Because investors couldn’t make offers on the property for several weeks, and because the demand for duplexes, triplexes, and fourplexes among first-time homeowners is very small, I had little competition. I was able to run the deal by my friends, family, mastermind group, and by investor friends I’d met through BiggerPockets. That window gave me the confidence I needed to pull the trigger and make the largest financial commitment of my life to that point — while competing investors never even had a chance to offer.

Question #4: Is there a reasonable chance at appreciation?

If you read around on BiggerPockets, you are going to learn that experienced investors refer to appreciation as the “icing on the cake” — it’s usually not even considered in the purchase of investment property. While it’s still a good idea to look at cash-flow first as an owner-occupier, putting in the extra time to look for investment properties that offer a good chance at appreciation as well can reward you handsomely in the long run.

As a house-hacker, appreciation can produce a more powerful financial impact for you than it can for a traditional investor, because of a special tax-law that benefits owner-occupiers:

Assuming that you live in the property for more than two years, when you sell property, much of the capital gains are tax-free.

This tax break is incredibly powerful for those looking to house-hack with small multifamily properties because we have the opportunity to take advantage of appreciation as it relates to both income properties AND smaller residential properties:

As multi-family properties, increasing the income of the property can force appreciation.

As hybrid properties, duplexes – fourplexes can also benefit from appreciation caused by an improving local market.

I carefully selected properties that I felt offered me the opportunity to get both types of appreciation:

  • Forced Income Appreciation: I chose a property that needed what I considered to be a reasonable amount of cosmetic work and that had multiple opportunities for improvement. Since moving in, I’ve had the entire plumbing system overhauled, I’ve added appliances like washer/dryer units and refrigerators, and I’ve put in substantial cosmetic work, Do-It-Yourself style. These improvements should reduce the operating expenses of the property over the long run and give me an advantage in attracting and retaining tenants, hopefully improving the property’s long-term income potential.
  • Market Appreciation: One of the benefits to purchasing properties in an area that you yourself want to live in is that, generally speaking, other folks want to live there, too. This presents a decent opportunity for appreciation in itself if you have personal reasons for for desiring to live in a certain area that are applicable to large demographics. However, I didn’t stop there, as I looked for properties within these neighborhoods that were also in the path of government sponsored infrastructure projects.


In my case, a light-rail project is currently under construction and will offer convenient and low-cost transportation options to my neighborhood. It is my hope that infrastructure projects like this one, coupled with the overall tremendous growth of the Denver local economy, will allow me to benefit from market appreciation, though I understand that having purchased the property, this is now out of my control.

The hope here is that I can leverage both types of appreciation to create substantial value from this property over the next few years. I then hope to cash out on that increase in equity, tax-free, and reinvest it in a larger income producing real estate asset.

Related: BP Podcast 086 – House Hacking Your Way to 97 Units (While Holding a Full Time Job!) with Cory Binsfield


This is my first investment property. There is every possibility that I’ve made a huge mistake somewhere along the line. I could be way off in my estimation of expenses, long-term rents, desirability of the neighborhood, or I might have simply gotten ripped off on the purchase in general. I hope that none of those things are true, and I certainly feel that I did my due diligence at each stage of this investment — but only time will tell if I correctly analyzed each critical input.

Maybe I’m slower than other investors, and maybe I suffered from a great deal of “analysis paralysis.” It took me a long time to pull the trigger and finally make a serious offer on my first investment property. I had been researching my market and defining my criteria for at least 6 months — not to mention the full year that I had been saving up for such a purchase!

That said, I believe that my first investment is by far my most important. A bad choice could cripple me financially, discourage me from investing again, or at the very least, significantly slow me down in accumulating the funds to make a second investment. But, in spite of all the potential negative outcomes, because I did just one thing right, I can sleep well at night:

That one thing was buying in an area that I am happy to live in.

At the end of the day, it doesn’t truly matter whether I’m able to keep my unit rented out, or if the market tanks. Worst case scenario, I get an expensive education in real estate investing and live in a place that is slightly smaller than I could have otherwise afforded.

