Author Topic: Duplex as my first home..  (Read 2588 times)

benjordan

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Duplex as my first home..
« on: January 25, 2015, 08:24:51 AM »
Long time lurker first time poster...

I've decided to jump into real estate investing with my first home purchase and am focusing on Duplexes for an owner-occupied. More units can mean more ca$h but I'd like to start conservative (one unit) as opposed to a 4-plex etc.

Here are the stats (estimates):

Listing Price: 500,000
Down Payment: 50,000
Closing Costs: 10,000
Initial Cash Outlay = $60,000

PITI: 3,250 * 12 = 39,000
Annual Maintenance: 5,000
Misc Expenses = 1,000
Total Annual Expenses = $45,000

Current Rent = $50,760 (2,200/2,500 each unit (assumes 10% vacancy))
Cash Flow Before Taxes = $5,760

Cap Rate - 6.2%
ROE Year 1 - 9.6%

Now assuming I lived in the cheaper unit, my effective rent would be ($2200 * 12 (adding back vacancy) - 5,760)/12 = $1,500/month.

The stats seem okay but I thought I would be more "in the green" living in a duplex. The area of NJ I live in is pretty expensive so $1,500 for the unit would still be a great deal. Thanks in advance for any thoughts!

SaintM

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Re: Duplex as my first home..
« Reply #1 on: January 25, 2015, 10:45:58 AM »
Take your unit's portion out of the equation and compare it against a similarly situated single family detached. If it's less, than your only worry is to keep paying tenants in the other unit. If it's more, then you don't get any benefit out of the work you do to advertise and show the unit.

archben82

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Re: Duplex as my first home..
« Reply #2 on: January 25, 2015, 10:54:52 AM »
My wife and I bought a duplex as our first house in 2010 and I believe it was one of the best financial decisions we've made.  Depending on where you live of course, I think a duplex as a first home is almost always a win-win.  We still live our duplex, occupying the slightly larger unit while the tenants pay the mortgage.  I'm not sure what your particular area is like, but here there are a lot of duplexes in the more historic areas so there are state and local tax credits we took advantage of when we renovated the place.  Plus, you'll receive all the tax benefits that come from owning rental property.  As an owner occupant there are usually fewer laws you need to abide by when searching for a tenant; you can be picky as they will be essentially living on your property, but do check your state and local laws first.

Some people wouldn't consider owning/ living in a duplex because they want their own house and it would feel too much like sharing.  Our house is split as first and second floor apartments which I think helps in making it feel separate, plus since we live in the lower unit, only we have access and use of the backyard.  (Something else to remember is to put in the lease who has use to what might be considered public areas, i.e. the backyard, garage, etc.)

I'm not familiar with your area so it's hard to judge how good $1,500/mo from your pocket is.  What would a single family house with a $1,500 mortgage be like?  Is it even possible in your area?  I'm having a little trouble understanding your numbers, but let's say one day you move out and rent both units, you would have a positive cash flow, correct?  If so, that's great and I would say go ahead, if not I would recommend against it.  You'll find cash flow is everything with owning rental property.  I think your plan to start with a duplex is great!  Get the hang of being a landlord, and then in the future move on to something bigger, i.e. a quad.  You might even discover being a landlord is not for you, but feel good in the fact you will then own a highly sought after rental property.



emily2244

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Re: Duplex as my first home..
« Reply #3 on: January 25, 2015, 01:00:41 PM »
Hi! I bought a duplex 2.5 years ago in an expensive area of NJ with quick commute to NYC. At the time, my goal was to have the rent cover the entire payment (mortgage, insurance, taxes). I think that is a pretty good goal to have. The numbers that you gave don't seem great to me, but I also suspect that your unit would be fancier than mine, so maybe it's worth it. :)

emily2244

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Re: Duplex as my first home..
« Reply #4 on: January 25, 2015, 01:03:56 PM »
I should have specified- the rent from ONE unit needed to cover the payment...

clarkfan1979

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Re: Duplex as my first home..
« Reply #5 on: January 25, 2015, 06:11:17 PM »
Your closing costs seem a little low. Did you get a good faith estimate? Because you are putting less than 20% down, I think you are going to need to put up 15 months of taxes and insurance into escrow instead of 3 months. You get this money back when you get to 20% down or sell, but I think you still need to front the money.

benjordan

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Re: Duplex as my first home..
« Reply #6 on: January 25, 2015, 08:23:18 PM »
Thanks for the responses everyone.. the closing costs were just an estimate so I'll tick those upwards I don't have a definitive number yet. I think a duplex is the way to go for us.. just gotta be patient and find the right duplex.