Not finding good deals on duplexes- should I buy anyway?

Killeen, Texas
House Hacking
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Not finding good deals on duplexes- should I buy anyway?

Irene Low
New to Real Estate · Killeen, TX · Member since 2023 · 19 posts · 24 votes

I'm shopping the market for my first duplex to house-hack, it's my first time buying a property, period. I plan to use a FHA loan and put down somewhere from 6-8%. I'm finding it very difficult to find deals that will produce any positive income after I move out and both sides are rented out. The best deals I can find barely break even with the mortgage. I'm almost to the point where I'm feeling a little desperate and I'm debating if I should just buy a property anyway, simply betting on the fact that the property will appreciate over time when sold in several years, and not focus so much on the monthly cash flow I could receive if I found a good deal.

I'd like to hear your thoughts- Someone tell me why this is or isn't a valid way to evaluate/think about my first purchase.

My ultimate goal with real estate investing: buy more properties after this and achieve financial freedom.

My ultimate goal with my first purchase: get my foot in the door, make a little bit of money (I'd be ok with not making money, as long as I'm not losing money), see if I want to continue real estate investing, decide if this is the strategy I want to focus on (vs. BRRR, Airbnb, etc)

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Julien J.
Investor · CO · Member since 2016 · 757 posts · 1k+ votes
2y

@Irene Low

Difficult to make anything cash flow with 6%-8% down, especially with current interest rates.

Instead, look at it from a long term perspective: 3 to 5 years out. Play out a conservative appreciation, principal pay day and year over year rent increases.

You'll see significant net worth growth and the asset more likely to cash flow after you move out.

9Reply
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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    2y

    Because you are putting down less than 20% (which is what most people buying rentals put down as they aren't living in the house), it will be harder to find something that cash flows.  The higher interest rates will also make it harder.

    How long have you been looking and have you thought about changing your criteria on what you are looking for?

    4Reply
  • Cydney GrayBusiness Member
    Lender · AZ CA CO HI ID NM OR TN TX WA WY FL · Member since 2023 · 34 posts · 19 votes
    2y

    Hi Irene! I think units are the easiest way to house hack! In the middle of November a new loan program came out from Fannie Mae that requires only 5% down on 2-4 units. Make sure to compare the fees, payment and rates between FHA and Fannie Mae.

    As Theresa Harris said, it is very difficult to have a property cash flow with only a small down payment. This makes looking at historical data on appreciation very important. 

    Do some research on what the predicted appreciation is for 2024 and beyond in the areas you're looking. This could help you decided on exactly what are you think could be best to buy in. Also research where rents are the highest and if there are any multi unit properties available in those areas. 

    Try to estimate how long you will live in the property. Generally speaking, the longer you live In it the easier it will be to have it cash flow when you move out. 

    Sometimes the riches in real estate happen quickly but most of the time it is a longer haul to get to having both equity and cash flow. If you are willing to invest the money AND the time, I'm sure you'll reach your financial goals!

    [email protected]808-861-9667
    Infinite Financial586 Reviews
    WebsiteView Page
    7Reply
  • Irene Low
    OP
    New to Real Estate · Killeen, TX · Member since 2023 · 19 posts · 24 votes
    2y
    Quote from @Theresa Harris:

    Because you are putting down less than 20% (which is what most people buying rentals put down as they aren't living in the house), it will be harder to find something that cash flows.  The higher interest rates will also make it harder.

    How long have you been looking and have you thought about changing your criteria on what you are looking for?

