Author Topic: Duplex purchase for owner occupy setup - should I do it?  (Read 3519 times)

GumbyPickles

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Duplex purchase for owner occupy setup - should I do it?
« on: February 16, 2015, 08:56:40 AM »
I know, standard topic, but just wondering thoughts from you guys:

Myself:
$50k available cash; $50k in 401k/investments
Currently paying half of $1,200 rent w/ roommate in similar duplex across town
$85k annual income
$0 Debts

Property: 3br/1ba per side Duplex
Bank owned, listed at $230,000
Highly desirable area (been on market for 1 week, already has 3 offers)
Market rent for good condition $1,100-1,500 (Listings on craigslist receive 20+ responses within 24hr)
Old gravity-style furnace, no A/C (likely would want to replace)
Old windows (likely need replaced)


My current assumption is that I would put 10% down, have approximately a $1,450 mortgage.  I would anticipate putting $25k-30k within the first year for upgrading the central furnace, A/C, and windows.   This would get me closer to the market rent, along with maybe $10k in additional investment for bathroom/kitchen upgrades.

Thoughts? I anticipate living in current area for next few years at a minimum.   Thanks!
« Last Edit: February 16, 2015, 08:58:36 AM by GumbyPickles »

Nate R

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Re: Duplex purchase - should I do it?
« Reply #1 on: February 16, 2015, 09:04:13 AM »
First thing's first: FHA financing planned? If not, in 2013 at least, a duplex, even owner occupied, required 20% down for a conforming loan. So not sure if 10% down works in today's market or not.

2nd: As an aside, I'd recommend having old windows have good storms put on the outside, and have the windows themselves refurbished or rebuilt. The energy/cost/function payback is much better on old wood windows. They CAN be restored.

Overall: As a house hack, it's not a bad way to get your costs down overall. If/when you ever do move, looking at $750+ in raw cashflow looks not too bad to me. Not the greatest deal, but not the worst, especially in a hot area like that.



ShoulderThingThatGoesUp

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Re: Duplex purchase for owner occupy setup - should I do it?
« Reply #2 on: February 16, 2015, 09:07:36 AM »
If it already has 3 offers, it seems like you won't be getting this one.

There's nothing wrong with gravity heat, BTW.

GumbyPickles

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Re: Duplex purchase for owner occupy setup - should I do it?
« Reply #3 on: February 16, 2015, 09:16:03 AM »
If it already has 3 offers, it seems like you won't be getting this one.

There's nothing wrong with gravity heat, BTW.

They are taking best offer at the end of day Wednesday, so I still have time.

ShoulderThingThatGoesUp

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Re: Duplex purchase for owner occupy setup - should I do it?
« Reply #4 on: February 16, 2015, 09:26:04 AM »
Property taxes? Ongoing maintenance? Insurance? Have you calculated your monthly cash flow?

GumbyPickles

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Re: Duplex purchase for owner occupy setup - should I do it?
« Reply #5 on: February 16, 2015, 09:49:22 AM »
Property taxes? Ongoing maintenance? Insurance? Have you calculated your monthly cash flow?

Yes.  Property taxes/insurance/mortgage were all included in the mortgage estimate. 

Monthly cash flow would be approximately -$100, plus maintenance costs.   I look at this as the cost of my rent per month.

GumbyPickles

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Re: Duplex purchase - should I do it?
« Reply #6 on: February 16, 2015, 09:53:34 AM »
First thing's first: FHA financing planned? If not, in 2013 at least, a duplex, even owner occupied, required 20% down for a conforming loan. So not sure if 10% down works in today's market or not.

2nd: As an aside, I'd recommend having old windows have good storms put on the outside, and have the windows themselves refurbished or rebuilt. The energy/cost/function payback is much better on old wood windows. They CAN be restored.

Overall: As a house hack, it's not a bad way to get your costs down overall. If/when you ever do move, looking at $750+ in raw cashflow looks not too bad to me. Not the greatest deal, but not the worst, especially in a hot area like that.

