All Forum Posts by: Jaekwan Lee

@Jaekwan Lee what price do you have to offer so rent covers your mortgage, property taxes, insurance and other expenses?

Dave Meyer- from bigger pockets wrote and interesting blog a few years ago about the 1% rule being deal. https://www.biggerpockets.com/blog/1-percent-rule-dead

It's pretty fascinating. Such a reminder that these rules are not the standard for investing. As @theresaharris mentioned these are just guidelines. I'm from Sugar Land but now live in Chicago. I'd say if you find inventory to buy in Houston that is close to these guidelines, I'd go for it. Houston isn't making 4 unit buildings regularly. It should appreciate...depending on your area. Definitely ask your realtor about appreciation in the area you're looking to purchase. 

 Best of luck! 

Don't worry about 'rules' as they are guidelines some people use to get a quick idea if the property works.  You need to look at the expenses (mortgage, insurance, property taxes, etc) and income.  If you are living in one of the four units, run the numbers as if you were renting all 4 units.  Ideally the rent from the other three units will cover most of your living expenses (ie 'rent') for your own unit while you are living there. If you are planning on buying it with a smaller down payment, that will also increase your mortgage costs as you are borrowing more and also need mortgage insurance.

The price of the home (from the seller's perspective) is based on market value and condition, not on whether or not it matches the 1% rule.   Talk to your realtor about what a realistic price is for the home.

 So let's look at the options.

Option A: Pay Rent $3,000 a month. You help your landlord grow rich. 

Option B: Buy Duplex. Cost $4,000 a month. Tenant pays $2,000 of that, and you pay $2,000. 

Option B allows you to save an extra $12,000 s month (minus maintenance costs) and build equity. Rents will continue to rise over time as well. Your tenant helps you grow rich instead of you helping your landlord grow rich.

Option B seems like a no brainer to me.

Because I don't know the price points in your market along with what you can get for rent it's impossible to answer the question about whether or not it makes sense to buy with 3.5% down or 20% down and still positively cash flow a duplex.   I recommend you do some market research on the price points to purchase and what you can get for rent to answer the question yourself.

Regarding a 3 to 4 unit, If you decide to use an FHA loan make sure you research the FHA self-sufficiency guidelines.

@Jaekwan Lee - Happy to help. Not particularly. I was saying utilize a 5% down conventional first if possible and find a househack that is at least a 3 to 4 unit property since duplexes don't cash flow once you leave. If duplexes are your only option, I would recommend house hacking that and investing out of state to find more multifamily. Or you can invest in San Antonio and househack there. I know there are more multifamily in that market than Austin TX. 

It absolutely can be. House Hacking is generally the one situation when purchasing an investment property can be done without positive cash flow. The rationale being you are reducing your personal housing costs as the rented unit will be covering some of the costs. 

I did it with my first home purchase on a 2-family. Ended up living in my unit for about 25% of the price I was getting in market rent for the other unit, even though it didn't have positive cash flow.

Couple things to consider:

1. Make sure you are, in fact, spending less on a monthly basis than if you were buying/renting an equivalent personal property. It may not make sense for your personal finances if over invest and end up with a house hack option that costs more money than somewhere you could live on your own.

2. Run some estimates now on potential future earnings if, at some point, you didn't live in the house and instead it was used as 100% rental. It should have positive cash flow in that future scenario. 
 

Is your other option to live in a house and not househack that will cost you $4,000 a month?

Hi @Jaekwan it can. Especially, in some areas of the country were appreciation is high. The 1% rule isn't law and came into existence after the housing crisis but now is harder to find- https://www.biggerpockets.com/blog/1-percent-rule-dead

Attend local meetups to find out what the market is doing on a local level. That will help break down that market and give direct insight on deals there. Best of luck!