Accounting for living in a rental property

[Leah Gaspard]

I'm considering a property that's marketed as a 2 family with 3 bedrooms and 1 bath upstairs, and what is actually a 1 bedroom apartment on the first floor (there is a finished basement, but can't be utilized as a living space if that makes sense). 

When I enter estimated potential rental income for the top floor (2000) and 1st floor (1700) and a garage space I can rent for storage (100) my cash-on-cash percentage is in the negative (about 11%) and monthly cashflow is -$100.00. Since I'm not putting 20% down, I would be paying PMI with a conventional loan.

However, should I consider that if I plan to live in the top for unit and rent the 1st floor for 1700, after several years (assuming 2% increase in property value/rent) I should be able to hold the property without a loss, and have my tenants help me pay the mortgage. 

I am a newbie obviously, and want to know if I'm thinking about this the right way. Should I like to forecast my c.o.c return or is that too risky? 

[Steve Hall]

@Leah Gaspard I am not familiar with NJ rents, but those rents seem very high... are you SURE you can get $1,700 per month for a 1+1? Either way, this would obviously not make a good buy & hold investment if you're going to lose money every month by renting it out for $3,800 per month and having expenses of $3,900 per month. Double check your numbers, or have someone else review them.

Your plan to house hack this property could work though. For instance, assuming you could actually rent the first floor for $1,700 per month, and assuming your PITI is less than $1,700 per month then you could live upstairs for FREE and have your tenant build equity for you. If you're able to, take all of the $1,700 per month and put it toward your mortgage, adding any extra toward principal. After a few years, you can sell the property, hopefully for a 10-20% profit and then you can take the profit, and the equity and go buy a positive cash flow property.

If your 30 year fixed mortgage PITI is more than $1,700 month, then I would not house hack it either.