I’ve got the ultimate exit strategy.

Newbie Investors: Are you considering house-hacking as a way to fund your first investment property? If you’ve used this method in the past, would you agree with my criteria?

Leave a comment, and let’s discuss!

About Author

Scott Trench

A longtime fan of BiggerPockets and a Real Estate Investor managing his first property, Scott is the company’s Director of Operations. BiggerPockets is a BIG website, and Scott’s background in finance and big data analysis will be instrumental in the next phases of company growth and in helping to bring the resources of BiggerPockets to more investors worldwide. Scott is passionate about helping others build wealth and serving his community in whatever ways he can. In his spare time, Scott enjoys skiing, biking, and cooking, and he is a lifelong rugger.


  1. I think this is an interesting idea. Two children later this isn’t the best option for us but we are considering another unconventional idea: buying a larger home and sharing it with another family. We actually have friends we’d be willing to live with and if we can work out the details we just might go for it! Your criteria sound reasonable and wise. I hope you can meet them all.

    • Scott Trench

      Thanks for the response Kalie! I certainly wrote this post with my peers (20-something single folks) in mind, but there are plenty of ways that couples with children can make house-hacking work as well. From your comment, I infer that a huge part of the deal for investing house-hacking style for you is the quality/type of tenants – who will be the neighbors of your children.

      That’s obviously a huge factor, and it might be a good idea to have the perfect tenants in place prior to making a decision – even if it means sacrificing on the rent/cashflow, having tenants that you like and trust as neighbors must be so important for families.

  2. Nathan Buss

    Hey Scott, I am in the stage of looking for the right location to buy a 4 plex to live in. This has definitley been the biggest challenge and I have looked for at least 3-4 months to no avail. I don’t know if its just the market I am looking in but a lot of the 4 plexes that exist in my market are in areas that I would definitley not want to live. Its the concept 4 plexes are built mainly in sub prime areas while if you are in an area that is prime most people will have the cash to buy and thus not many multifamilies exist. I may be way off base here but it seems the majority of multifamilies are located in average to low income areas where the school district and crime levels are at best average. Who wants to owner occupy an area like that? I have found some in decent areas but can’t seem to get them to cashflow very well in my analysis. So I guess my next step is to find one in a desireable area that the owner is motivated to sell and try and negotiate the price to a point where it would cashflow well and also have potential market appreciate. This however, proves a challenge while looking at the newest listed properties everyday.

    • Scott Trench

      Nathan, in this post, I discuss house-hacking – finding properties to live in while renting out parts of the units. I consider this to be slightly different from investing in duplexes – fourplexes via traditional investment loans. I have several advantages and can therefore take a little more risk than I might if I were to invest through an LLC with 20% down.

      First, I live in the property. If my projections turn out to be inaccurate, then my worst case is that I pay a mortgage payment every month and live in a slightly smaller place.

      Second, I only put 5% down. I’m leveraged 19-1. That multiplies the effects of appreciation vastly. If the property appreciates just 1% next year, I get a 19% return on equity. 2% appreciation = 38%, and so on. While the cashflow is great – I really consider it a safety net. My true gains on the property in the next 5-7 years will likely come from appreciation.

      I don’t know if I will employ these same strategies for my next purchase. The effects of appreciation really diminish with lower levels of leverage, while the risk increases on my next investment property because I will have one less exit strategy.

      Basically, I am still an inexperienced investor, and am only just now beginning my search for a true investment property. Perhaps you might read some of Brandon’s articles on finding great multifamily deals…

      • Tom Cyr

        Scott, it’s a great hack. I did it with a duplex when I got married and had almost no assets. It’s very low risk because you are occupying it. The danger is, it is so low risk, that you will probably be tempted to over pay for the asset.

