Author Topic: Buy Duplex- Tenant Pays the Mortgage?  (Read 4542 times)

EarlyStart

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Buy Duplex- Tenant Pays the Mortgage?
« on: January 28, 2015, 04:51:36 PM »
I want to run some thoughts by you all and welcome any feedback. I have no particular interest in earning an income in real estate, but one aspect does seem attractive to me. I'm 22 and will want to buy a home at some point before 30, and I've been thinking about the most effective way to do it. Ideally, I'd like to buy a duplex in which a tenants rent payments would cover a significant portion (or all) of the mortgage. I don't even know what region I'll be in, but I'd appreciate any recommendations for resources I can use to learn more. Most real estate books seem to be about how to expand and make a living. I would ONLY choose a building where I could afford the payment with or without a tenant.

How time consuming might this be? I'm probably going to be working in public accounting (60 hour weeks, or more).


I'd imagine I'd need to set aside some cash for repairs, maintenance. How does this typically work?


Would I need to furnish the tenants side of the duplex?


Is there a specific type of liability insurance I would need?




I'd like to do quite a bit of reading and learning before I dive in to this, which is why I'm reaching out several years before I need to buy a home. Thanks in advance for your help.






zoltani

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Re: Buy Duplex- Tenant Pays the Mortgage?
« Reply #1 on: January 28, 2015, 05:01:27 PM »
I want to run some thoughts by you all and welcome any feedback. I have no particular interest in earning an income in real estate, but one aspect does seem attractive to me. I'm 22 and will want to buy a home at some point before 30, and I've been thinking about the most effective way to do it. Ideally, I'd like to buy a duplex in which a tenants rent payments would cover a significant portion (or all) of the mortgage. I don't even know what region I'll be in, but I'd appreciate any recommendations for resources I can use to learn more. Most real estate books seem to be about how to expand and make a living. I would ONLY choose a building where I could afford the payment with or without a tenant.

How time consuming might this be? I'm probably going to be working in public accounting (60 hour weeks, or more).
Depends, will you try and perform repairs yourself or will you hire it out?  Will you hire property management company to find tenants? Manage the property?

I'd imagine I'd need to set aside some cash for repairs, maintenance. How does this typically work?
Open bank account and keep a cushion that makes sense for your property (based on age, known issues, etc).

Would I need to furnish the tenants side of the duplex?
Up to you, but I wouldn't

Is there a specific type of liability insurance I would need?
Yes, call insurance company and give them details. You need insurance specific for rental property.

I'd like to do quite a bit of reading and learning before I dive in to this, which is why I'm reaching out several years before I need to buy a home. Thanks in advance for your help.

Read here and biggerpockets.com

What you want to do is no different than someone doing it as a real estate business. The numbers should still pencil out.

I think it is good that you will choose a property that you can afford without a tenant.

EarlyStart

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Re: Buy Duplex- Tenant Pays the Mortgage?
« Reply #2 on: January 28, 2015, 06:44:57 PM »
I want to run some thoughts by you all and welcome any feedback. I have no particular interest in earning an income in real estate, but one aspect does seem attractive to me. I'm 22 and will want to buy a home at some point before 30, and I've been thinking about the most effective way to do it. Ideally, I'd like to buy a duplex in which a tenants rent payments would cover a significant portion (or all) of the mortgage. I don't even know what region I'll be in, but I'd appreciate any recommendations for resources I can use to learn more. Most real estate books seem to be about how to expand and make a living. I would ONLY choose a building where I could afford the payment with or without a tenant.

How time consuming might this be? I'm probably going to be working in public accounting (60 hour weeks, or more).
Depends, will you try and perform repairs yourself or will you hire it out?  Will you hire property management company to find tenants? Manage the property?

I'd imagine I'd need to set aside some cash for repairs, maintenance. How does this typically work?
Open bank account and keep a cushion that makes sense for your property (based on age, known issues, etc).

Would I need to furnish the tenants side of the duplex?
Up to you, but I wouldn't

Is there a specific type of liability insurance I would need?
Yes, call insurance company and give them details. You need insurance specific for rental property.

I'd like to do quite a bit of reading and learning before I dive in to this, which is why I'm reaching out several years before I need to buy a home. Thanks in advance for your help.

Read here and biggerpockets.com

What you want to do is no different than someone doing it as a real estate business. The numbers should still pencil out.

I think it is good that you will choose a property that you can afford without a tenant.

Thanks for the response. I'll do some more reading. I get the gut feeling that this must be more complex/harder than it seems due to so few people buying their home this way. It's not necessarily rational to use this line of reasoning, but I'm naturally on the conservative/skeptical side.

zoltani

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Re: Buy Duplex- Tenant Pays the Mortgage?
« Reply #3 on: January 29, 2015, 09:39:03 AM »
NO, I actually think it isn't as complex as you want to make it. Finding a good tenant is the hard part IME.

