What Am I Doing Wrong in This House-Hack Duplex Analysis?

[Eric Long]

Hi Everyone,

This will be my first real estate purchase of any kind. I will admit, I am smitten by the location so I am having trouble separating emotion from numbers and need some experienced advice. As the title says, I am looking to house-hack a duplex. Ideally, I would find a deal that pays my mortgage and expenses but I am also okay paying $400 to about $1000 to live in a duplex as it will be my primary residence too (I budget roughly about $800 in rent). 

With that said, here is rental property calculator showing my investment, assuming I will likely be moving out in a couple years. It is listed for 180,000 and appears to be roughly $30K undervalued. I estimate about $5K in repairs at the moment but am not too sure how much that will affect the value of the property given that it is undervalued at baseline. Therefore I'm just going with the market value of the home.

A few quick points about the property that may affect the rental property calculation:

• It is located in the historic district of my city.
• It is about a block away from a major hospital in the region and less than 2 miles away from a major university. I work at that hospital, so it will save a total of 40 minutes commute and 23 miles everyday
• It is in a floodzone AE, hence the high insurance cost. However, it has gorgeous views over the river.
• It has a large, mostly unfinished basement, and an attached garage. I'm not sure how to use both spaces, but I'm sure I can charge for storage and garage at some point. I'm just assuming $100/month for both at the moment.
• I am assuming $100/month for both repairs and CapEx.
• $2000 is the lower end of rent capable for the property, fully rented out. 
• I'm assuming a 3% appreciation/year but have no idea if this is reasonable
• I'm assuming I can get the property for $170,000 due to the flood zone problem and general negotiations but I have no way of knowing if it will work this way.

When I rent out the top unit, I can get, at minimum around $1000. This will put my monthly loss at $769, but that is still within my budget of paying for a place to live, so I am okay with that loss. When I rent out both units for, at minimum, $2000/month, I will have a positive (but very small) cash flow per month. At this point I am getting somewhat hesitant. I am using as conservative numbers as reasonable, so I know that it (hopefully) won't get any worse than that and the upside is the location has incredible opportunity from the hospital and the university. At $2500 rent/month, which is the more realistic, I am looking at about $400/month of positive cash flow which I am quite happy with. I believe my best tenant population will be with students but it is hard to tell at this point. 

My biggest worry is that I am banking too much on equity appreciation and the projections of what the property could be. While that definitely should be considered, I may be assuming too much in that area. I know I am biasing myself to make this work so I need objective eyes not as invested. What am I missing in this analysis? Keep in mind that I plan on holding long-term

Thanks for any help!