All Forum Posts by: Allen Scoging

@Ray Martinez What did you end up doing? 

I just started looking into this subject myself. I found this article:

https://www.adugeeks.com/post/...

Seemingly an LLC will benefit you by providing protection from any renter mishaps plus you can deduct the startup costs of the LLC. Seems like it is worth doing to me.

@Russell Brazil- That bring me a bit of comfort. My model doesn't account for tax benefits of owning a home, depreciation etc. I just know they exist and will make the picture a little better. 

@Russell Brazil I'm basing it on $1.1MM purchase price and $5k gross rent from both units combined

@Chace Fraser Thanks for the reply Chace. I'm intending on putting 20% down, then the rent would cover mortgage, tax and insurance with nothing left over for maintenance, capex etc.  - that's when it becomes negative, putting aside the recommended amounts in the BP calculators. 

In this case, house hacking would not reduce my direct housing costs as in your example. I would continue paying the same amount. Instead it would increase leverage. I would be paying the same amount of rent to myself, but I would be building equity in a property with 2 units. The rent from the second unit mostly takes care of 50% of the costs as above.

@Russell Brazil Can you expand, please? (I'm a newbie) I'm planning on putting 20% down, I could cover the entire mortgage payment myself, although it would be a stretch to do it long term - too high % of my gross pay, for my comfort. Wouldn't that be normal leverage? 

Thanks for the replies so far.

To give a bit more context, as it stands the current rents would cover mortgage, insurance (an estimate in my calcs) and property tax. There's nothing left over for repairs/maintenance etc. but I can use savings for any of that in the same way that I would if I just bought a SFH. I think the rents are a little below market rate and so the unit I'm not living in could be increased slightly which would make the sums a bit better.

My concern is the current state of the market and how that diminishes the upside of the investment. Prices are record highs and if we're at the top of a cycle I could have to wait years if I need to exit. Also it would limit the capital gain I could make if I'm buying when it's expensive. 

I'm conscious the one thing you can never change is the purchase price. This will also set the basis of the property tax, which is not insignificant (~$900/mo). I'm aware Prop 13 will limit the increase to 2% year, and also should property values fall, I could use Prop 8 to save some money temporarily. 

Additionally, mortgage interest rates are at/were record lows so its unlikely I'll ever be able to refinance in the future at a lower rate. Therefore my mortgage payment is unlikely to ever go down. 

If rents ever fall, I could be getting into a hole!

All these concerns translate to the scenario of just buying a house to live in, so why not buy a duplex if I have the means and get that added leverage from someone else servicing half of my investment?   

@Michael S. Valid points. Trouble is I don't know the market well, I'm a first time buyer! As mentioned above my concerns about buying in a high price environment makes seeing capital growth a much riskier proposition, and i think I need to be prepared to weather falling prices in the coming years. 

@Taylor L. I hear what you're saying - In this case rents from each unit cover half of the mortgage/tax/insurance each, so I wont be living any cheaper. The value is that I'll be building equity in a property rather than paying rent. There's also the opportunity cost. I could buy a SFH with my funds and use the rest that I would have spent on upgrading to a duplex, on buying a cheaper cash flowing investment out of state. That could be a better proposition.

The obvious answer is zero - it's a suicidal strategy! But, here's the full story:

I live in SoCal and currently rent but have a down payment saved and ready to buy. Unfortunately, property prices are currently detached from reality and competition is insane. It doesn't seem like a prudent move to knowingly pay over the odds just too seal a deal for a SFH. However, when my rent is almost as high as a mortgage payment, and I have a down payment saved, I can't see a reason not to buy, despite the record high prices.

I can either spend a lot for a SFH, or spend only a bit more for a duplex which I'd house hack. This would effectively give me 2 properties (units) at a much lower unit cost than I could purchase a SFH, or even two apartments/condos - with the benefit that someone else was (mostly) paying for the 2nd unit. Additionally, buying a duplex would mean I get to live in neighborhood I otherwise couldn't afford to live in. On top of that, there are the tax savings (deduct mortgage interest & property tax, depreciate 2nd unit, etc.)

If I can get hold of a duplex, I've run various scenarios through the BP calculators and the numbers never add up to be a good investment - they won't cash flow, CoC is dire etc. I've often heard people say, the California market is different, you wouldn't expect great cash flow or returns, and the investment is more about long term capital growth, in which case the conventional calculators are less applicable.

Can anyone suggest how I should analyze such a proposition to ensure I'm not committing financial suicide? As the post title suggests I'd be running a negative cashflow if the conventional assumptions are applied (% for vacancy, repairs, capex and so on). Is several hundred dollars OK? Any rules of thumb - a percentage of the price/rent? Some of my other posts have various scenarios for actual numbers I've modeled. 

Thanks!

Numbers based on a sold property and optimistic scenario (e.g. low vacancy, minimal repairs etc). How can these figures make sense? 

View report

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

Time for another good idea/bad idea?

View report

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

Thanks @Aaron K.. Property is in SoCal. Vacancy may be a bit high, these units are easily rentable.  Although one has been empty for a while at $2900/mo so I'm comfortable that $2500 is current market rate. I keep track of what comes up for rent too as other reference points.

I agree it's not always investors buying these properties, and I'm looking at this deal with a view to doing something similar, partly as a way to live in a neighbourhood I otherwise couldn't afford. Having said that, I would assume anyone spending $1MM would do at least some basic due diligence - at minimum whether the rent will cover the mortgage. 

There are numerous properties of similar construction/floorplan that these numbers could apply to and I'm trying to understand the market as to how these deals can make sense for anyone.