        You are right to treat the cashflow as a safety net. It will mostly go toward maintenance, cap-ex, and vacancy – if you don’t have any legal trouble to deal with. If you buy right, that is equity you created with your knowledge of where to find a motivated seller. If you buy retail, you have your choice of everything on the market but you start out with zero equity.

        The time to buy an investment property is not when the market has appreciated well off its lows and is a strong seller’s market like now. There is plenty of room to go down from here and your proposed down payment is only providing 5% cushion before you are upside down.

        Here is a combination retail and wholesale way to play both at the same time… Market directly to the owners of the plexes in the area you are interested in living. Tell them that you are looking to buy and live in one unit as a beginner landlord, implying you are not a big time real estate investor (looking to steal their property.) Offer them full net on their property, as-is. Get some comps for that market and find the average sales price and adjust for amenities, location, etc. Tour the units of those who reply, mark down for what it would cost for them to make ready for retail listing and their transaction costs, and write a contract!

        You’re going to create at least 6% equity off the bat this way just for researching on your local tax appraisal website. After moving every two years, I bought my permanent home this way for 10% below the market, paying cash. it was an expired listing.

        • Scott Trench

          Tom – thanks for the feedback on this I think you make some very intelligent points.

          I think that your strategy is great in going after seller financing, but one reason why I may have been hesitant to go through with it as a total novice on my first property is because you have to go off-market and deal directly with landlords.

          With my current situation, I’ve been able to save up a tremendous amount of cash very quickly because of the inflows coming from rent and decreased housing expenses. I’m now already looking for a second property. After I have a few deals under my belt, I’ll be more confident in approaching owners looking for creative finance terms.

          This FHA approach through HomePath allowed me to take baby steps and go through a traditional banker, work with an agent, and have a more or less traditional first time purchase process. It also leaves me with no pressure to have the property perform immediately – Not having a tenant in there for the first two months simply mean that I was paying a mortgage like any other homebuyer. Not great, but not a dire financial emergency, since I can cover the mortgage payment with my paycheck.

    • Scott Trench

      Sharon – thanks for the comment. I actually used an FHA loan and should have been more clear. I kind of lumped this in with “conventional” financing because in my mind, they both involve going through traditional loan officers.

      I certainly recommend this for anyone looking to house-hack. It allows you to get a TON of leverage in a relatively low risk way – as long as you can afford the mortgage payment, you probably aren’t much worse off than you would be as a renter.

      Also – if you are trying to buy a duplex, triplex, or fourplex, you must put down 5% – 3.5% only applies to single family homes.

      • Sharon Tzib

        Hey Scott. Technically a FHA loan is a government backed (insured) loan, and a conventional loan is privately backed. Also the latter generally has higher down payment requirements, but in return for that, you don’t have PMI. Who you obtain your loan from does not define what the loan is called-just sayin 😉

        In regards to the down payment requirement for FHA on multis, I’m going to have to beg to differ. You absolutely can put down 3.5%.

        Maybe it’s a qualification thing and something in the property or your loan package made them want more, but they do offer those loans. Also, good news, Obama just signed a new law lowering the MIP (Mortgage Insurance Premium) from 1.35% to .85 effective end of January. That will help investors a lot! Thanks!

        • Pam Osborne

          Sharon, any advice for a newbie looking for financing? I have a mortgage with my spouse on our primary home, but looking for income properties and the best way to finance without having to come up with 20% down?

  3. Tom Waddell

    Great article. Thanks Scott. I’m attempting to do the same thing myself — buy a duplex in a neighborhood I actually want to live in. Not easy to do, but your article has given me some great ideas. I had never heard of the First Look program, so I’m adding this to my list of tools (I keep a Google Drive folder full of real estate investing tips and tricks). Thanks again and best wishes for your investing future!

  4. Sabrina Davoodian

    Great article!

    I was the very same way with purchasing my first property. Did a lot of research and number crunching before I gathered the nerves to commit. Thank goodness I have a great support group who talked some sense into me.

