Househack offer thoughts

[Alexander Gee]

Hey all!

I'm looking for some opinions regarding buying a duplex to househack. I have a property thats on mls I made in mind. I want to purchase with a FHA loan so I will have PMI. With this property the owner pays all utilities besides electric. I'm trying to base my offer on the numbers after I am no longer living there as I plan to for a year or so and then try to househack something else. The numbers:

Asking $129900

Will rent for $1700 (whole building after I move out)

Taxes/insurance are $375/month

Utilities are around $250/month

I'll set aside $340/month for reserves

I offered $109000 so that I would be financing around $105000 and that would give me a PITI of around $1025 (including PMI), and because its very close to 80% of ARV allowing me to potentially refi out of the FHA and free up that PMI money. I'm looking for feedback on the line of thinking here. I know there are things I can do to alleviate the burden of the utilities or get more rent (I.e. raising rents, coin laundry, charging for storage/garage) but I don't want to count on them when determining an offer.

Thanks in advance!

[Dion McNeeley]

Hi @Alexander Gee,

This doesn't look bad. The first few years may have small cash flow. Refinancing after you are past needing PMI can be worth it if the mortgage rates don't go up. You should consider the refi cost and where the interest rates are at a the time.

When I first started I also set aside a large amount for repairs and maintenance. However once that savings gets large enough you may not need to set aside as much. If you are saving $340 a month and do not have large things pop up in a couple years you have a bit over 8k sitting there. So if in a couple years you haven't had a lot of repairs come up you could reduce that saving each month from $340 to $170. I tend to keep 10% of rents for repairs until there is 20k in savings and I have 7 units. With one unit having 8k set aside should be plenty. This way you could have better cash flow later.

Have you checked the rents in the area for similar places? This is often the best way to know if the rents are accurate. I like to run the numbers as if I had to rent the place out for 10% less than the area average. Sometimes selling agents can list rents that aren't accurate. I have even seen a lease that was inflated to make the numbers look better. The tenant had not paid a deposit so they had added $200 a month over the first year to build a deposit. If I hadn't talked with the tenant during the inspection I wouldn't have known. 

I hope this helps. Good luck.