All Forum Posts by: Jaekwan Lee

As a first time home buyer, I want to learn and experience real estate so I would like to buy a duplex to gain experience as a landlord and get familiar with the processes. I found that most of recommendations to buy a duplex emphasis on positive cashflow or match with simple 1% rule to start with. However, the place I am looking for to stay with my family is north Austin suburb and none of the duplex has a cashflow even if I put 20% down. For example, there are 500k-600k 2000sqt+ duplex that has monthly cost around $4000 ~ 4500 without management but the typical rent in that area for those units is under $2000. So it does not cover even $4000.

In this type of scenario, is it still worth buying the duplex with one unit owner occupied? Or it is just a bad decision to start investment this way. Let's assume this location has more than average appreciation but not very promising of big jump.

0 Votes

Austin, Texas

Quote from @Andrew Freed:

@Jaekwan Lee - You're asking the right questions. This decision alone can determine if you scale to 30 units in 3 years vs. 6 units in 3 years. The key to scaling a real estate portfolio is understanding how to utilize leverage to the best of your ability. For instance, the infamous househack. That is one of the best ways to utilize leverage. You can get into a 3-4 family properties (3 to 4 family is preferred since it is tough to find a duplex now that cash flows once you move onto your next househack) with as little as 3.5% down (FHA loan, you can only have one of these outstanding at any given time) vs. 5% conventional loan (you can have up to 10 of these on your credit report before you essentially run out of space) and create an investment property with little money out of your pocket.

I highly recommend that you utilize a low down payment loan (preferrably 5% down since it has less closing costs, you can get out of mortgage insurance once you hit 20%, and you save your FHA for another purchase) and move into a 3-4 unit property. The key is to ensure it will cash flow once you leave a year later with all the units rented. And continue to do this for 2-3 years with that original 20%. Combine this househacking with joint venturing on some commercial property around the same market (5-20 units) with a few other investors that compliment your skillset and viola, you will obtain 30-50 units in 3-5 years.

This is making some broad assumptions... you and your family keep your expenses as low as possible while saving and investing as much as possible.

Additionally, you understand that anything you invest in with debt has to have a significantly higher return than the cost of that debt.

Lastly, you love the process. This is a grind for sure, but you will thank your future self 5 years down the road when you actually have control of your time (which essentially is the reason people seek financial independence).

That is my soapbox for the day.... best of luck on your journey!

@Andrew Thanks for replying. Your comment is really an eye-opening that how real estate strategy can be flexible. Just to review your suggestion, I understood as below.

- Starts with 5% conventional loan for duplex
- Move over to 4 plex property with FHA loan
- lowering expenses while we are on the proess.

I guess the broad assumption for the duplex and the fourplex should be that both properties has to have positive cashflows. I am near Austin surburb area where duplex does not cashflow but we need to find a place to stay. Also, I can't find any four plex that makes sense. Is it still a good idea to go with 5% conventional loan?

1 Vote

Austin, Texas

Hi, I just start getting to know investment after reading a house hacking book and I really want to begin the journey of expanding rental real estate. I am married and my family size is three (me, my wife, and 3 yrs daughter). Since I need to think about sending my daughter school in a couple of years, I want to start with duplex. I have enough savings for down payment 20% but I also hear that you have one chance of using FHA loan. So here is my confusion. Is still better to get FHA loan with 3.5% when I have 20% down payment for the duplex? Since I feel I see two options I can think of.

- Buy duplex with FHA 3.5% and look for another property like fourplex

- Buy duplex with conventional loan 20% down and wait until gain another downpayment

1 Vote

Austin, Texas

All Forum Posts by: Jaekwan Lee

Jaekwan Lee has started 6 posts and replied 23 times.

Post: Duplex that does not cashflows still good for first home?

Post: Use FHA or conventional if you just started investment but you have enough downpaymen

Post: Use FHA or conventional if you just started investment but you have enough downpaymen

Jaekwan Lee has started 6 posts and replied 23 times.

Biggerpockets Logo Post: Duplex that does not cashflows still good for first home?

Biggerpockets Logo Post: Use FHA or conventional if you just started investment but you have enough downpaymen

Biggerpockets Logo Post: Use FHA or conventional if you just started investment but you have enough downpaymen

Post: Duplex that does not cashflows still good for first home?

Post: Use FHA or conventional if you just started investment but you have enough downpaymen

Post: Use FHA or conventional if you just started investment but you have enough downpaymen