    Also, I wanted to clarify a point you had made for all the readers… For owner-occupancy tax benefits, you must occupy the property an aggregate of two out of the last five years before the sale. I feel like that last part is very important to include. I’ve had family friends who’ve had the misconception that they could avoid the capital gains tax, because they used to live in their home…. Ten years ago.

    Looking forward to your next article!

    • Scott Trench

      Sabrina – thanks for the comment!

      I appreciate the clarification on that tax rule – I didn’t know that and that’s a huge point. Because I’m so highly leveraged as a house-hacker, the bulk of my Return on Equity from appreciation will likely come in the next 3-5 years as it is (more on the math behind that in a future article). I definitely hope to sell in the next 5 years or so and roll those gains into another property.

      Also – I want to touch on something you said – the part about having a great support group. I too believe that I have a wonderful support group and that this group has made a huge difference in my comfort level in approaching real estate. I think it’s a must for first time investors to try to develop a relationship with folks who have invested before.

  5. Okenna Oparah

    Hey Scott, I definitely agree with this article. Nathan, I definitely understand your struggle. Be patient. I spent about 6 months just searching for deals and funny enough, also found my deal on the website. I just closed on a duplex in my metro area (Atlanta) and am in the midst of rehab/renovations. I had a similar experience starting out – with many of the multi-families being in area’s that were less than ideal to live. Luckily, I found a duplex on the edge of a very up and coming area of of midtown (~20 minutes from work). Also, something to think about Nathan, you may not find something that has positive cashflow if your staying in it..but if you can find something where 80-90% of the mortgage is covered with you staying in one side/unit then it will cash flow after you eventually move out. In my case I’ll be paying ~200/month for mortgage/utilities ..which is still much cheaper than any apartment ever. Happy Hunting Nathan! Thanks for the article Scott!

    • Scott Trench

      Okenna – thank you for this comment. I think that you make an awesome point – the point about how even a non-cashflowing house hacking deal is still better than renting.

      In my case, the rent from the other unit is about $1100 per month, with rent from a roommate in my unit coming to about $550 per month. Between those two items, I cover my mortgage ($1,500 per month including FHA mortgage insurance), and end up using the extra cashflow plus money from my own funds to manage, maintain, and improve the property. I certainly don’t cashflow in the traditional sense, but I believe that if I had another tenant in place, I’d easily cashflow several hundred dollars per month.

      In that sense, I consider my property to cashflow. Only time will tell, however, if I can rent the other unit out for the same price, but in the meantime I have the potential to benefit from appreciation, principal reduction, and I of course love the location.

  6. Mitch H.

    “That one thing was buying in an area that I am happy to live in.”

    Can I turn this into a vinyl sticker to put above my bed? When I decided that buying an owner-occupied duplex was Plan A, my geographic fence was VERY small, like 1/2 of a zip code small. I was 90% Lifestyle and 10% Investment minded. I was willing to give up a little on the bottom line to gain some on the lifestyle side. At this point in my life, thats an easy sacrifice and one that I can convince myself of easily.

    I have since expanded a little bit, but never past the “$15 Uber Test” line.

    Something I also struggle with is finding those properties that have room for forced appreciation (light rehab) but aren’t candidates for scrape and rebuild. There doesn’t seem to be a ton of middle ground.

    Thanks for the Sunday morning read, Scott!

    • Scott Trench

      Haha! Love this comment – especially the part about the vinyl sticker haha. I think I may be one of the lucky ones that found a property that needed a manageable amount of work.

      If you are attending the BP meetup tonight – I’ll see you there!

  7. Tim Shin

    Hey Scott this is a great story and the exact thing that my wife and I are struggling with! We’re constrained by all of those things and the fact that we have to split the distance between our jobs (we work in opposite directions). I’m glad you’ve been able to make it work. I’m starting the research and seeing what’s going on, getting ready to buy a year from now when our lease is up in our current apartment and we’ve got our finances in order.

