House hacking is one of my favorite strategies for newbie investors. It offers big upsides and favorable financing options and gives new landlords an easy first property management experience.

You can structure a house hack a few different ways, but for first-timers, I recommend buying a small multifamily property with two to four units. For the purposes of this article, we’re going to focus specifically on duplexes.

Best of all? If you have $20,000 to invest, you can start right away. Below are five cities where you can buy a duplex with great cashflow potential for under $20,000.

Why $20,000?

Before I outline my market selection criteria—and the markets themselves—I want to explain why I chose $20,000 as the minimum investment.

First: In order to purchase a duplex for under $20,000, it must be an owner-occupied purchase. That means, you, the investor, must live in the duplex. Why? This strategy involves using an FHA loan, which requires as little as 3.5% down. In order to qualify for an FHA loan, you must occupy the property – but luckily for aspiring house hackers everywhere, FHA loans include properties with up to four units (so you can even use this strategy for a triplex or quadplex too).

Let’s say you’re eyeing a duplex listed for $200,000. You secure an FHA loan, which requires that you put 3.5% down—or $7,000. Your closing costs will likely be around $5,000, and you should keep about $5,000 in reserves for maintenance and repairs. In this scenario, you’d bring $17,000 to this deal and secure yourself a duplex. Live in one half and rent out the other half—house hacking at its finest.

I should mention that putting less than 20% down on a property often entails private mortgage insurance (PMI). This is an additional fee on top of your normal mortgage payment. Of course, no one wants to pay extra fees, but many great deals have been built on mortgages with PMI – and it offers a great way to get started in real estate.

How I picked the markets

Next, let’s go over the criteria used to select my top five markets:

Quantity

First and foremost, I looked for cities with a sufficient supply of duplexes on the market for around or under $200,000. Each of the cities on the list below has at least 80 affordable duplexes on the market today—and some have more than 350.

Price

Because early-stage investors are price-limited, I searched for markets where duplex investors could bring between $10,000 and 20,000 in cash to the closing table.

Rent-to-price ratio

I used a rent-to-price (RTP) ratio to identify markets with high cash flow potential. As a refresher, a RTP ratio above 0.5% is solid and anything above 1% is excellent. All of the markets on this last have an RTP of 1.3% or better—that’s elite-level return potential.

The rent estimates here are projections I personally derived using BPInsights data. Basically, I determined how many bedrooms the average duplex contained and then combined data for different-size apartments for a rent estimate. As an example, if duplexes in New Haven, CT, have an average of 4.8 bedrooms, I added the median prices of a two-bedroom and three-bedroom units together and then did some minor adjustments to account for the fact that the “average duplex” has fractions of a bedroom. Et voilà, we have estimated rents.

The top five markets for cash-flowing duplexes

Before we dive into the markets, one last caveat. The metrics listed above are not comprehensive. If you are seriously considering investing in any of the markets below, you must do your due diligence! Examine population changes, appreciation, employments trends, and much more.

This list provides a short-list of markets with high potential. You have to figure out what market and what deal is right for you.

First, the data.

Now let’s dive into each market.

Albany, NY

Albany is the capital city of New York and home to more than 100,000 people. With many government jobs and a large state university, the region has a fairly stable economy. While the average unemployment rate in metro areas of New York has shot up to 9.4% as of October 2020, the Albany area has remained around 5.7%, despite the pandemic.

As of the writing of this article, there were 108 duplexes on the market in Albany with a median listing price of $205,000. The average duplex has 4.8 bedrooms, and by using the chart below I can estimate the rent of an average Albany duplex to be $2,837.

With an average price of $205,000, and a predicted rent of $2,837 the rent-to-price ratio for Albany comes in at 1.38%, which is very strong.

At $205,000, Albany is the most expensive market on this list—but putting 3.5% down on an FHA loan means you would only have to bring about $7,200 to the closing table. Add a $10,000 buffer for closing costs and reserves, and you can have yourself a duplex in Albany for about $17,000.

If you want to avoid PMI, your 20% down payment would be around $41,000. With closing costs and reserves, you should be able to get a deal done with just over $50,000.

Wondering why on earth you would put down $50,000 instead of $17,000? It comes down to cash flow. The lower your down payment, the higher your monthly mortgage payment. Put simply: Putting 20% down will improve your monthly cash flow.

Interested in Albany? Connect with an experienced agent.

Milwaukee, WI

Milwaukee—Wisconsin’s largest city—is located on the shores of Lake Michigan. The city’s population hasn’t grown as fast as other U.S. cities over the past several years, which indicates that appreciation might be slow in Milwaukee. However, there are strong indications that cash flow could be excellent, and the entry point is very affordable.

