First time go... But is it worth it?

Question

I am looking into hacking this Duplex. I currently live in a condo paying a mortgage of $833 a month with an HOA of $75. It will rent for $1200 from what my Realtor and Banker have told me. Leaving me with $292 before CapEx, Insurance, Vacancy savings, etc... The Duplex I would like to hack Rents for $695 on one side and $465 on the other for a total of $1160. The cheaper unit has not had its rent raised in years and I think that is the unit I would target to move into. The mortgage estimate is $926.73 leaving $231.73 left to pay on the mortgage. I am considering taking the income from the Condo and using to close the gap on the mortgage. For the next year without having a mortgage payment I would use my personal hourly wage to save up for the rental unit operating costs. I would save about $1,200 a month for a year and then move into another duplex and hack that as well.

My question is this, Does this sound like a good idea or am I missing something? This will be my first Rental Property Investment and I want to make sure its a good one. I am married and have an 8 month son. There isn't much room for error here.

Here is a link to the Duplex, its a little distressed but I think I could make the repairs and gain the sweat equity that can be found there. https://www.utahrealestate.com/1521475

Thanks for your advice and guidance.

Trevor

My question is this, Does this sound like a good idea or am I missing something? This will be my first Rental Property Investment and I want to make sure its a good one. I am married and have an 8 month son. There isn't much room for error here.

Here is a link to the Duplex, its a little distressed but I think I could make the repairs and gain the sweat equity that can be found there.  https://www.utahrealestate.com/1521475

Thanks for your advice and guidance.

Trevor

William Hochstedler · Answer

Hi @Trevor Bingham

Welcome to BP.  I am familiar with the duplex you are referring to and would be concerned with all the maintenance needs.  Think roof, HVAC, and other building systems.  Any combination of those in the next 5-10 years can dramatically impact your performance here.

The Logan market is as tight as any market in Utah right now so any investment here will be a thin one.  That a duplex can sit on the market at all here should tell you something.  It means it's too expensive in an already expensive market.  I think that we're close to the top of this cycle here.  Not that it will collapse, but wages and incomes won't allow it to go much higher.

We saw this in the mid-nineties.  The market went up 25-30% in two or three years than flat-lined (stably) for the next 20 years.  So your numbers should always should reflect current rents at this price.  It's professionally managed, so how low can the rents be?

I'm always in favor buying in any market if you intend on holding it forever.  Logan is a very solid place to own rentals because of quality of life and it's tenant pool.  You will look like a genius in the next bump when you owe $100K and this thing is worth $250K.  House hacking with still low rates allows you to do this with little to no money.

Bottom line is that it's a good strategy in theory, even with thin returns.  But my concern on this one would be the work it might need over the near term.  If you've got the skills, time, and a little discretionary income, these are great seeds to sow.

Jackson Pontsler · Answer

Trevor as a fellow Utahan i can understand the frustration that comes with wanting to buy a rental here.  I would agree that the margins are still really tough for me personally to get around.  I do have a few questions for you regarding your situation.

1. Most Condos with HOAs don't like renters are you sure they will permit you to rent it out?

2. Would this drain all of your funds?  You do have a 8 month old son and wife and  should have some cash on hand for any emergency.

3. If the cheaper side of the unit hasn't been raised in a bit it could mean a couple of things.  1. Deferred maintance from a long standing renter (meaning you might have some repairs to do immediately) or 2. The duplexes 2 units aren't equal meaning that you may not be able to quickly close that $200 gap between rents on both sides. (haven't looked at the pictures I don't see why that would be the case but would need to walk through it personally)

4.  Logan is a heavily student rented area are you sure can keep renters during the summer months if you rent out to students?

My overall impressions are that the margins are thin but if you are willing to house hack this might be one of the best ones you may be able to find in Utah.   Just do your due dilligence and get the property inspected, make sure you have the monetary reserves in case of an emergency, and confirm the amount of repairs will be needed to raise the rents.  Also use the BP calculators and find which price works best for you and make that your offer to purchase the property.  Also from my experience in SLC you the home owner are still responsible for the water and sewage (this may need to be included on your rents) I'm not sure what the rules are up there in cache county but keep that in mind as well.

Currently being a landlord there are many things to keep in mind when investing in multifamily please feel free to reach out to me if you have additional questions or concerns.

Erik W. · Answer

I assume 40-50% of income goes to expenses (maintenance, T&I, management, CapEx, HOA, fees, etc.).  Basically, this rough estimate covers EVERYTHING that goes into running an investment like a real investment vs. you being the all-in-one handyman, PM, etc.  The remainder is left for debt service.

People who say they have lower numbers than that are often "donating" a lot of time doing jobs that would be hired out if the property were truly an investment vs. buying themselves a low-paying job.

Based on that rough calculation, this property is razor thin.  As others have said, no wiggle room when (not if) something goes wrong.  Keep shopping.  You might find a better investment outside the MLS or from a seller who doesn't know yet that they want to sell (direct mail, bandit signs, cold calls, etc).

Trevor Bingham · Answer

I would be saving money from my day job to cover those expenses. The Market in Utah seems to be like this all over. I've read a few posts from fellow BPers in the area and they've all got right margins as well. It's tough pulling the trigger in this area.

Nathan Gesner · Answer

Those are tight margins.

After paying mortgage, insurance, taxes, and HOA fees, you will probably have $100 or less remaining. You haven't even accounted for vacancies, CAPEX, or on-going repairs.

Even if you had $200 a month remaining, that's still only $2,400 a year. One bad tenant can cost you twice that amount in repairs, cleaning, and vacancy costs. What if your furnaces goes out and then while you are busy replacing it the tenant decides to skip and you sit on a vacancy for a month?

If I were you, I would hold out for a good deal that provides sufficient funds to set aside AND some cash flow.

First time go... But is it worth it?

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