Author Topic: Duplex or SFH  (Read 1876 times)

nkt0

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Duplex or SFH
« on: October 30, 2019, 11:54:41 AM »
I have circumstances that have put me into a fork in my life's road. I don't think there's a definitive answer to this question, but i just wanted to pose it to the forum to see if others have different ways of thinking about it.

Currently, we have a single-family home with 15 years remaining on a 20-year mortgage in a medium cost-of-living area.

We are considering moving to a lower cost-of-living area and buying a duplex to offset our housing costs.

Here are the rough numbers from my napkin. None of them are future-adjusted, so many things other than the mortgage cost will likely go up over time.

Plan A (do nothing)
Home purchase price: $257,000
P+I: $19,200/year
T+I: $4300/year
Maintenance: $3000/year
Utilities: $1800/year
Net annual cost w/ mortgage: $28,300 x 15 years
Total net cost w/ mortgage: $424.500
Net annual cost after mortgage: $9,100

Plan B (duplex hacking)
Duplex purchase price: $350,000
P+I: $15,660/year
T+I: $8600/year
Maintenance: $6000/year
Utilities: $3000/year
Rent*: $15,120/year
Net annual cost w/ mortgage: $18,140 x 30 years
Total net cost w/ mortgage: $544,200
Net annual cost after mortgage: $2,480

* Rent is discounted to 90% of total to account for vacancy.

Strictly financially speaking, it seems like Plan B does allow us some near-term savings. Some additional savings ($4k/year) would come from relocating to an area without local income tax, but that would only be while i'm still working a wage-earning job. We do not earn enough to take advantage of itemized deductions or other significant tax savings, so i tried to keep this simple. This also does not account for the cost of move itself.

Non-financial considerations include: Do we really want to be landlords? Do we really want to move again? Etc.

Is there anything else i should be considering? Anything i've overlooked?

Milspecstache

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Re: Duplex or SFH
« Reply #1 on: November 16, 2019, 05:02:17 AM »
I currently live in a duplex where my tenants pay all of my costs: mortgage, taxes, insurance, utilities, etc.  Allows me to live for free while I am fixing it up (bought it with everything broken).  I wish I had went this route 20 years ago.

So my vote is find a duplex that is at least 1%, maybe even greater, and sell the SFR.

Jon Bon

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Re: Duplex or SFH
« Reply #2 on: November 17, 2019, 09:57:42 AM »
Duplexes are great, I have a few of them. You get some economies of scale having them right next to each other.

Addressing your house hacking question I guess me answer is "It depends"

20-something year old me would not think twice about living next to my tenants. Whatever I'm cool, your cool just dont be a dick you know?

But 30-something year old me would not want to put up with the complication. You have a few kids, your sleep hours become much less flexible etc. Your tolerance for sharing your living space with strangers goes way down.

So do you want to live right next to your neighbors? Why not just buy the duplex anyways and rent out both sides. If you want you can use the profits to offset the cost of your SFH that you live in now.

I've never lived next to(on top of?) my tenants like that, im at least a few miles away. Which is probably about right!




nkt0

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Re: Duplex or SFH
« Reply #3 on: November 18, 2019, 07:05:20 AM »
All great considerations. I think we'll continue to look at duplexes, but the market in the area we're looking is overheated right now, so not going to pull the trigger yet. Also, not sure i want to tie up so much of the taxable savings in rental property. Or maybe that's a good thing? What ROI should i be aiming for on my cash investment?

brandonw

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Re: Duplex or SFH
« Reply #4 on: November 20, 2019, 05:37:54 AM »
All great considerations. I think we'll continue to look at duplexes, but the market in the area we're looking is overheated right now, so not going to pull the trigger yet. Also, not sure i want to tie up so much of the taxable savings in rental property. Or maybe that's a good thing? What ROI should i be aiming for on my cash investment?

The stock market has historically averaged a 7% return, long-term, after inflation and requires almost zero work to manage with passive index funds.  To account for the extra work and risk it takes to invest in real estate, I look for ROI of at least 10%, but preferably greater than 12%.  The additional risk needs to be worth it, or else you're better off leaving it in the stock market.

nkt0

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Re: Duplex or SFH
« Reply #5 on: November 20, 2019, 06:30:49 AM »
Is there a good, definitive resource or formula for calculating ROI on cash outlay for real estate?

brandonw

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Re: Duplex or SFH
« Reply #6 on: November 20, 2019, 08:59:37 AM »
Is there a good, definitive resource or formula for calculating ROI on cash outlay for real estate?

Annual Cash Flow / Cash Outlay = ROI (More commonly referred to as Cash on Cash Return in REI)

frugal_c

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Re: Duplex or SFH
« Reply #7 on: November 20, 2019, 08:09:03 PM »
I lean towards the duplex from a purely financial point of view.  There are some trade-offs in having shared walls as opposed to a separate house.  Financially, definitely better off with the duplex.

In your comparisons, it looks like you have a 15 year mortgage now and you are comparing to a 30 year mortgage.  Is that right?   If I understand correctly, you might want to use a 15 year amortization on the duplex too.  Just so everything is consistent when you are looking at the numbers.  What I mean is that you might pay more now with the house but then you are paying it off much sooner.  Just look at the duplex with similar terms.  However, that is just for comparison, you would still want to actually get the 30 year mortgage. 
« Last Edit: November 20, 2019, 08:11:22 PM by frugal_c »