Duplex (Vancouver WA) live-in worth it?

Question

Hi guys,

First time home buyer here trying to house hack my first property in the Portland/Vancoucer area.... The pacific NW I'm finding is a pretty tough place to cash flow on anything. Most homes fail the 1% rule here, and the decent ones seem to get swept up by cash buyers almost immediately (I've already lost 5 bids on duplexes this past week).

I don't know if it's the corona virus scare, but one of my offers finally got accepted. It's a 1680 sq ft duplex in vancouver (2bd 1bath) for $351,000. The current rents are $950 each side, and I think that's probably close to market rate.

First question is whether you guys think it's worth it to go through with this deal even if my cash flow breaks even or slightly negative? If I put 5% down, I would still not cash flow positive on this property at current rents. However, I've been wanting to get into the real estate market for some time now, and felt this was still the safest way to go given my market. I considered investing out of state, but I felt it would be better to buy my first property nearby. I can also take advantage of lower down payments by moving in.

I am technically in escrow, but the offer is contingent on a walk through, which I am about to do on wednesday.

Second question is whether I should offer lower than the list price? Given the current market conditions, I feel like the market is in favor of buyers since the state is on lockdown, with continuing economic uncertainty.

Thanks so much for your input!

Thanks!

Uwe G. · Answer

@Justin Kim For future reference, your rents for the Vancouver duplex seemed low.  I am guessing by the price, rents, and size that it is most likely in the Rose Village area or nearby Clark College. If that is the case, we collect any where from 1195 to 1395 per side on those style of duplexes.  I am not sure if that will stand but that is what it was before the COVID19 outbreak.  Longterm this is an excellent place to own property given it is so close in.

Overall you will want your investment to at least cashflow but if you are only putting 5% down that is much more difficult and you have to weigh the overall return on your 5% invested and the potential for equity gain.  If you are living on one side I feel you have much more wiggle room as you get a slightly better rate and it satisfies your place to live.  Under that circumstance you are really subsidizing your own living costs until you are ready to move out.  Also, if you are able to make improvements with sweat equity while you live their you will be able to fetch much higher rents going forward.

Dan Stephens · Answer

@Justin Kim, I don't know any of the property details, but that rent sounds low (just intuition). Have you run comps or consulted with a property manager (I'm really happy with my experience with Utmost Property Management so far)? If you're house hacking, my understanding is that it's not supposed to cash flow while you live in it, but should cash flow once you move out (sometime after 12 months).

Under current circumstances with COVID19, do you expect rents in that neighborhood for units like that to increase over the next 13-24 months? If it's a B or C class property in a B or C class neighborhood with low crime and acceptable schools, then I personally would expect rents to go up in Vancouver, and in Clark County as a whole.

With COVID19, do you expect home prices in that neighborhood to go up or down in the next 13-24 months? If it's a B or C class property in a B or C class neighborhood with low crime and acceptable schools, then I personally would expect home prices to stay flat or mildly appreciate.

Those assumptions are based on COVID19 being "beaten" for clinical and epidemiological purposes in the next 8-12 months, and a relatively fast economic recovery starting in the next 9-18 months. You'll have to decide for yourself how fast you think we'll beat COVID19, and how fast the economic recovery will be.

So far, we don't have much data to go on to observe the impact of COVID19 on our local market. But I'm optimistic.

Austin Youmans · Answer

there are other advantages then cashflow but personally I wouldn't buy something that doesn't have the potential to cashflow within a year or 2. That being said depending where this is at in Vancouver you could possibly get 1100 for rent.

I would definitely counter with a lower offer during your inspection period just to see what they say as there are not a ton of offers going out right now.

Account Closed · Answer

@Justin Kim shoot me a DM I am in the area and am open to discussing.

Right off the top of my head. Breaking even is not a good deal—- but don’t forget about depreciation, interest/insurance deductions etc. This should give you some $ back come tax time. Also you can deduct many things since it is a duplex and not your SFown home type of scenrio.

