What kind of numbers are you looking for in owner occupied duplex?

Question

Hello BP,

Im looking to buy my first property. I want to house hack a duplex but with prices so high what are you looking for? Are there any good rules of thumb to try and stick to?

Alecia Loveless · Answer

@Robert Mendenhall When I was selling my home the duplex across the street went on the market. I didn’t find out about it for awhile and then there were some screwy things that happened but eventually it fell through several times and I bought it very cheaply.

My duplex is in a prime location on a side street in the middle of our village which is always a plus, is quite large, one side is a 3/1 and the side I’m living in is a 3/3 and it has 2 deeded parking spots in the adjacent parking lot. The parking is a little bit more important because we have off street parking in the winter. The co-op that owns the parking lot has agreed to allow me to have 2 more spots for winter overnight parking.

My current tenant was living in the ADU of the home I was selling when I bought this duplex so I’ve allowed him to have his rent stay a bit under market value. It was important for me to know that this unit would cover the expenses for the whole property at market rent while we were living there. It pays the taxes, the water and sewer, and the cost to heat the property while leaving some for maintenance. Then we pay out our other bills.

This may or may not be the case for all people investing in duplex house hacks with today’s interest rates. Usually you will cover your mortgage and some of your expenses. But then you’ll still end up owing some amount for some of your bills but likely less than you were previously paying in rent.

Andrew Postell · Answer

@Robert Mendenhall 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.  Sometimes people are willing to pay a little more for a primary home because it fits those personal needs.  It doesn't always come down to "math" on these types of homes.  What's your children's education worth?  There's no number for that.  You might not have children...but there might be something else in there that is needed for you personally.  Primary homes have a little different decision to them that a straight investment property.

The other thing I would keep in mind here is 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.

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.  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 but feel free to ask anything additional if you need.  Thanks!

Nicholas L. · Answer

@Robert Mendenhall

about the same as you would pay in rent, or a little less.  so if you would pay $1600 in rent, but you could buy a duplex, and your mortgage is $2000, but you collect $800 in rent.

definitely house hack - you're building equity AND saving money in this scenario.  make sense?

of course you have to qualify for the loan.  good luck