Vacancy and First Property

[Christopher Gray]

I have been doing research for quite some time and I just would like some feedback from you all.

I am looking to purchase a $1.1 million apartment complex, 3 units, built in 2019, this would be my first home..ever as I am currently living with my dad. I have found this first time home buying program called NACA (which would cover closing cost, no down payment) and yes, Multifamily properties are eligible if the owner occupies one of the units. My question is for you experienced investors, Should I peruse this option? I worry about finding tenants and not being able to find any soon enough, the mortgage would be roughly $5,000 a month and im only making 42K per year ( Washington DC area) and would not be able to cover one month off vacancy.

The other option would be a single family town house for 230,000 that I would live in for a year ( first time home buying, get experience of owning a home under my belt) and then after a year, rent out that house, generate cashflow and look for another property. Im 24 years old with economics degree

[Alexander Felice]

Originally posted by @Christopher Gray:

Alexander Felice I greatly appreciate the input, I would forecast the 230k property would generate 400-600 cash flow per month with a tenant. Mortgage would be around 1200 and I could charge up to $1700-1900 a month for rent.  Its in a appreciating part of Washington DC, which is going through extreme gentrification and rent in the same area go for 1900-3000. Plus the construction of the home is only 7 years old, so this inst a old style home either. 

On top of that, for this option I would NOT use the NACA program and instead finance through FHA. I am able to comfortably use $7,000 of my 401k + $5000 of savings as a down payment totaling 12k down payment.

ok this comment makes me sure you're going to fast.

rent minus mortgage is NOT cash flow. This is how new people get in BIG trouble.

if you can rent this for 1900, and you assume 50% expenses (pretty much industry standard) before debt service, you're looking at -284 cash flow. At 45% expense ration you're at -47 cash flow

make sure when you're doing your anaylsis you are accounting for future vacancy and property management, maintenance, and capital expenses. with FHA 3.5% down you're going to have PMI as well which I did not account for. Not to mention you intend to cash out your 401k to do so. meaning you're going to take a penalty on an asset that makes money to put it into an asset that doesn't make money.

I'm not sure what your goal here is, but this example doesn't seem like a money maker to me. Plenty of people buy homes that aren't good rentals and the building becomes a fancy anchor, I prefer not to see this happen to you.