    I’ve been looking for 3-4 months, not sure if that’s a long time, but it feels like a while to me. I initially thought I’d be ok with having a duplex that’s older and a bit run down in order to purchase at lower prices, but after my first tour of a property like this, I had second thoughts and established I should be more open to newer/more expensive (and safer) properties as I’d potentially be living without my partner. There’s a couple newer duplexes I’d consider.. if I can negotiate nearly $50k below asking… not sure how well that’d be accepted. 
    0Reply
  • Irene Low
    OP
    New to Real Estate · Killeen, TX · Member since 2023 · 19 posts · 24 votes
    2y
    Quote from @Cydney Gray:

    Hi Irene! I think units are the easiest way to house hack! In the middle of November a new loan program came out from Fannie Mae that requires only 5% down on 2-4 units. Make sure to compare the fees, payment and rates between FHA and Fannie Mae.

    As Theresa Harris said, it is very difficult to have a property cash flow with only a small down payment. This makes looking at historical data on appreciation very important. 

    Do some research on what the predicted appreciation is for 2024 and beyond in the areas you're looking. This could help you decided on exactly what are you think could be best to buy in. Also research where rents are the highest and if there are any multi unit properties available in those areas. 

    Try to estimate how long you will live in the property. Generally speaking, the longer you live In it the easier it will be to have it cash flow when you move out. 

    Sometimes the riches in real estate happen quickly but most of the time it is a longer haul to get to having both equity and cash flow. If you are willing to invest the money AND the time, I'm sure you'll reach your financial goals!

    Thanks, Cydney! My lender did inform me of the Fannie Mae loan and compared it to the FHA. I plan to live in it for a year max. I’m looking in the area of my hometown, a suburb an hour away from Austin, TX. Do you have any good resources to look at historical data of appreciation? 
    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    2y
    Quote from @Irene Low:
    Quote from @Theresa Harris:

    Because you are putting down less than 20% (which is what most people buying rentals put down as they aren't living in the house), it will be harder to find something that cash flows.  The higher interest rates will also make it harder.

    How long have you been looking and have you thought about changing your criteria on what you are looking for?

    I’ve been looking for 3-4 months, not sure if that’s a long time, but it feels like a while to me. I initially thought I’d be ok with having a duplex that’s older and a bit run down in order to purchase at lower prices, but after my first tour of a property like this, I had second thoughts and established I should be more open to newer/more expensive (and safer) properties as I’d potentially be living without my partner. There’s a couple newer duplexes I’d consider.. if I can negotiate nearly $50k below asking… not sure how well that’d be accepted. 

     You will have fewer options for duplexes, so 3-4 months may not be long enough depending on the market.  Finding a place in a safe area is important whether you live in it or renters do. You need to think about the type of tenant you will attracts.  If you only looked at one place that needed to be fixed up and changed your mind, try looking at one that needs less work.  Also separate what is cosmetic vs major renos (eg coat of paint and a good clean vs problems with a foundation).  Fixers are cheaper, but you need the money to fix them.

    Are you working with a realtor who is used to working with investors?  If not, find one who is.  As for negotiating $50K less than asking-that depends on what the asking price is and how long they've been on the market.

    2Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    2y

    Most properties do not cash flow at all with the current interest rates. What you can do is buy so far under market value and maybe structure a loan to have interest only payments to cash flow for a few years until interest rates come back down. There are four plexes in Killeen that cash flow currently.

    5Reply
  • Julien J.
    Investor · CO · Member since 2016 · 757 posts · 1k+ votes
    2y

    @Irene Low

    Difficult to make anything cash flow with 6%-8% down, especially with current interest rates.

    Instead, look at it from a long term perspective: 3 to 5 years out. Play out a conservative appreciation, principal pay day and year over year rent increases.

    You'll see significant net worth growth and the asset more likely to cash flow after you move out.

    9Reply
  • Gustavo Delgado
    Houston, TX · Member since 2015 · 261 posts · 170 votes
    2y

    I would buy it. Bank on the appreciation of property and rents. The great thing is you should always have tenants with the Army Base and steady income from the soldiers.

