The Cost of Owning a Duplex

[Jared Baker]

Hello BP!

I've started looking at duplexes and just can't seem to figure out how to make them work.  So I live in Wisconsin between Madison and Milwaukee.  There are some higher end towns in my area that have several duplex that are up for sale, but I don't see how anyone could make them work.

So one in particular I am looking at lists at $275,000. The highest rent in the area that I have seen is $1300. So in this situation we will assume I could get $1100. If I used an FHA loan or conventional loan there is only a $200 difference per month in mortgage payment. So we will use the conventional payment of roughly $1100 for this example(FHA loan is just under $1300). Using these numbers a person could live "rent free". But as soon as you realize that there is insurance, taxes, and maintenance that will be required suddenly your about $800 out of pocket a month. This is a relatively cheap duplex, most are up near $300,000. So are these duplexes really never going to work until the cost comes down, or is there something I am missing that would make these work? The idea is to house hack.

Any thoughts are appreciated!

[Christopher Sykes]

Hey Jared,

I see what you mean about the numbers not looking like they're going to work out for you (or anyone!). As it stands you'd only be subsidizing your rent, not living "rent free", and certainly not seeing any positive cash flow. 

My guess is you'll have a hard time finding a deal where you can see positive cash flow while occupying half of a duplex. Your best bet would be to keep an eye open and find a foreclosure that you could rehab while renting the other half, then switch units and rehab the other side. Of course the feasibility of something like this relies heavily upon your skill set and/or rehab budget...the more you can do yourself the more return you'll see.

How determined are you to house hack? What's your current rent? Would it make more sense to not house hack and instead rent both sides of the duplex while continuing to rent yourself? If your current rent < potential duplex rent then this might be the way to go.  Of course that might make financing trickier. 

Good luck!