    I had a few questions though. I investigated the HomePath site and found that those homes are not “typically” offered to people buying in the name of a trust. Did you buy in the name of a trust? If not will you be able to switch it over without violating a due-on-sale clause? I’m curious what kind of options are available since we just heard Scott Smith talk about asset protection in episode 109.

    I noticed that you said earlier 5% down is necessary for 2-4 unit homes and I didn’t know that! That changes my calculations a bit! Thanks for sharing.

    Did you try the 203k loan for the repairs? You discussed saving your own money for repairs.

    • Scott Trench

      Thanks Tim!
      I bought the property in my own name. I am not switching it over to a trust or LLC. The legal advice I received from my counsel suggested that the financial risk that I run by moving the property into an LLC with FHA insured financing outweighs the likely risk of a tenant lawsuit or similar. I have umbrella coverage.

      I am not a lawyer and cannot give legal advice, but I do believe that there are millions of landlords out there that own property in their own names. At some point, risk is involved. Keep in mind that that podcast was from the perspective of someone whose job it is to sell that type of service to investors. Do you think that was bad for business? I will surely move my properties into LLC’s and Trusts down the line, but the price of delaying and sacrificing great terms is too high in the name of timidity about the perfect legal structure.

      I used 5% down because of circumstances surrounding my property specific to my property. I was incorrect about the 3.5%.

      I did not use a 203k loan for repairs – I did that out of my own pocket.

      • Tim Shin

        Hi Scott,

        Thanks for the comment. You raise all good points here. Do you know if it’s possible to own an FHA home in the name of a trust? I am also not a lawyer and I cannot give legal advice :)! I think if it were me, I’d move it in to a trust whenever/as soon as I could to get protection. I’d be interested to see a blog post from someone about FHA home hacking and asset protection from someone who CAN give legal advice.

        How come you didn’t decide to use the 203k loan for repairs? Did you think maybe you’d be leveraged more than you wanted to be? Were the repairs so minor that it was easier just to do the repairs yourself?

        I’d love to know how much and what kind of work you’d be doing to this property. Can you walk us through the numbers a bit more?

        • Scott Trench

          Tim – It is possible, however it is a risk – you risk having the not called due. What I was told by my counsel, which is specific to my case, was that the financial risk of transferring ownership from my name to a trust, LLC, etc is likely much higher than the slightly less protection I get from having the property in a Trust or LLC. I was told that the risk is heightened for me because of my low equity position in the property due to using an FHA insured loan.

          It is my understanding that moving the property into a trust simply makes things more of a pain for the tenants etc to sue you because they have to serve the trustee who is likely in an inconvenient place and hard to find/reach. It’s the LLC that is the biggest step in protection because the highest possible loss in most cases would be the assets of the LLC, instead of future earnings potential, etc.

          That said, that is just how I understand the situation, and I could be well off on some of that.

          As for the 203k loan, that’s easy. I’m new to investing and wanted to do the repairs myself. It’s cheaper, and its an education that I wanted. In the future, I know of repairs that I am happy to do myself, and repairs that I’ll be outsourcing to contractors.

          Purchase price – $245K
          Rent – $1,100 per unit (2 units)

          Total Repairs/Appliances ~$8K plus a bunch of nights and weekends
          I painted, added fridge, washer/dryer, new hot water heater, redid the plumbing entirely, and did some minor work on the HVAC. My biggest time consumption was in redoing the bathroom (turned out great and was a ton of fun to learn about) and in staining/painting the place (which I’ll admit I did poorly and messily which caused me a lot of grief in cleanup).

          Thanks for this followup comment – you really asked some great questions.

  8. Chad Miles

    Loved the article, Scott, thanks for you input! I am 20 years old and looking to buy my first property using the “house hack” idea so that I can minimize or cancel my mortgage payment on a monthly basis. Like others, I am having a difficult time finding a suitable duplex in the area that I want to purchase in (the metro Detroit area). To Scott or anyone else – Since finding a duplex in great condition can be tough, what’s the best way to work remodeling into my financial plan? Like you said, I want it to be a place that I actually WANT to live in. Do I have to save and wait to remodel, or can I work that into my financing somehow?