    4Reply
  • Cydney GrayBusiness Member
    Lender · AZ CA CO HI ID NM OR TN TX WA WY FL · Member since 2023 · 34 posts · 19 votes
    2y
    Quote from @Irene Low:
    Quote from @Cydney Gray:

    Hi Irene! I think units are the easiest way to house hack! In the middle of November a new loan program came out from Fannie Mae that requires only 5% down on 2-4 units. Make sure to compare the fees, payment and rates between FHA and Fannie Mae.

    As Theresa Harris said, it is very difficult to have a property cash flow with only a small down payment. This makes looking at historical data on appreciation very important. 

    Do some research on what the predicted appreciation is for 2024 and beyond in the areas you're looking. This could help you decided on exactly what are you think could be best to buy in. Also research where rents are the highest and if there are any multi unit properties available in those areas. 

    Try to estimate how long you will live in the property. Generally speaking, the longer you live In it the easier it will be to have it cash flow when you move out. 

    Sometimes the riches in real estate happen quickly but most of the time it is a longer haul to get to having both equity and cash flow. If you are willing to invest the money AND the time, I'm sure you'll reach your financial goals!

    Thanks, Cydney! My lender did inform me of the Fannie Mae loan and compared it to the FHA. I plan to live in it for a year max. I’m looking in the area of my hometown, a suburb an hour away from Austin, TX. Do you have any good resources to look at historical data of appreciation? 

    Hi Irene! Your Realtor should be able to pull historical averages for the specific areas that you are interested in. The data is available through MLS listings looking at historical closed transactions. You can always snoop around on some of the well known real estate websites to look at historical data on each property you're interested in as well.

    [email protected]808-861-9667
    Infinite Financial586 Reviews
    WebsiteView Page
    2Reply
  • Mike Scaccia
    Member since 2022 · 33 posts · 31 votes
    2y

    @Irene Low 

    Congrats on beginning your journey in real estate, and no better way than with a house hack of a multi family property!

    With elevated home prices, and interest rates positive cash flow is hard to come by BUT not impossible. 

    Let me paint a picture of what i did for my own property. We utilized a conventional loan at 5% down to avoid the FHA self sufficiency test, purchased a 4 unit property. We opted to negotiate a max seller concession and big over asking price to the seller the same amount. We used those funds to complete a 2-1 temporary buydown. In year one our interest rate is under 5%.. which allowed us to actually cash flow quite a bit on the property! Now, the rate will go up after years 1, and 2.. but by then what you bank on is that rates will be in a better position, you refi, permanently reduce the rate, you have principal paydown by your tenants, and with average appreciation conservatively at 4% annually, it always makes sense to purchase a property if the payment makes sense for you, and you can afford to do so..

    Once rates drop, there will be much greater demand and therefore greater competition which will inevitably drive prices higher. Imagine missing out on that appreciation... People who owned during the pandemic saw their equity fly through the roof. We're gearing up to see more of the same! If you have any questions or would like to connect further, feel free to shoot me a message! Best of luck and go get em!

    5Reply
  • Mark S.
    Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes
    2y

    @Irene Low I would NOT buy out of desperation. Too many people think that if they just start buying property they will become ‘financially independent’ in ‘x’ years. It takes time, money and patience…and buying the right properties. There is a saying in real estate “You make money when you buy, not when you sell”.

    4Reply
  • Justin Hammerle
    Realtor · Providence, RI · Member since 2022 · 404 posts · 262 votes
    2y

    @Irene Low - If you are renting now, you will have equity accumulation by owning even if values stay the same and don't increase.  You always have the option of refinancing if and when rates go down.  If you are looking to build a portfolio and the property cashflows when fully rented you have a chance of holding and moving to another down the road.

    2Reply
  • Craig Janet
    Member since 2019 · 223 posts · 261 votes
    2y

    Are you saying that you will break even if you live in one unit and rent the other. That sounds like a pretty good deal.

    0Reply
  • Irene Low
    OP
    New to Real Estate · Killeen, TX · Member since 2023 · 19 posts · 24 votes
    2y
    Quote from @Theresa Harris:
    Quote from @Irene Low:
    Quote from @Theresa Harris:

    Because you are putting down less than 20% (which is what most people buying rentals put down as they aren't living in the house), it will be harder to find something that cash flows.  The higher interest rates will also make it harder.

