Evaluating My First Duplex Deal Analysis House Hacking

[Jacob Sontag]

Hello all,

I recently posted about a duplex that I was looking into and wondering what anyone thought? Since this would be my first deal and I know that I am wanting to invest in real estate throughout my life.

A little bit about me; I just graduated college just over 4 months ago and have a steady job. I would live in half of the duplex for about a year or more and rent out the other side, eventually renting out both sides. I would also have a roommate in my half of the duplex.

Now the property: The listing price is $250,000. It has been on the market for over 3 months. It has 2 units and 2 beds 2 baths on each unit. It has a big lot and about double the square footage of most duplexes in the market. It has tenants in there that have been there for a while (from the real estate agent) and pay $850 in one unit and $950 in the other. The surrounding market and location suggest this is far too low and should be at least in the $1250-1400 range from what I can tell. The seller does not allow tours of the house unless there is an offer that they like, which is why I suspect it has been on the market for so long. I qualify for an FHA loan and would most likely put 3.5% down because I don't have 20% to put down at the moment. The lender said that my monthly payments (loan plus insurance plus taxes) would be about $1450 a month.

The area is in a nice part of town next to a big navy base, so I feel really good about the location!

If there is anything I'm leaving out, let me know. This would be my first deal and think that this is a great starting point, house hacking, as well as building some cash flow and equity. Also great opportunity to start landlording!

Thank you very much in advance for any help!

[Clay Manship]

Hey @Jacob Sontag

The first thing that caught my eye is what your lender told you: On a $250,000 purchase price and 3.5% down, if you are paying a 4.75% interest rate (market-ish) then you will have a simple principal & interest amount of $1,258.47. If your lender is telling you that your monthly payment will be $1,450, then he is only allocating less than $200 for taxes and insurance, which seems EXTREMELY low. I would be wary of this.

Also, your lender is not mentioning that with an FHA loan you will be obligated to pay PMI (private mortgage insurance) which will run you about $80/month PER $100,000 borrowed. It is pretty much insurance that YOU pay for, and in the case that you screw up and get foreclosed on, the bank will receive all of their money bank. In your situation, you are looking at approximately a $240,000 loan, so you are already looking at roughly $200/month in PMI on top of your principal, interest, taxes, and insurance. I would venture to guess that your "Total Monthly Payment Cash Outflow" (PITIPMI) is approximately $2,000.

Now that being said, you still may have a deal here. While I don't know anything about your market, I know the Pacific NW is very pricy. If the rent figures you mentioned are accurate, you may be able to have a good jumping off place in regards to a reduced mortgage payment for your "personal residence", as well as some equity appreciation upside for your duplex, which tends to exist moreso on coastal markets than here in the Midwest.

Hope this makes sense--best of luck.