My First Investment Property (Duplex 3BR/2BR)

[David Mo]

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $190,000
Cash invested: $8,000

Purchased my first duplex to house hack and reduce living costs. I believe that after some sweat equity in both units, this property will be a solid source of cash flow with a good chunk of equity. I currently live in the upper unit and charge half ($400) to a roommate.

Currently monthly payments: $1300 for mortgage, insurance, and taxes

Current monthly rent: $900 3BR, $800 2BR

Projected monthly rent after improvements: $1200 3BR $900 2BR (both conservative)

What made you interested in investing in this type of deal?

I knew I wanted to grab a duplex as my first property soon after learning about house hacking. With the lease at my old apartment ending soon, I started looking on the MLS in April in the West Allis area while also familiarizing myself with the area and prices.

How did you find this deal and how did you negotiate it?

I found this deal on the MLS. The listing price was around $170k but my agent and I were both confident that it was underpriced. I went with an offer of $192k and it was accepted the following day. The appraisal came in at $185k the first time and $190k the second time better comps. In the end, I was able to get the property for $190k and 6k in closing credits for fixes.

How did you finance this deal?

This deal was financed with a home possible loan by Freddie Mac. Because I was under an income limit for my area, I was able to obtain 5% down with 2.75% interest over 30 years. I was preapproved before I began home searching.

How did you add value to the deal?

There are a lot of things to do:

The upper unit needs new flooring, a fresh coat of paint, an updated kitchen (layout, and paint)
The lower unit was recently redone, however the kitchen can still look better. I plan to get stainless steel appliances, new countertops, and improve the layout as well. Both units have wasted space that can be better used in the kitchen.

Lessons learned? Challenges?

Mistakes I made:

1. I didn't check to see if the security deposits were credited to me.

2. I failed to consider the climate that this property is in. Because Milwaukee experiences cold winters, you're more likely to run into frozen/cracked pipes. I should have considered this and gotten a plumber inspection along with the standard property inspection.

3. While not a complete deal breaker, there was a tree that was basically hugging one of the walls of the property. I did not consider any foundational damage that this might have caused.

4. This definitely depends on each case, but in my case it would have saved me a lot of headache if I made vacating the units a part of the deal. My upstairs tenant caused me a lot of headache while moving out which was not worth the extra month's rent...which wasn't even paid to me! I now believe that if you plan to do any renovating / drastic rent increase, it's just cleaner to have tenants out asap. 

5. I did not set the tone correctly with my lower tenant in the beginning and developed a friendship with them which has made it more difficult for me to make business decisions. While I was warned of this ahead of time, I think I needed to experience this issue firsthand due to my personality. 

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I worked with Marcus Auerbach. He is very professional and is a top performing agent for a reason! I could tell by working with him that he was excited for my success and that he really cares about the people he works with in general. Plus, Marcus has a cool Austrian accent.