    How long have you been looking and have you thought about changing your criteria on what you are looking for?

    I’ve been looking for 3-4 months, not sure if that’s a long time, but it feels like a while to me. I initially thought I’d be ok with having a duplex that’s older and a bit run down in order to purchase at lower prices, but after my first tour of a property like this, I had second thoughts and established I should be more open to newer/more expensive (and safer) properties as I’d potentially be living without my partner. There’s a couple newer duplexes I’d consider.. if I can negotiate nearly $50k below asking… not sure how well that’d be accepted. 

     You will have fewer options for duplexes, so 3-4 months may not be long enough depending on the market.  Finding a place in a safe area is important whether you live in it or renters do. You need to think about the type of tenant you will attracts.  If you only looked at one place that needed to be fixed up and changed your mind, try looking at one that needs less work.  Also separate what is cosmetic vs major renos (eg coat of paint and a good clean vs problems with a foundation).  Fixers are cheaper, but you need the money to fix them.

    Are you working with a realtor who is used to working with investors?  If not, find one who is.  As for negotiating $50K less than asking-that depends on what the asking price is and how long they've been on the market.

    I’m working a realtor who has worked with investors, but I wouldn’t say she has a good knowledge or a lot of experience with it. I appreciate all the feedback, Theresa! 
    0Reply
  • Irene Low
    OP
    New to Real Estate · Killeen, TX · Member since 2023 · 19 posts · 24 votes
    2y
    Quote from @Eliott Elias:

    Most properties do not cash flow at all with the current interest rates. What you can do is buy so far under market value and maybe structure a loan to have interest only payments to cash flow for a few years until interest rates come back down. There are four plexes in Killeen that cash flow currently.

    Hm interest only payments.. can you tell me more? Does this require to buy points? What are the drawbacks with this?
    0Reply
  • Irene Low
    OP
    New to Real Estate · Killeen, TX · Member since 2023 · 19 posts · 24 votes
    2y
    Quote from @Julien J.:

    @Irene Low

    Difficult to make anything cash flow with 6%-8% down, especially with current interest rates.

    Instead, look at it from a long term perspective: 3 to 5 years out. Play out a conservative appreciation, principal pay day and year over year rent increases.

    You'll see significant net worth growth and the asset more likely to cash flow after you move out.

    Thanks, Julien! I’m going to review historical appreciation in the area. 
    0Reply
  • Irene Low
    OP
    New to Real Estate · Killeen, TX · Member since 2023 · 19 posts · 24 votes
    2y
    Quote from @Cydney Gray:
    Quote from @Irene Low:
    Quote from @Cydney Gray:

    Hi Irene! I think units are the easiest way to house hack! In the middle of November a new loan program came out from Fannie Mae that requires only 5% down on 2-4 units. Make sure to compare the fees, payment and rates between FHA and Fannie Mae.

    As Theresa Harris said, it is very difficult to have a property cash flow with only a small down payment. This makes looking at historical data on appreciation very important. 

    Do some research on what the predicted appreciation is for 2024 and beyond in the areas you're looking. This could help you decided on exactly what are you think could be best to buy in. Also research where rents are the highest and if there are any multi unit properties available in those areas. 

    Try to estimate how long you will live in the property. Generally speaking, the longer you live In it the easier it will be to have it cash flow when you move out. 

    Sometimes the riches in real estate happen quickly but most of the time it is a longer haul to get to having both equity and cash flow. If you are willing to invest the money AND the time, I'm sure you'll reach your financial goals!

    Thanks, Cydney! My lender did inform me of the Fannie Mae loan and compared it to the FHA. I plan to live in it for a year max. I’m looking in the area of my hometown, a suburb an hour away from Austin, TX. Do you have any good resources to look at historical data of appreciation? 

