Budgeting for first purchase

[Don Young]

Hi BP!

How do you all budget for a new investment property purchase?

I have been saving with the goal of purchasing a duplex within the next year or so. I'd like to house hack. I've realized I'm more likely to make this happen faster if I can figure out exactly how much money I need to have saved up to get started without spreading myself too thin. I plan to keep a personal emergency fund of 10k in the bank that I'd prefer not to touch.

Duplexes in my area run around 120k. I'm assuming I can get an FHA loan for 3.5% down...I'll verify this with lenders as I get closer to being ready. I know I need to budget for closing costs and I've read these can be between 4-6% of the purchase price. Have those of you in the Akron and Cleveland areas seen these numbers?

I'd also like to have some percentage of the property's value set aside for any big emergency repairs. How much do others budget for this kind of thing? 5%? Do you consider your personal emergency fund as money that can cover these costs, or do you stay conservative and have a separate sum set aside? Do you use the same percentage and set aside a chunk for each new property you buy, or do you maybe decrease the percentage as you get more properties and have a bigger chunk of money saved?

Thanks in advance for any input you can offer!

[Will Chamberlin]

Hi @Don Young, 

I invest in Syracuse, NY so YMMV but the price point seems similar. Here is a spreadsheet I use for analyzing properties. I found the base in a book (that I can't recall the name of) and tweaked to fit what I need. I work one up for each property I am interested in and bookmark it for future reference. As I go along I will also add links to the tax records, MLS info, rentometer, zillow, etc for easy access to property info.

I use 8% for vacancy, 7% for general repairs and 5% for CapEx. If the numbers work then I go ahead. I tend to use the worksheet to find my magic number for the property and either watch until it comes down or compare the final sales price to what I needed the number to be and wonder if the new owner is making any money. For reserves, I have read that the lender will consider 60% of your 401k as qualifying and I would assume a cash savings would count regardless of your personal intent for it. One final note is that in the northeast it seems like every house I look at needs a roof so budget that in from the beginning if the roof is not brand new. About $7k per SFH for me (tear-off, architectural shingles and a ridge vent).