I think the reason many people do not buy homes this way is because they have an aversion to sharing a wall in their home.

archben82

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Re: Buy Duplex- Tenant Pays the Mortgage?
« Reply #4 on: January 29, 2015, 11:57:05 AM »
My wife and I bought a duplex as our first home a few years ago and it's been one of the best financial decisions we've made.  I would try and buy in an area where either grad students or young professionals would like to live, which is usually older neighborhoods close to downtown.  Our tenants pay the mortgage plus some since the mortgage is low as we bought a foreclosed home.  If you can find a distressed property in a nice area that's the best route, but is getting harder to find these days.

In terms of maintenance, if you're handy then it's not an issue, but be prepared for things to happen at the most inopportune time, such as when you're out of town.  Try to head off typical issues before tenants move in by having the HVAC system serviced, fix all leaky faucets, make sure things that are mounted to the wall are securely mounted.  I would also buy a small fire extinguisher from Lowes or Home depot and place it in an easily accessible closet close to the kitchen, just in case.

Then sit back, collect rent and watch your mortgage pay for itself!

Mazzinator

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Re: Buy Duplex- Tenant Pays the Mortgage?
« Reply #5 on: January 29, 2015, 01:12:11 PM »

zoltani

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Re: Buy Duplex- Tenant Pays the Mortgage?
« Reply #6 on: January 29, 2015, 03:13:11 PM »
Totally off topic but I wish the term "hacking" would just die already!

EarlyStart

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Re: Buy Duplex- Tenant Pays the Mortgage?
« Reply #7 on: January 29, 2015, 05:24:41 PM »
NO, I actually think it isn't as complex as you want to make it. Finding a good tenant is the hard part IME.

I think the reason many people do not buy homes this way is because they have an aversion to sharing a wall in their home.

Okay, that makes sense. I really don't mind sharing a wall. I've pretty much always done that as is.

EarlyStart

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Re: Buy Duplex- Tenant Pays the Mortgage?
« Reply #8 on: January 29, 2015, 05:25:46 PM »
My wife and I bought a duplex as our first home a few years ago and it's been one of the best financial decisions we've made.  I would try and buy in an area where either grad students or young professionals would like to live, which is usually older neighborhoods close to downtown.  Our tenants pay the mortgage plus some since the mortgage is low as we bought a foreclosed home.  If you can find a distressed property in a nice area that's the best route, but is getting harder to find these days.

In terms of maintenance, if you're handy then it's not an issue, but be prepared for things to happen at the most inopportune time, such as when you're out of town.  Try to head off typical issues before tenants move in by having the HVAC system serviced, fix all leaky faucets, make sure things that are mounted to the wall are securely mounted.  I would also buy a small fire extinguisher from Lowes or Home depot and place it in an easily accessible closet close to the kitchen, just in case.

Then sit back, collect rent and watch your mortgage pay for itself!

Wow. That is really encouraging. Thanks. Congrats on your success.

EarlyStart

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Re: Buy Duplex- Tenant Pays the Mortgage?
« Reply #9 on: January 29, 2015, 05:27:19 PM »

michaelrecycles

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Re: Buy Duplex- Tenant Pays the Mortgage?
« Reply #10 on: January 29, 2015, 07:24:02 PM »
OP thanks for asking the question. Thinking of doing this myself (or a 4-unit, but that might be more complex), so I'm commenting to catch any updates.

EarlyStart

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Re: Buy Duplex- Tenant Pays the Mortgage?
« Reply #11 on: January 29, 2015, 07:49:46 PM »
OP thanks for asking the question. Thinking of doing this myself (or a 4-unit, but that might be more complex), so I'm commenting to catch any updates.

Cool. I'm trying to keep it as simple as possible since I'll likely be working in public accounting, which can demand 60-70+ hour work weeks depending on the time of year. I really would prefer just one tenant. As opposed to a true real estate "investor", I don't absolutely have to be cash flow positive all the time.

e.g. I buy a $180,000 duplex at 4%, 15 year with a 20% downpayment. Monthly payment including insurance and tax would be maybe about $1300. 


If expenses were $1300 and I only charged the tenant $800 rent , I'd only being paying $500/month to build equity in a $180,000 house. Over the 15 years (not including maintenance, tenant-less periods, etc. etc.) I'd pay $90,000 for the $180,000 property. For real estate investors, in the conventional sense, this might be an unacceptable return, but I'd be pretty happy with something like this for a home purchase.


Those are my general, unsophisticated plans.