Also—-escrow = look for reasons to reduce the price. I really never care so much as price as I do for term. If you pay 350k and can get 20k in credit for repairs does price matter at that point? Anyway. Would love to help.

Matt Williams · Answer

@Justin KimI get asked this question a lot when I’m training investors. The operative word in “passive income” is..... INCOME. It’s not called “passive loss”. I cannot ever endorse buying a property where someone is losing money. Even when people suggest there are still ways to come out on top when factoring in appreciation of the property itself. My argument to that, is that’s not real estate investing, that’s real estate speculating (especially in this market).

To one of your other comments: Yes, there clearly MUCH better markets to invest in for cash flow than the PDX/Vancouver area, let alone the entire PNW. And I mean much better. That said, I believe you mentioned you are a first-time-homebuyer. Are you doing an FHA loan? Have you considered buying this as not only your first investment property, but also as a place to live? That way you could occupy one side of the duplex, and rent out the other side. It wouldn’t “cash-flow” per se, but hey, you gotta live somewhere. Then the hope would be over time, when you finally move on to your next home, with future market increases in rent, that perhaps at that time it could cash flow.

Your last question was about trying to lower the offer. You could, but that probably won’t go over very well. Typically when doing a reduction in my offer, I’m able to use repairs or issues found with the property to justify the reduction in my offer. If you don’t have anything like that to lean on, it’s quite possible the seller won’t accept your lower price. Furthermore, by my quick calculations, you would have to get the price down to at least $316,000 in order for it to even barely cash flow. And that is most likely not going to happen.

Steve Milford · Answer

I hope it works out for you. I don't pay attention to the 2%, 50% and other normal rules. I just find the rent I need to charge to cover my "must pays" by a factor of 1.35 or greater. Anything less are deals that I walk away from. With the numbers from your report, your "must pays" are $2,192 total (P&I, taxes, PMI, and insurance). If market rent is currently at $2,600 both sides combined, then that is a shortfall of -$274, not a great choice in my opinion.

Problem in your calculation is that since this is a first-timer purchase, you also have need to exclude your own payment of rent since you will be living there, for true calculation of cash flow. So if we consider "must pays" only of $2,129, and you collect $1,300 from the renter, you still need to come up with $829 per month. And if there is a vacancy of the unit, you need to come up with whole $2,129 per month (and that can easily turn into an expensive 2-bedroom apartment).

Some would argue that you have to live somewhere so this is a win. In my opinion, it only is a win if you can afford it in the long run if it goes vacant or the renter doesn't pay rent for a long while because of COVID-19. Different landlords are having different experiences right now, some renters are paying like clockwork and some are not. We are entering a whole new era where the rules and norms are a-changin. I have a friend that rented rooms of his house, where the tenants just didn't have funds to pay. What do you do then? Can't evict them right now. It's a mess. One thing to note, appreciation of duplexes etc, is not the same as SFR.

Justin K. · Answer

Thanks @Austin Youmans and @Dan Stephens! Thanks for the response- you guys make some really good points. I actually backed out of the Vancouver offer, and ended up going with a duplex in Portland....closing on 5/4. Here's a link to my estimated calculator report if you guys are interested: Portland Duplex

Austin- I was able to shave off $4000 based on the inspection that suggested I needed a new roof within a few years. So thanks for that helpful tip!

Dan- Lots of good stuff here! On my current property in Gresham, looks like comps are around $1200-$1300 for a 2br 1ba apartment. Hoping to get at least that- but even after I have both sides renting at $1300, my cash on cash ROI is only about 2%. I would probably classify this as a B class property.

COVID-19 definitely has me worried in terms of how it will impact my property's price/rental income. Just trying to stay current with the various bills and proposed bills that could affect the real estate market.

Thanks again for your input guys!

Stay safe!

Duplex (Vancouver WA) live-in worth it?

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