Buying a duplex and then personally living in an apartment?

Question

Just starting to learn about REI. I was originally wanting to buy a 3 - 4 unit multi family and live in one unit, while renting out the other 2 - 3. My market is Bradenton/Sarasota FL, and a 3 - 4 unit home runs $500 - $750k, not something I can afford. If I went up to Clearwater it's more doable, but I dont really want to move there.

So, I decided maybe I could just get a duplex. I'm finding that in order to be in a neighborhood which is actually safe, I'm going to be looking at homes in the $200k+ price range. The average around here for a $250k duplex is $1,200 per month in rent per unit. At 4% down on a $250k property, I'd be paying about $1000/mo on the mortgage. According the to 50% rule, $600 of the rent revenue would go to expenses, and $600 would be actual income (right?). This means I'd be losing money.

So I'm considering, maybe I could just rent both units out, and stick to living in my current $650/mo roachy apartment. At least then I would have some kind of positive cashflow. Is there some part of this that I am missing, or is the market here just pretty bad for what I'm looking to do? (Or maybe I'm currently just too broke). Just from quick browsing on loopnet and redfin, it looks like this would be so much more doable in the clearwater/st. pete area, but I would hate to live there. I've always disliked the area, so I want to stick to bradenton/sarasota.

Andrew Davis · Answer

Hey Blake G., you should look at it not as losing money, but as paying yourself rent.

If your mortgage, taxes and insurance are $1k a month, then your tenant will cover that and then some.

The 50% rule is more of a guideline, and encompasses taxes and insurance.  If your self managing, you can take 10% off right there.  Set the extra $200 a month extra aside for vacancies, maintenance and upkeep.  Think about ways you can make the unit more appealing/increase the rent.  Maybe you provide free internet access by sharing your internet connection.  Maybe you rent a  out the extra room to a friend on your side to generate extra monthly income.  Maybe you offer a washer/dryer to your tenant for an extra $30 per month.

If you were to continue living in your "roachy" apartment, you'd have to go the conventional route since you wouldn't be owner occupying, and have to put 15-20% down rather than 3-5% for owner occupied FHA.

Remember, cash flow is only one of the benefits of investing in real estate.

You're acquiring a performing asset and increasing your equity through paying down the mortgage and ideally appreciation.  You can also take depreciation each year to reduce your tax burden, and write off many of the expenses associated with maintaining your rental.

Since you're new to the site, here are a few tips to help you get the most out of BP and kickstart your investing career:

Start here. You'll get a wealth of REI knowledge and learn how to take full advantage of Bigger Pockets (including how to connect with other local investors).

Listen to the podcasts , get active on the forums & set up key word alerts to be notified when people are discussing topics you're interested in.

Check out the webinars, they are very informative, and there’s usually a new one every week.

I'm an agent & investor in the Orlando area, so reach out anytime.

Tim Lindstrom · Answer

If you are going to live in one side, then you aren't really losing money.  Your tenant would be paying most of your mortgage.  Using the numbers you posted,  you could live in one side of the Duplex for $400 a month.  Would this be better than living in a "roachy" apartment?  And that $400 would go to paying down your mortgage,  instead of throwing away $650 a month for an apartment.

Eugene Beard · Answer

Hey Blake G.

Account Closed · Answer

I hate to bump a sorta-kinda-old thread..

There are a few condos around here in nice areas which are about $89k. I can do 20% down and live with a mortgage of $498/month. This means I'd lose ~$490/month on the mortgage, but the condo may appreciate and I'd be paying it off.I could, on the other hand, get a $250k property like I talked about above, do 3.5% down, and pay ~$1,638 on the mortgage. One side would rent for $1,100, and even though the 50% rule is just a rule of thumb, for safety I assume $550/month of the rent would go to expenses. This means I'd have $550 income, and a $1638 mortage, so I'd lose $1,088 per month. Of course I'm paying off a 250k house instead of an 89k condo, but the condo is in a much nicer area.This is a lot more difficult of a decision than I expected. Here's what mystifies me, though. Let's say I had a lot more money than I do. I put 20% down on a duplex, and I dont live in either side, lets just say I live rent free some other way. I would then receive $2,200 total in rent revenue, and assuming half is for expenses, I would receive $1,100 in revenue per month. I'm still paying $1,224 per month on the mortgage.. Losing money. I understand appreciation, equity, etc all comes into the equation, but either way, it's negative cashflow.

If the numbers I'm giving here are actually a good representation of my area and the market, would you say it's just sort of a bad place to try investing? I feel like I'm missing some piece of the puzzle

Account Closed · Answer

I just feel like if I buy a house, with the goal to make money, and I wind up losing money.. What is the point? I think if I want to actually drop my current career and get into REI, I have practically no choice but to move an hour north. The market in bradenton/sarasota has hardly any tri/fourplexes i can afford, and the duplexes all rent for about the same. is it really possible for a market to just not work out like this

I understand I'd be paying off the house, but i'd be breaking even or losing money. That doesnt seem very helpful for expanding in the future. I would like to eventually get into this full time, but I'm starting to become more concerned with if it's even possible where I'm living. Why waste my time on properties that are hardly worth while. I was hoping some could chime in and let me know if the properties I talked about were worse than most? Duplexes worth $250k, each unit rents for $1.2k. In my completely inexperienced opinion, that seems pretty bad.

Santiago Rosas · Answer

Got it. Thanks again.

Eugene Beard · Answer

Yes, @Santiago Rosas you can house hack a duplex or a SFR. The main point of house hacking is living for free. I believe it is just a little "easier" to do it with a multifamily home because you have your own space(possibly your own kitchen) as opposed to in a SFR house hack u rent out a room and share a kitchen (or possibly a bathroom)

Santiago Rosas · Answer

Eugene,

Thank you for that. Just for clarification, it sounds like a lot like buying a duplex and having a renter paying the mortgage?

Eugene Beard · Answer

@Santiago Rosas it is when you live in the house and  you become the "landlord" and have a renter pay for your mortgage.

Santiago Rosas · Answer

Hello from Madison, WI. My question is, what is house hacking?

Buying a duplex and then personally living in an apartment?

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