Cash flow properties within 45 mins to Boston for house-hack

[Grace Yuen]

Hi all, my name is Grace and I just joined BiggerPockets. Want to say hi to everyone and get some insights on the Boston real estate market. I recently moved from Houston for a job. I plan to house-hack in an up-and-coming but safe area, on a duplex that is within 45-minute train ride to Boston, and spend up to $400K. It seems like the only areas that would work are Lynn, Lowell, Stoughton, Quincy, Revere, Randolph, and Weymouth. Are these good areas? Also, is it easy to change the zoning? I saw a property in Braintree that is zoned to a single family, but set up as a side-by-side duplex. Do I need to change the zoning before legally leasing the 2 units out when I move onto the next house-hack?   

[Eric Rosiello]

Originally posted by @Grace Yuen:

Thank you all for your insights. They are very helpful. I plan to put down no more than 80k (20% down) so I don't have to pay PMI. But I am open to increasing the price range a bit as long as the property cash flows, can attract good tenants, and within commutable distance to Boston. What would be the price range, number of units, and the closest towns that would make the numbers work? I looked at a lot of towns along the T stops, but I struggle to find properties that would work.

The reason I am going with a duplex is that this will be my first house hack, so I am a bit worried about managing tenants and going over my head financially. So I plan to keep my investment small, and use this opportunity to learn real estate and build equity as quickly as possible. And I need a place to stay anyways. On the other hand, I don't want to buy something that doesn't cash flow when I move out. Does this make sense?

@Grace Yuen

You don't want to do something you are uncomfortable with but, if you are open to it, I would suggest looking for something a little bigger (3 or 4 units) even though you have to pay PMI.

I suggest this is because using a low money down product to buy a larger first property will allow you to scale your business much much faster than putting 20% down on a smaller property.

... But putting less down increases your mortgage payment, and on top of that you have PMI.

True, but triplexes pretty much always cash flow better than duplexes, all things being equal. This is because you can spread maintenance and some capex costs across more units, and the per unit cost for a triplex is generally lower than the per unit cost for a duplex.

So, even though you have a much larger mortgage payment and PMI, you actually end up with similar cash flow. Your percentage return is wayyyy better because you've invested less. On top of that, once you have 20% equity in the property you can refinance and rid yourself of the PMI, making your cash flow even better.

Lastly and most importantly, you’ve kept a ton of cash on the sideline that you can use for your next deal or for renovation/rehab to force appreciation in your current deal.

For a $400k duplex at 20% down, your cash investment will be roughly $87k after closing costs.

A comparable triplex would cost you around $550k. At 3.5% down, your cash investment will be roughly $30k after closing costs.

So if you buy the triplex, you will have 1 more unit and $57k left over for your next investment.

Scenario 1:

You put 20% down on a duplex that costs $400k, and get a 30 year fixed mortgage at 3.75%.

Down payment: $80k

Closing costs: $7k

Total cash investment: $87k

You have a loan for $320k. Your payment and expenses are:

Mortgage: $1,480

PMI: $0

Taxes: $330

Insurance: $120

Vacancy, Repairs, Capex, Management: $1,100 (flat $500 + $300 per unit)

Total: $3,030

Income:

Rent: $3,800 ($1,900 per unit)

Total Income: $3,800

Monthly Cash Flow:

$770

Annualized Cash-on-Cash return:

11%

Leftover cash:

$0

Scenario 2:

You put 3.5% down on a triplex that costs $550k.

Down payment: $19k

Closing costs: $11k

Total cash investment: $30k

You have a loan for $531k. Your payment and expenses are:

Mortgage: $2,460

PMI: $375

Taxes: $460

Insurance: $160

Vacancy, Repairs, Capex, Management: $1,400 (flat $500 + $300 per unit)

Total Expenses: $4,855

Income:

Rent: $5,700 ($1,900 per unit)

Total Income: $5,700

Monthly Cash Flow:

$845

Annualized Cash-on-Cash return:

34%

Leftover cash:

$57,000