As of late November 2020, there were 281 duplexes on the market in Milwaukee, with an average price of just $140,000 and 4.5 bedrooms on average. Using those numbers, I estimate that rent for the average duplex should be about $2,064—good for an RTP of 1.47%

To purchase the average Milwaukee duplex, you would need just $4,900 for a down payment—meaning you could comfortably invest here with about $15,000 in cash. If you’re looking to put 20% down, plan to have about $38,000 ready.

Find an experienced agent in Milwaukee.

Buffalo, NY

Buffalo, another city on the shores of a Great Lake (clearly a theme), has made a few of my recent lists of top cash flow cities. As is often the case, a duplex’s cash flow prospects are even better than the prospects for the city as a whole.

Buffalo has a ton of duplexes on the market right now—340 of them—at an average cost of just $146,000. On average, Buffalo duplexes are the largest on this list, with an average of 5.1 bedrooms. Given that, I estimate rent for the average Buffalo duplex to be about $2,500, and the RTP to be 1.7%. These are pretty big numbers!

To buy a duplex in Buffalo with an FHA loan and 3.5% down, you should plan to bring about $5,100 in down payment. Add the $10,000 buffer and Buffalo is a high-potential city where you can own a duplex for around $15,000.

Connect with an agent in Buffalo.

Cleveland, OH

Cleveland is the darling of my 2020 market analyses. Regardless of how I evaluate markets for cash flow, Cleveland comes out near the top—and my duplex analysis is no different. Seriously, Cleveland has some pretty enticing figures.

With 370 duplexes on the market, Cleveland has the most available inventory of any market on this list. It is also very affordable, with a median listing price just under $107,000. I estimate rent will come in at $1,958 for the average duplex, with 4.4 bedrooms, giving Cleveland a hefty RTP of 1.84%.

Given the low entry point for duplexes in Cleveland, you could put as little as $3,700 down with an FHA loan—and need to bring just $21,000 in down payment to the table even if you put 20% down! There aren’t many other markets where you can bring this little cash to the deal and get a property with such high cash flow potential.

Meet an investor-friendly agent in Cleveland.

Rochester, NY

I just finished saying that there are not many markets better than Cleveland for low entry-point and high cash flow potential, but there is one—Rochester, NY. (First of all, I should say that I attended the University of Rochester, so I have some major Rochester pride. And if you haven’t read my tangents about the glory of garbage plates in other posts, trust me. They’re worth trying.)

All that nostalgia aside, Rochester is my top choice for a place to purchase a duplex right now. The average listing price of a Rochester duplex is just $102,000—the lowest on our list. And while Rochester duplexes are also the smallest on our list, at just 4.3 bedrooms on average, the rent estimate comes in at a solid $2,060. Put that together and you have an RTP of 2.01%! That is a monster number and means Rochester boasts some serious cash flow potential.

The one thing I should note about Rochester: There are just 83 duplexes on the market right now—so you will likely have less options to choose from.

If you do find a great deal, you’ll need to bring around $3,600 in money down to the table, or a total of about $14,000 in total cash to house hack a Rochester duplex. Just don’t choose the duplex I lived in my senior year—it should probably be designated as a superfund site.

Find an agent in Rochester.

Other things to note

As I assembled this list, I was surprised to see that three of the top five markets were in central and western New York. On BiggerPockets, we often hear that the northeast is devoid of investing opportunities, but this data (and some of the other posts I’ve written for BPInsights) show that there are great opportunities in the northeast. In fact, several of the other cities that were close to the top in my analysis but didn’t quite make the cut were in the northeast as well.

Two other quick things I noticed:

Four of the five cities on this list are located on one of the Great Lakes. Is that significant? I have no idea, but perhaps there’s something to it.
In three of the five cities, the median rent for three-bedroom units was lower than for two-bedroom units. In the other two cities, there were very small increases in median rent from two to three bedroom. I double checked these numbers, and they are correct. (The data comes from all apartments listed in November 2020.) This actually reflects some anecdotal evidence I’ve seen in my own investing—that three-bedrooms don’t get the premium you would expect. Perhaps this is something I can look into in a future BPInsights post.

For all of you aspiring house hackers out there, I hope this list is useful to you. If you wind up purchasing a property or even visiting a duplex in any of these cities, let me know here on BiggerPockets—I’d love to see your progress!

Have you purchased a duplex with less than $20,000?

Tell us your story below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.