    • Scott Trench

      Chad – there are remodeling loans that you can get – such as the 203k. That said, I personally worked in the remodeling as a function of time – I did most of the work myself. I think that’s valuable because it teaches me what is easy and quick to do from a repair perspective, and what is tough and time consuming. Maybe you lose a little in the short run, but I consider this to be an education, and you miss a lot of class by just having a contractor or handyman do all of the little odd jobs around your place – especially when like us at 20-24 years old we have the time and ability to do those things ourselves.

  9. Chris K.

    Hi Scott,
    Good stuff here! My wife and I are in the process of buying a foreclosure duplex with my veteran VA loan, so we can get into this investment for virtually no cost except time. It needs a little cosmetic work on one side and exterior but the vacant side is move-in ready. We were intentional about the neighborhood and family appeal of the properties we screened. I am glad that our thought process was in line with you and so many of our fellow BP geniuses! Thanks for your article and good luck with your property.

  10. Morgan Nelson

    Scott – awesome article. I’m in the planning/research phase before purchasing my first multi-family home next year. This article offers a great framework of the process – thanks!

    I didn’t know about the First Look program and will definitely be taking advantage.


  11. Real estate newbie on

    What do you think about the one percent rule? The basic premise is that the monthly rent should be greater than 1% of the total acquisition price? You seem to have a unique advantage in this situation because you live in the building. Just trying to learn here and weigh different opinions and ideas.

    • Scott Trench

      I don’t believe that there are hard and fast rules in real estate investing. In my interactions on BP, I tend to see that the folks who really push hard for the 2% rule (or 1% rule) tend to be in markets that are so called “cash flow” markets. I tend to believe that you could also describe some of those markets as “not growing” in many cases. A property with traditional rental income in downtown Denver, CO at or above 2% of the purchase price is an unrealistic goal. You will not be investing in my market in the next 30 years if that’s your hard rule.

      That said, my property cost me about $240,000 and I rent out one side for $1,150 per month. I believe that is on the lower end of the market rent, so I think that it’s fair to say that I’m very close to your 1% rule (were I to rent out my side to other tenants).

      I absolutely believe that I have a huge advantage by living in the building and highly recommend this strategy for anyone thinking about getting started in real estate.

  12. Greg Gibbons

    Scott – I am new to BP and have many of the sames circumstances that you wrote about – except that I am in a different stage of life….. I am in my early 50’s. Having raised 3 kids, I found myself newly single again. The last few years, since my divorce, has been a lot of re-building on several fronts.

    Like you, I have been renting and really limiting my expenses so I can save up a down-payment (although I have some IRA savings, raising 3 kids, and other circumstances, didn’t allow me to build much equity). I have enough for about 5% down and now I am looking to house-hack, as you call it. I’m looking for a duplex or 4 plex to live in – I love the idea of living for Free! In my case, I would love to find a 4-plex that I can live in, pay-off aggressively, and have a fully paid off, income producing property when I hit my mid 60’s.

    Also, like you, I am not willing to look simply at the financial numbers – I want to be in a place that I would like to live. There is a certain amount of sacrifice I will make, but I don’t want to lose sight of the fact that, after a long day, I want to be able to walk in the door and say, “Ahhh, it’s good to be home…..”

    • Scott Trench

      Greg – thanks for your comment. I wish you the best of luck as you search for your house hacking property and believe that you have a great mentality in looking for the right property for you. I hope that my story helps you in your decision making process.

  13. Jen Shrock

    Great article. Nice to hear things from the voice of a newbie and not a pro that throws around so many terms it could make a newbie’s head spin. It is something that I am thinking about as I am about to enter into a major transition in my life.

    I realize this is your first property that you are the owner renting out. If you previously lived in multi-family units before buying your own, do you find that the tenant that you have is more respectful of the property knowing that the owner is in the same building when compared with a multi-family in which all units were tenants?