    Hi Irene! Your Realtor should be able to pull historical averages for the specific areas that you are interested in. The data is available through MLS listings looking at historical closed transactions. You can always snoop around on some of the well known real estate websites to look at historical data on each property you're interested in as well.

    I appreciate your feedback, Cydney! I’m definitely going to look into this. 
    0Reply
  • Irene Low
    OP
    New to Real Estate · Killeen, TX · Member since 2023 · 19 posts · 24 votes
    2y
    Quote from @Mike Scaccia:

    @Irene Low 

    Congrats on beginning your journey in real estate, and no better way than with a house hack of a multi family property!

    With elevated home prices, and interest rates positive cash flow is hard to come by BUT not impossible. 

    Let me paint a picture of what i did for my own property. We utilized a conventional loan at 5% down to avoid the FHA self sufficiency test, purchased a 4 unit property. We opted to negotiate a max seller concession and big over asking price to the seller the same amount. We used those funds to complete a 2-1 temporary buydown. In year one our interest rate is under 5%.. which allowed us to actually cash flow quite a bit on the property! Now, the rate will go up after years 1, and 2.. but by then what you bank on is that rates will be in a better position, you refi, permanently reduce the rate, you have principal paydown by your tenants, and with average appreciation conservatively at 4% annually, it always makes sense to purchase a property if the payment makes sense for you, and you can afford to do so..

    Once rates drop, there will be much greater demand and therefore greater competition which will inevitably drive prices higher. Imagine missing out on that appreciation... People who owned during the pandemic saw their equity fly through the roof. We're gearing up to see more of the same! If you have any questions or would like to connect further, feel free to shoot me a message! Best of luck and go get em!

    Hey, Mike! Thanks for your insight. Can you tell me more about that FHA self sufficiency test? I have not heard of that. As well as the 2-1 temporary buydown- what is that? 
    3Reply
  • Irene Low
    OP
    New to Real Estate · Killeen, TX · Member since 2023 · 19 posts · 24 votes
    2y
    Quote from @Justin Hammerle:

    @Irene Low - If you are renting now, you will have equity accumulation by owning even if values stay the same and don't increase.  You always have the option of refinancing if and when rates go down.  If you are looking to build a portfolio and the property cashflows when fully rented you have a chance of holding and moving to another down the road.

    In appreciate your input, Justin!
    0Reply
  • Irene Low
    OP
    New to Real Estate · Killeen, TX · Member since 2023 · 19 posts · 24 votes
    2y
    Quote from @Craig Janet:

    Are you saying that you will break even if you live in one unit and rent the other. That sounds like a pretty good deal.

     No, definitely not. I’m saying a lot of the deals will barely break even with both sides leased out, and that’s not even with reserves added to the expense. 

    0Reply
  • Cydney GrayBusiness Member
    Lender · AZ CA CO HI ID NM OR TN TX WA WY FL · Member since 2023 · 34 posts · 19 votes
    2y
    Quote from @Irene Low:
    Quote from @Cydney Gray:
    Quote from @Irene Low:
    Quote from @Cydney Gray:

    Hi Irene! I think units are the easiest way to house hack! In the middle of November a new loan program came out from Fannie Mae that requires only 5% down on 2-4 units. Make sure to compare the fees, payment and rates between FHA and Fannie Mae.

    As Theresa Harris said, it is very difficult to have a property cash flow with only a small down payment. This makes looking at historical data on appreciation very important. 

    Do some research on what the predicted appreciation is for 2024 and beyond in the areas you're looking. This could help you decided on exactly what are you think could be best to buy in. Also research where rents are the highest and if there are any multi unit properties available in those areas. 

    Try to estimate how long you will live in the property. Generally speaking, the longer you live In it the easier it will be to have it cash flow when you move out. 

