Making my first offer!

[Kristina Lugo]

Let me know your thoughts on this deal:

I’m offering $81k (asking price) for a 2 unit building:

Unit 1: 2 bed, 1 bath w/den could be a 3rd bed $900 rent

Unit 2: 1 bed, 1 bath also w/a den that could be a 2nd bed. $700 rent

The offer will be contingent on inspection and appraisal.

The property has a finished basement (which I will occupy), large double lot, 2 car garage.

I plan on using an FHA loan with 3.5% down. My monthly payment is estimated at $878 (mortgage, taxes, hazard, mortgage insurance). I plan on adding an additional $100 to expenses for reserve fund.

The building is solid! Each unit needs very little work. Based off my experience $5,000 to update and 3 weeks worth of work. The sellers agent has a few people interested in renting out the units as is.

After a year of it being a primary residence I could renovate the finished basement to make it an appealing 3rd unit with 2 bedrooms.

Cons:

D class neighborhood, close to a C class neighborhood. I drove through the area on different days during different times and it’s pretty straight. No loitering or gang activity. It sits in the corner. One street is desolate the other street has well maintained single family homes and 2 flats. And there’s a church. Streets are clean.

Taxes are HIGH! Property sits on a double lot so there's 2 pins totaling almost $4k a year. I'm concerned that taxes will go up but my ability to raise rent is limited. This property is about the cash flow. Getting expenses covered by the renters then additional income to save up for the next down payment. The neighborhood isn't going to appreciate at any wealth building rate, tbh. I don't think it has the potential to BRRRRR in the next 3-5years.

So please! Let me know your thoughts!! Thanks in advance.

[Michael Noto]

@Kristina Lugo A lot of my clients here in CT have purchased homes to house hack and if there is one thing I always recommend it's not to get to much outside of your comfort zone as it relates to the type of area you are buying the home in. 

Remember, you are living there. While cash flow is very important it shouldn't be the only thing considered in a house hacking situation. 

Also, take into account the ease of management or lack thereof when you eventually move out of the home and have it fully rented. Lower end C and D class properties typically are very time intensive to deal with and require costly turnovers when tenants move out, etc. 

Those turnovers, more than normal maintenance requests, and the cost of the occassional eviction eat into the actual real life cash flow you will realize with a property like this and long term will not match the paper numbers that look good and enticing as you evaluate the deal now.

Even if you can buy in a lower end B or solid C neighbrohood, it is drastically different than a D property in my experience.