First House Hack. Looking for advice.

[Jason Sandegren]

Hi all,

My wife and I are contemplating our first real estate investment and are trying to decide if this deal is a good fit.

About us: Late twenties, no children. Gross combined income around $105,000. Only debt is my law school loans of $210,000. I am a real estate attorney. We currently rent a 2 bed / 2 bath apartment for $875 + electric. We have $15,000 in cash savings.

About the property: The property is a 3/1 primary house with a 2/1 carriage house (guest house, ADU). Primary was built in 1888 with Carriage house built around 1900. Both were fully remodeled in 2012. Little to no immediate repairs needed. Both units are currently rented. Primary at $1150 and Carriage at $975. Tenants pay all utilities, except trash.

Property has been on the market for nearly 4 months at $235,000. Landlord lives over an hour away with no property management company. My agent believes we could negotiate down close to $215,000 or $220,000. I'd like to pay less than $210,000.

We walked through the Carriage last night and it appears in good shape. Tenant of the Primary claimed not to have received notice that we would be on site and asked us to re-schedule.

Property is located in oldest part of town in a growing suburb. There are other, newer rentals in the area and new construction being built around the city edges.

About our financing: Local credit union has given us a pre-approval letter upto the full $235,000. Loan options include a 5% down 30 year conventional at 3.75%. Total cash to close of $14,500. Monthly payment inclusive of taxes and insurance would be $1450. The other option is 0% down on a 30 year 90/10 loan. 90 at 4.625% and 10 at 5.375%. Total cash to close of $2600. Monthly payment inclusive of taxes and insurance would be $1570. I had the lender run the numbers of this option also at a $210,000 purchase price and monthly payment would be around $1450. 

Our plan: We would occupy the Carriage and rent the Primary to offset much of the mortgage payment. As life changes (cough, kids, cough) we'd consider moving to the Primary and renting the Carriage.

Concerns: Property age. Desirability with newer construction and other multifamily for both competition on rentals and ultimate exit strategy. Leverage. The 0% down option would leave a substantial emergency, repairs, vacancy, cushion, but 5% down would not.

Positives: We like that they are completely separate dwellings. A majority of other multifamily properties on the market need extensive work are are not in desirable neighborhoods.

I appreciate any and all feedback. What should we be looking at?

Thank you and it's great to be a part of this community.