How much should I spend on my 1st duplex?

Question

Greetings. I’m looking to purchase my first investment property by starting with a duplex and house hack! I would like to know how much money/price range should I spend on the house? I live in West Hartford CT and looking to purchase here.

Michael Albaum · Answer

If your income is between $1000-1200 then you need to be looking at properties that cost less than $100k (are you familiar with the 1% rule?) I own property in Cinci and know that the property taxes are quite high, so you should try and find a property that exceeds the 1% rule. You can also estimate the monthly expenses to be roughly 50% of the monthly rent. Hope that helps but feel free to reach out with any additional questions.

Charles Hyatt · Answer

@Simon Obas The market in West Hartford is one of the pricier areas in central CT for small multi-family.  If the property is in move-in condition, you are looking at $275k - $350k.  Market rents are high as well, $1500 and up for 2br.  Its tough to meet the 1% rule in WEHA, most likely around 0.85% rent:purchase price.

If using a low-down payment loan, I think you should aim for net $800 /month (PITI less rental income).

Michael Noto · Answer

@Simon Obas For live in multi family investments here in Connecticut I always recommend driving the different areas in the towns/cities where there are concentrations of 2-4 family houses. The returns may be better in certain areas, but if you do not feel comfortable living there you do not want to waste your time researching the market.

It is very compeitive around here for owner occupied places so the sooner you can zero in on a criteria the better chance you have of landing a deal. That criteria starts with location and then goes to budget, purchase price, and specifics of the homes in that area.

The technology to do research is great and a great leverage of your time, but what you are seeing on the computer will make a lot more sense when you drive the neighborhoods.

Michael Albaum · Answer

Hey Simon, I don't know the area in West Hartford, but you should spend as much or as little as you feel comfortable spending. No one here knows your financial situation like you do. You should reverse engineer what you feel comfortable/can afford to pay on a monthly basis based on all the monthly expenses, i.e. a typical duplex (these numbers are totally made up for the sake of discussion) $100/mo in utilities, $200/mo in cap ex, $100/mo for insurance, $250/mo for taxes = $650/mo before a mortgage and property management. Since you'll probably want to cashflow at least $200/mo, you'll need to find a duplex that rents for at least $1500, which leaves ~ $500 for your mortgage payment and $150 for property management (10% of rent collected).  With a 20% down payment, this would allow you to buy something for ~ $135K.

You can also simply look at how much cash you have for a down payment and since you typically need to put 20% down for traditional financing, that also defines what you can afford to buy.

Hope this helps.

Daniel Kong · Answer

I think if you go down to a bank and try to see how much you can qualify for, that would be a good way to start. Let them know your plans, and tell them your situation, and try to get a prequalifying letter from them. Once you have that, I would say try to purchase something a bit less than that so you have some wiggle room if things don't go exactly as you planned.

Craig Bellot · Answer

Hey @Simon Obas the first steps I would recommend as a new investor is to get a handle on analyzing the income, expenses and ROI of these properties where you are investing.

You can use the Bigger Pockets calculators to start. Right now rents are strong, you can get $800 for a 1 bed, $1100 for 2 bed, and up to $1300 for a 3 bedroom in Bridgeport Connecticut.  Use Zillow and rentometer.com to get data and analyze a few from your area to see what type ofr eturns there are that way you can undersand what you can expect back.

Will C. · Answer

@Theresa Harris @Simon Obas

What she said ^^^

Theresa Harris · Answer

the first question is how much money do you have saved for a down payment?  Next is how large of a mortgage are you pre-approved for?  Once you know those numbers, you can start to look at houses to see what you can buy for your price in your area.

If you are living in half of the duplex, the property is unlikely to cash flow from simply renting one half of the duplex.  That's fine as long as the rent covers a good portion of your mortgage and taxes and what remains is less than you are currently paying for rent...you are still coming out ahead..

Jaysen Medhurst · Answer

@Michael Vu and @Simon Obas, the reality is that in lots of markets (especially HCOL) duplexes simply don't make sense as investment properties. This is because residential home prices and rents are driven by 2 different markets and don't necessarily align.

A duplex may be a great way to live more cheaply, build equity, and gain experience as a landlord, but don't assume it will make a good investment once you move out. You really have to run the numbers beforehand to know.

3 and 4-unit properties may work out better, depending on your market. Where I live even quads won't cash flow...

Michael Vu · Answer

Hey Michael, I'm in a similar boat to Simon looking to get my first duplex to house hack. What if the average rent in the area where you want to buy a rental property is only $1,000 - $1,200? How can you make it work so that you can still cash flow or break even?

How much should I spend on my 1st duplex?

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