does this deal make sense?

Question

Hey everyone! My girlfriend and I are currently renting for $1,700 a month and we came across this duplex nearby. There's a tenant in place paying $1,200 a month, and the following information in the MLS looked pretty good to me:

"Un-Finished Attic Basement stonewall/brick foundation 50 gal hot water heater New Efficient Goodman gas fired furnace Walk out doors fuse box electricity, laundry connections, basement dry & clean New Furnace, New Soffets New Sewer Pipes New Heating Ducts New Hot water heater New Sidewalk near the house New Electrical service New Windows Slate roof, new separate gas & electric meters"

My question is whether this deal would make sense for someone looking to get started in Real Estate. The way it looks, it I would be paying a little less, and the money wouldn't be gone like it is with rent. What are your thoughts?

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*This link comes directly from our calculators,                  based on information input by the member who posted.

Vincent Harris · Answer

@Scott Wolf Thank you, I'm an agent as well, but I'm always down to meet new people!

Vincent Harris · Answer

@Scott Wolf Thanks again for all of your input, we've adjusted our search to include WF. I'll be sure to post again soon!

Scott Wolf · Answer

NP, if you need a realtor, I'd be happy to make a recommendation.

Scott Wolf · Answer

The added cap ex and insurance would make this deal even worse.

I feel like the home in Peekskill is easily replicable in those towns you mentioned.  In WF, I see three homes that are sub $400k and one even has 3 units instead of 2.

Good luck, and keep posting on here so people can help analyze your deals.

Vincent Harris · Answer

@Richie Thomas My lender says they don't require PMI since they're a portfolio lender. I never thought to second guess it, but I do remember asking the question a few times. Looks like it was built 1963, but you're right the homes in this area definitely skew to be a bit older. I haven't calculated any repairs since I figured I could get any repairs done myself while living there, of course I see that still leaves me without calculating cost of materials.

The $6 a month for insurance is definitely wrong in the calculations - realistically I'm looking at $80-$100 a month for homeowners insurance. I hadn't really considered STR either - depending on what I can do with the attic, that could be a great idea!

@Scott Wolf Thanks, I realize there's a bit missing to my calculations, even then it's still not a solid deal right?

I'd love to move into Duthcess County, but I work much closer to Westchester so I have to be mindful of my commute. So far the only Dutchess properties that could make sense are in the Fishkill, Wappingers Falls, Hopewell and Pawling areas - and then I'm hard-pressed to find what I'm looking for. Although, my only source of leads is through the MLS.

Scott Wolf · Answer

@Vincent Harris, based on the numbers you're showing, it doesn't look like a great deal.  While you may lower your monthly while you live there, unless you substantially raise the rents, you will lose money every month when you leave.  You also have no repairs & maintenance in your calculations.  Do you need to be in the Putnam area?  If you move further north to Dutchess County, you may be able to find better deals.

Richie Thomas · Answer

@Vincent Harris if you're putting less than 20% down, don't forget to include private mortgage insurance (PMI).  Unfortunately that will be a non-trivial expense.

How old is the property?  I'm guessing properties in your area tend to skew older, perhaps 90-100 years old or more.  If this is the case, it may make sense to budget something for repairs, even though you mentioned quite a few things are new.

If you're willing to get creative with income sources, you could consider using that repairs budget to finish the basement and attic, and turn them into short-term rentals.  I hear the regulatory environment for STRs in the Hudson Valley is up-in-the-air right now, but for the moment they appear to be legal.  I'm seeing listings in Carmel for $90-100/night, so if your contractor and decorator do good work and the listing photos are attractive, this in itself could close the cash-flow gap on this deal (especially if you're renting out both the attic and the basement).

According to the excerpt from the MLS listing you included, there are separate meters for each of the units, so you *should* be able to remove the $100/month electricity expense.  It's not much but every little bit helps. :-)

You've budgeted $6/month for insurance.  Is this just renters' insurance?  I'd have to imagine homeowners' insurance is more expensive than that.

I feel like the keys to make this property work would be to a) short-term rental of the attic and/or basement (ideally both), and b) making sure the numbers work after you move out.  If you plan to scale your real estate business, you'll eventually want to include a budget for a property manager as well, so you can focus on sourcing new properties.  But for the house-hack phase of the plan, that shouldn't be necessary.

Vincent Harris · Answer

Hi @Mack Benson! Yes if I rent both units I can probably get $1,500 a unit, $1,200 is a bit low for the tenant in there now, but I run my numbers much more conservative anyway. Yeah the property taxes are crazy up here, and this property isn't even all that high!

The 10% down is a good point, I guess it's just because that's what our portfolio lender suggested, but I've been working with some clients doing 3% with quicken; but I think that would raise my monthly payment quite a bit.

Mack Benson · Answer

For a house hack will it make sense after you move out and rent both units? It could save you money versus your current rent now but will it cash flow in a year or two when you move on and both units are occupied? If not then you may need to come out of pocket each month. What are the market rate rents for the unit sizes, is $1,200 average, high, low?I heard property taxes were nuts in that area of the country and was glad to see it on your calculations ($720/month, DANG!).  I also saw you are putting 10% down, is there a specific reason for that? I thought an FHA loan at 3.5% down, or a 5% down conventional loan, were what most go for with a house hack.

does this deal make sense?

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