    Sometimes the riches in real estate happen quickly but most of the time it is a longer haul to get to having both equity and cash flow. If you are willing to invest the money AND the time, I'm sure you'll reach your financial goals!

    Thanks, Cydney! My lender did inform me of the Fannie Mae loan and compared it to the FHA. I plan to live in it for a year max. I’m looking in the area of my hometown, a suburb an hour away from Austin, TX. Do you have any good resources to look at historical data of appreciation? 

    Hi Irene! Your Realtor should be able to pull historical averages for the specific areas that you are interested in. The data is available through MLS listings looking at historical closed transactions. You can always snoop around on some of the well known real estate websites to look at historical data on each property you're interested in as well.

    I appreciate your feedback, Cydney! I’m definitely going to look into this. 

     :) 

    [email protected]808-861-9667
    Infinite Financial586 Reviews
    WebsiteView Page
    0Reply
  • Julien J.
    Investor · CO · Member since 2016 · 757 posts · 1k+ votes
    2y
    Quote from @Irene Low:
    Quote from @Julien J.:

    @Irene Low

    Difficult to make anything cash flow with 6%-8% down, especially with current interest rates.

    Instead, look at it from a long term perspective: 3 to 5 years out. Play out a conservative appreciation, principal pay day and year over year rent increases.

    You'll see significant net worth growth and the asset more likely to cash flow after you move out.

    Thanks, Julien! I’m going to review historical appreciation in the area. 

     Check this website out to get a sense of appreciation: https://map.reventure.app/dashboard

    5Reply
  • Melissa Nash
    Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    2y

    where are you looking? You might have to give up your own back yard and invest where it makes sense. 

    0Reply
  • Joseph Romano
    New to Real Estate · Traverse City, MI · Member since 2021 · 46 posts · 17 votes
    2y
    Quote from @Mike Scaccia:

    @Irene Low 

    Congrats on beginning your journey in real estate, and no better way than with a house hack of a multi family property!

    With elevated home prices, and interest rates positive cash flow is hard to come by BUT not impossible. 

    Let me paint a picture of what i did for my own property. We utilized a conventional loan at 5% down to avoid the FHA self sufficiency test, purchased a 4 unit property. We opted to negotiate a max seller concession and big over asking price to the seller the same amount. We used those funds to complete a 2-1 temporary buydown. In year one our interest rate is under 5%.. which allowed us to actually cash flow quite a bit on the property! Now, the rate will go up after years 1, and 2.. but by then what you bank on is that rates will be in a better position, you refi, permanently reduce the rate, you have principal paydown by your tenants, and with average appreciation conservatively at 4% annually, it always makes sense to purchase a property if the payment makes sense for you, and you can afford to do so..

    Once rates drop, there will be much greater demand and therefore greater competition which will inevitably drive prices higher. Imagine missing out on that appreciation... People who owned during the pandemic saw their equity fly through the roof. We're gearing up to see more of the same! If you have any questions or would like to connect further, feel free to shoot me a message! Best of luck and go get em!


     What great input! I am somewhat in the same position as Irene. Thank you so much! 

    1Reply
  • Peter W.
    Member since 2020 · 351 posts · 329 votes
    2y

    I find it unsurprising that you won’t cash flow with 6-8% down in a desirable area. Especially with mortgage insurance. I think what you are looking for is something which will be close to break even (post vacancy, maintenance). Even 3% appreciation should yield 36% return at 12x leverage (8.3% down). Closing costs will eat into a lot of that, though. I plugged you into my calculator assuming 10k closing costs on a 160k purchase, 8% down and 8.5% interest gave me about 16.5%. I think your goal should be to break even in the short term let your extreme leverage work it’s magic and then when you get below 80 loan to value refinance to get rid of mortgage insurance and lower your monthly payment.

    You need to build/obtain a calculator and get a feel for how your total return will look like and what is acceptable on the total return on your cash using conservative appreciation numbers. The last thing you want is to be forced to continue to put money into a subpar investment.

    6Reply
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