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Updated over 1 year ago on . Most recent reply

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Patrick Nickell
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Owner Occupied Duplex - Real World Situation - Can't Really Template

Patrick Nickell
Posted

Hi everyone. I am new here so please be gentle. I have been doing a TON of research and am new to the world of real estate investing. I have consumed a ridiculous amount of information and at this point everything is hypothetical. I will be buying a multi-family property somewhere in Western Washington (NOT Seattle and probably not Snohomish or Pierce Counties either) in Nov/Dec 2023.

I ran things through the calculator and knew that things weren't going to look good as I will be living in one of the units. I am currently talking to an accountant and attorney about forming an S Corp and renting to myself as a way to possibly get a better go of things from a year-end tax perspective. This is really a separate issue but chime in if you are familiar with Washington State.

I am looking at a property that is $285K and for this example let's say I won't negotiate that down. I will show all my math below.

Mortgage @ 7.22% (P&I, Escrow, MIP) - $2234

Rental Income - $1650

Vacancy - $165

Repairs - $165

Cap Ex - $165

Monthly Cash Flow $-1,079

I will be handling my own property management since I live on-site.

So obviously a bad deal on paper but here’s the lens I view it through:

Seattle Rent I currently pay: $1295

Rental Income: $1,650

Total Monthly Expense on Duplex: $2,729

My old rent I was paying + New Rental Income -Total Monthly Expenses = + $216 Monthly Cash Flow

Ideally when I am ready to buy the rate will be lower than 7.22% or I will just refinance when it is or when my very trusted lender & broker recommends.

My long-term plan is to live in this duplex for 1-2 years and make improvements that will add to future rental value. I am not looking to flip. I really want to build up a rental portfolio that will eventually replace my income and more. I am VERY well versed in slow, and strong growth (aka grinding). A deal doesn’t have to be perfect on paper for me as my metric is what my current reality is versus what I know that it can be.

I welcome your sage advice, thoughts, and ideas. Thank you for sharing your valuable time!

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Bill B.#1 Real Estate Deal Analysis & Advice Contributor
  • Investor
  • Las Vegas, NV
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Bill B.#1 Real Estate Deal Analysis & Advice Contributor
  • Investor
  • Las Vegas, NV
Replied

Work on your credit or try more loan brokers. I just locked a 6.6% Monday as a non-owner occupied SFR.

I was going to bring up the same point about saving more rent but you cleared that up with the much smaller unit info. Unfortunately that means when you move out it wont cashflow with current numbers. ($1079 - $950 small rent is still negative $129/mo). At least you’re paying off over $200/mo on the loan. So you’re making a profit, and it will be tax free. You’ll also have a write off against some of your regular income assuming you’re not above the income limits. 

But just get started. Even a 5% rent increase in a year will make all the difference. And don’t forget all the everyday expenses that might suddenly come off your taxes. Your internet, your cellphone, your tools and other business expenses. 

I do think the deal will make you rich, but it’s the first step in getting there. 

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