Analyzing Multifamily with yourself as a Renter

[Alex W.]

Hi BP!

I have 3 questions --

QUESTION 1: How would you analyze a multi family deal assuming that you yourself are living in one of the units? Do you see it as "just another renter" (and also assume $0 property management) or do you see it as a "bonus" in a way because if you did NOT live in the multi family, you would theoretically be paying rent, anyways.

I am looking into some California markets, and as we all know, a lot of the rules of thumb don't apply here (for example, 1% rule, cash flow, CoC ROI ~5%).

So I have to adjust the knowledge I've learned through BP podcasts and forums to even consider any deals.

EXAMPLE of a QUAD (2bed 1 bath, 2bed 1 bath, 2bed 1 bath and 1bed 1 bath)

  Total purchase price: $750,000

  Down Payment: $150,000 (20%)

  Mortgage Amount: $600,000

  Interest Rate: 4.25%

Therefore, 

  Principals and Interest, Property Taxes, Insurance: ~$4000

Monthly Expenses (CapEx, Vacancy, Maintenance, 0 property management fees): ~$500

  Total Monthly Expenses: $4500

Assuming I can rent the 2bed 1 bath units at 1200 a piece,

  Rent for 3 units: 3x1200=3600.

  Rent-Expenses; 3600-4500 = -$900 NEGATIVE

HOWEVER, I plan to live in the last 1bed 1 bath unit, which is 900/month (which is currently what I am paying right now)

Therefore, 

  Rent-Expenses; 4500-4500=$0 Cashflow, break even.

This deal breaks 2 rules: 

  - 1% rule, which states your monthly income from the deal should be 1% of the purchase price = 750,000*0.01=7500 (not going to happen)

  - Cashflow: None

Of course, I can raise the rents on the 3 units to 1250 each, and that would be 3750-4500=-750...which means I am paying less rent. But say 1200 was the max...how would you see it?

QUESTION 2: Regardless of the situation, would you consider it a good deal in a hot California market if the rents covered the mortgage with minimal cash flow?

QUESTION 3: The CoC ROI is 0...(Put in $150,000, get 0 (because of breakeven rents and mortgages), but why do we not count the equity we build from paying down the mortgage?)

Thanks in advance.

Alex