Potential First Deal

[Justin Bioc]

Just looking to get some second, third, and fourth opinions before I blow it on my first deal. Buying a 2-family rehab deal to house hack in a highly competitive and highly sought after town.

About the property:

It a 2-family with two 1bd/1br units, ~1450 sqft total living space. Looking to convert one of the units to a two bedroom. Rents in the local area go from 1450 for a 1bd/1br to 1800 2bd/1br. It's old and needs a lot of repair. The pros are that it's in Melrose, MA, a very sought after town for its distance to Boston, easy access to public transportation and major highways, and school system. Major con is the house needs major repair including de-leading, removing asbestos siding, water damage, and redoing the electrical panels. I'll be self-managing the property. This home only got a few offers despite other homes in similar condition the area getting a ton, and selling for tens of thousands over asking.

The breakdown:

Price: 395,000*

Rehab estimate: 100,000

ARV: 500,000-550,000 (no good comps in area)

PITI monthly: 3,413 (financing with a 203k loan, and hoping to refinance after rehab)

Cash to close: 25,165

Rental Income: 1700 (estimated based on someone I have already willing to rent contingent on a successful conversion of the one unit to a 2bd), renters pays all utilities except water.

Monthly payment: $1713

* after home inspection, I'm wanting to negotiate this down to 365,000 based on some serious negligence by the seller

I'm kind of stuck on how to look at a house hack. On one hand, I'm paying quite a bit of the mortgage still, but nothing in my area is going to be able to fix that. It doesn't fit very well into the rules of thumb, but I do have the potential to build some initial equity. Criticism wholeheartedly welcome as I'm trying to avoid a major financial mistake. I'm having major doubts, but I'm also a total noob. Would it make a difference if I was able to refinance out in 6 months (only way this would happen would be if the property appraised to 563,000) and rent out (1700 + 1450 = 3150) for the estimate refinanced mortgage payment of 3078?