  14. Jeff S.

    Scott, bought an old duplex in 1991 for $52,500 and moved in it for a year, then bought another duplex for $47,500 and lived in it for a year. Still own them both and they are each worth 250-300k. Obviously the rents are so much higher than when I bought, it is awesome. They are like yours, close in, high demand for tenants; had over a 100 hits with a Craigslist ad. The turnover is negligible. If you think about 10 or 20 years down the road you will be amazed at what happens over time.

  15. John DeWitt

    Great article! Being in SoCal, I think this is going to be a critical strategy for me as well. The key is going to be finding a place that is in an area I would want to live…just like you said. I have faith it will happen especially with all the great advice from Bigger Pockets!

  16. Naeem Kapasi

    Awesome article! I am going to do the same as soon as I move over to USA (Texas). You share some good points, and one that I can relate to is the one about living somewhere you want to live. Why make your life sour by living somewhere you don’t want to be in the first place?! One should never feel “embarrassed” of where one lives.

  17. Ben Staples

    Thanks for writing Scott. 24 year old here living in Boston and this article really really resonates with me. Still on the hunt for my first house hacking property, so I will continue to keep my head down, and run the numbers. Happy to see your success, and hopefully I can find a place as well.

  18. LaShelle S.

    Absolutely love this article! I’ve been working on finding a small multi family it seems like forever and I keep coming back to reread this article over and over to remind me to be patient. I’ve spent the last year cleaning up my credit and saving so now I can pull the trigger when I find the one that fits my criteria.

  19. Thomas Franklin

    I am not a fan of purchasing a Residential Multifamily Property known as “House Hacking.” If you are looking to owner occupy, you may want to consider starting out, with buying a Duplex, TriPlex, or a Four Plex. Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a 203k Loan. A 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

    Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). You live in one unit and let your tenants pay the mortgage and other property expenses. This will give you experience as both a Landlord and Property Manager. The downside is you will need to live there, for a minimum of one year (to satisfy FHA Requirements); AND because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, “Take out a quality Insurance Policy and you will be protected.” Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.

    If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.

    If you think you will go FHA, 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the “Acceleration Clause” or “Due on Sale Clause” that requires the loan to be paid in full, within ‘x’ number of days. These clauses are contained, in all Promissory Notes nowadays.

    Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You many be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.

  20. Tim Moore

    It’s ironic that I gave a close friend the same advice only 4 hours prior to reading this article. It does make logical sense. I can tell you that I wouldn’t have thought of this during my younger years. I guess hours upon hours of RE studying, watching videos & RE guru courses, and you start to gain a different perspective on personal finance.

    I will say that I took offense to the Detroit barb in his article. I will say that I’m biased being from the Motor City. How can putting $500 down for a home be a bad thing. lol Yes I do understand the obvious drawbacks to investing in Detroit…..I’ve heard them all, and most make sense from an investor stand point, but if you check the latest realtor stats, Motown is giving investors a nice return on their money.I will say make sure to do your research before taking this leap.

    One other thing I’d like to mention about Detroit investing is the diversity of home architecture you won’t find anywhere else in the country. Most bargains are well made brick homes that the big bad wolf couldn’t blow down. Yeah they need basic maintenance & the occasional metal purge from the desperate opportunists in the neighborhood, but with minimal effort and cost & supervision, they can be revived. You put that same home in Grand Rapids, and it would be worth 100% more. After that speal you would think I had a property to post in the D.

  21. James Bradin

    Great article, and its cool to see an other 20-something year old trying to get into real estate. I am looking to house hack a duplex right now. Unfortunately I am in the military and cannot control where I live, so I have tried to follow 3 of your 4 rules. It was a tough sell to the gf (who will eventually move in with). But once I explained the financial doors it will open up long term “living below our means” doesn’t seem so bad. Being in the military (or a veteran) opens a few more doors with the VA loan. I know that this is an older article, but I hope that this first deal didn’t scare you away from real estate investing. Thanks for all the information and insight.

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