Author Topic: Buying a house with duplex in back  (Read 3149 times)

wboard82

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Buying a house with duplex in back
« on: June 22, 2014, 09:10:55 PM »
My wife and I have been hunting for a good deal on our first home.  We do not have to move anytime soon, but if the right thing comes along we are ready to jump on it.  We have been mostly looking at foreclosures in west Michigan where we live.

So here is the situation that we are currently thinking about:
- 4br, 1-1/2 ba house on the market for $26,900
- Comes with a duplex which is situated behind the house (all told, it's about .7 acres, but a lot of that is pretty wet)
- One tenant in the duplex currently paying $375 who wants to stay (she has lived there 20 years)
- Home is older (1930's) and has a lot of original items in it including the fuse box/wiring, windows, but generally in good shape interior and exterior
- The one glaring problem is both structures have very wet basements. When we saw it there had been no rain for at least 4 or 5 days and both basements had about 1/4" of water on the floor.  The area has a high water table.

We are relatively new mustachians, both finishing grad school and so don't have a large stash of cash, but we have parental financing available at 5% for the next 5 years.  Hopefully it would be all payed off by then, but if not we'd get a home equity loan for the balance.

My thinking is that this would be a way to start building equity instead of paying rent, all while bringing in rental income from a property that will (hopefully) be easy to manage since it is in our backyard.  There is already a tenant who really wants to stay even with the current condition and said she's willing to pay more if someone were to fix up the place a little.  We like the character of the house and the location is convenient.  It's not exactly in a neighborhood - a little street of houses between a park, some open land, a city maintenance lot and a preschool.

So, my questions are has anyone else done something like this before?  What are the pitfalls to watch out for?  I'm thinking of taking care of the basement water myself by installing drain tile running to the sump.  Anyone done this before?

We're new at this, but it seems like a potentially really great deal.  Thanks for any thoughts you have.

waltworks

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Re: Buying a house with duplex in back
« Reply #1 on: June 23, 2014, 11:25:32 AM »
Assuming you are moderately handy and plan to stay in the area,  it sounds like a slam dunk. Get an inspection, of course - but crap, the renter will pay your entire mortgage even if you finance the whole thing!

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Peony

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Re: Buying a house with duplex in back
« Reply #2 on: June 23, 2014, 12:03:00 PM »
I like the sound of it, as long as you can get some assurance from an inspector/structural engineer/other knowledgeable person that the water issue can be dealt with. It sounds like the house has some vintage aesthetic appeal; having rental income is fantastic; and you will be right there if there is a problem that needs fixing. I would love to see my sons or stepson do something like this. Good luck and keep us posted.

rebel100

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Re: Buying a house with duplex in back
« Reply #3 on: June 23, 2014, 12:23:18 PM »
Equity aside, it appears you can earn a bit of actual cash flow from this investment.  What condition is the other side of the duplex in?  How much will it cost to repair to a rent-able standard?  How easily/quickly can you locate a quality tenant?  Would you and your partner consider living in one side of the duplex while renting the main house (might provide for even better cash flow)? 

Sounds like an exciting deal that could be downright lucrative.

What are the costs to get the basements dry?  Would gutters and shallow french drains fix the problem?  How difficult is excavation below grade to properly whaterproof the buildings?

wboard82

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Re: Buying a house with duplex in back
« Reply #4 on: June 23, 2014, 08:06:36 PM »
Thanks for all the input!

The other side of the duplex probably needs to have some cleaning and painting.  Possibly a new appliance or two in the kitchen.  ($1000 max)

Both sides of the duplex will need new furnaces - they are the old octopus furnace - ancient.  I am planning on watching out for a good deal on used furnaces before it is needed. ($2000-3000 in the next year or two).

It is definitely too small for us to live in (around 400 sq ft).  And we actually really like the house, so we would enjoy fixing it up a little bit over time.

I'm getting an estimate tomorrow on getting the basement dry.  I'm fairly certain the only solution is to install interior drain tile and get a better sump pump.  (Maybe it will be solved just by getting a better pump and making sure it is attached and draining properly!)  I fully expect that the estimate will be at least $10k.  However, with some advice from a builder friend and reading up, I think that the drain tile solution is something I can tackle.  Lots of work, but nothing super technical.  Has anyone undertaken that project themselves?

Again thanks for the advice.

Gerard

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Re: Buying a house with duplex in back
« Reply #5 on: June 28, 2014, 07:25:36 AM »
You should probably do a separate post, either here or in "ask a mustachian", about the drain tile thing. People who know about that aren't going to find your question in this thread.

malacca

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Re: Buying a house with duplex in back
« Reply #6 on: June 28, 2014, 07:25:28 PM »
1) You can just forget about the basements. Given the price you are paying for the property the basements will cost more to fix. Do you really need them? Just do the minimum and don't use them unless there is a tornado.

I had one place like this. Put a pump in and a dehumidifier and forgot about it.

2) Get a service plan from the utility company for the furnaces and appliances. For older places they are a deal - especially for octopus furnaces. Mine costs 19.95 a month and covers furnace, water heater, dryer, fridge, stove, etc. Something goes wrong I call and they fix it. Zero cost. Paid for itself for the next decade already.

Replacing an old heater is very expensive. Heaters are cheap but installing them is expensive - a lot of sheet metal work, etc. And depending on your city, the work may have to be done by a local licensed $$$$ professional. Getting it up to code is not possible for the inexperienced DIYer.

And don't worry, those old octopuses run forever. Very little to go wrong.

3) Paint. It is the best investment for rentals. Makes a pig look acceptable. 

4) Make a plan and go for it. I wouldn't mind such a deal myself.

Malacca

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Re: Buying a house with duplex in back
« Reply #7 on: June 28, 2014, 11:18:50 PM »
I think you'd be a fool NOT to buy the place, frankly. Do it man!

totoro

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Re: Buying a house with duplex in back
« Reply #8 on: June 28, 2014, 11:36:28 PM »
I get tired thinking about this.  Water in the basement?  Octopus furnaces and knob and tube wiring?

I agree the numbers seem good, but I still wouldn't do it myself.  I look for dry basements because of mould issues I don't want to deal with (among other things) and new wiring because of fire hazards and lack of ability to get insurance in case your tenant is injured by said fire - at least in Canada.  Not to mention lead paint and asbestos issues.  Or foundation issues.  Are you planning to have a child because exposure to mould and hazardous substances could be of higher importance.

That all said, it sounds like other folks here have dealt with water and fuse wiring before successfully - and the price is right - depending on the reno and fix it and remediation costs.  I'd personally look for something without so many problems.