What would you pay to live in a duplex?
Most buyers guess. Run the real number instead. Enter a Twin Cities duplex price, what you plan to put down, and what the other unit rents for. The calculator shows what actually comes out of your pocket every month once the tenant has paid.
A worked example: a $400,000 Northeast Minneapolis duplex
Say you buy a side-by-side duplex for $400,000 with an FHA loan at 3.5 percent down. That is about $14,000 down, leaving a loan near $386,000. At a 6.5 percent rate the principal and interest run roughly $2,440 a month. Add about $383 for property taxes, $150 for insurance and $177 for FHA mortgage insurance and the full payment lands near $3,150.
The other unit rents for $1,500, so your real cost to live in the building is about $1,650 a month. That is in line with a two-bedroom rental in the same neighborhood, except you own the asset and someone else is paying most of the mortgage.
Now move out in year two and rent your side for $1,500 as well. The building brings in $3,000 against that $3,150 payment, and once you hold back 15 percent of the rent for vacancy, maintenance and capital items you are roughly $600 a month short. That is the honest answer at current rates: most Twin Cities duplexes do not cash flow the day you move out. What makes the deal work is the years you lived there cheaply, the principal you paid down, dropping mortgage insurance when you refinance, and rents that keep climbing. Price and rents are what move the needle, which is the whole point of running the numbers before you write an offer.
House hacking questions, answered
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Usually yes. On an owner-occupied 2-4 unit purchase, FHA and most conventional lenders let you count roughly 75 percent of the market rent estimate from the appraisal for the units you will not live in toward your qualifying income. The 25 percent haircut covers vacancy and maintenance. Some conventional programs still ask for landlord history or extra reserves, so ask your lender to run the numbers both ways before you write an offer.
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FHA house hacking means buying a 2-4 unit building with an FHA loan, living in one unit for at least a year, and renting out the rest. Because you occupy the property it is not an investment purchase, so the down payment can be as low as 3.5 percent instead of the 20 to 25 percent a lender would want on a rental. The rent from the other units then offsets your mortgage payment.
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It depends on the loan. Conventional mortgage insurance can be cancelled at 80 percent loan-to-value and drops off automatically at 78 percent, and a new appraisal after renovation can get you there sooner. FHA mortgage insurance is different: with less than 10 percent down it stays for the life of the loan, so most FHA house hackers refinance into a conventional loan once they have 20 percent equity.
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Around 3.5 percent with FHA, 5 percent with a conventional owner-occupied multifamily loan, and 0 percent with a VA loan if you are eligible. On a $400,000 duplex that is roughly $14,000 down with FHA versus about $100,000 if you bought the same building purely as a rental. Budget separately for closing costs and a repair reserve, since older Twin Cities duplexes often need work on the roof, sewer line or heating system.
Found a duplex you like?
Send me the address and I will pull the real rent comps, check the tax and insurance numbers, and run the deal properly before you write an offer. Dan Anshus, Twin Cities duplex and multi-family specialist. dan@theduplexdan.com