Thanks for your analysis and opinions.  That makes me feel a little bit better about the investment costs for windows. 

I would need the gravity heating removed because I've heard it's very inefficient and wouldn't be suitable for central Air Conditioning. 

Thanks for the info on the loan by the way, I thought I was told 10% would be fine on a duplex, but I could be wrong.  Better check this out again.

 

Nate R

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Re: Duplex purchase - should I do it?
« Reply #7 on: February 16, 2015, 11:22:29 AM »
First thing's first: FHA financing planned? If not, in 2013 at least, a duplex, even owner occupied, required 20% down for a conforming loan. So not sure if 10% down works in today's market or not.

2nd: As an aside, I'd recommend having old windows have good storms put on the outside, and have the windows themselves refurbished or rebuilt. The energy/cost/function payback is much better on old wood windows. They CAN be restored.

Overall: As a house hack, it's not a bad way to get your costs down overall. If/when you ever do move, looking at $750+ in raw cashflow looks not too bad to me. Not the greatest deal, but not the worst, especially in a hot area like that.

Thanks for your analysis and opinions.  That makes me feel a little bit better about the investment costs for windows. 

I would need the gravity heating removed because I've heard it's very inefficient and wouldn't be suitable for central Air Conditioning. 

Thanks for the info on the loan by the way, I thought I was told 10% would be fine on a duplex, but I could be wrong.  Better check this out again.

 

No problem! Let us know what you end up doing and why, please! Curious to see the outcome.

(I own a duplex that we live in. Bought in 2013, renting out the other unit.)

ryan114

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Re: Duplex purchase for owner occupy setup - should I do it?
« Reply #8 on: February 16, 2015, 12:07:41 PM »
It looks to me like this situation will get you about a 10% return after your estimated upgrade projects, excluding mortgage interest, interest, and property tax. That's not much better (potentially worse, in fact) than what you can do with just investing the cash in stocks and bonds. Plus you will have additional risks like bad tenants, unforseen maintenance, and vacancy. Just a few things to consider.

theoverlook

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Re: Duplex purchase for owner occupy setup - should I do it?
« Reply #9 on: February 17, 2015, 09:19:06 AM »
There's nothing wrong with gravity heat, BTW.

It's a nice heat, but my understanding is they're about 50% efficient compared to a modern high efficiency unit at about 95%.  A 45% savings in heating costs would rapidly pay for a very nice furnace around here!  (I'm in Ohio.)

ShoulderThingThatGoesUp

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Re: Duplex purchase for owner occupy setup - should I do it?
« Reply #10 on: February 17, 2015, 10:12:22 AM »
There's nothing wrong with gravity heat, BTW.

It's a nice heat, but my understanding is they're about 50% efficient compared to a modern high efficiency unit at about 95%.  A 45% savings in heating costs would rapidly pay for a very nice furnace around here!  (I'm in Ohio.)

I was mixed up, I thought gravity heat referred to a single-pipe steam system like I have.

clarkfan1979

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Re: Duplex purchase for owner occupy setup - should I do it?
« Reply #11 on: February 17, 2015, 06:55:38 PM »
The numbers look good. However, I have one reservation about living in a duplex. I will probably get grilled on this, but I don't care because I think it is a half-way decent point. When you are an owner and your tenant lives next door, don't you get hassled for lots of little things? Does anyone have any experience with this?

MikeBear

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Re: Duplex purchase for owner occupy setup - should I do it?
« Reply #12 on: February 17, 2015, 07:18:06 PM »
The numbers look good. However, I have one reservation about living in a duplex. I will probably get grilled on this, but I don't care because I think it is a half-way decent point. When you are an owner and your tenant lives next door, don't you get hassled for lots of little things? Does anyone have any experience with this?

You have to be firm right from the start, and explain your expectations. Obviously, you WANT your tenant to contact you for anything that's possibly life threatening, or could become extremely expensive if repairs hold off for too long. On the other hand, you don't want them calling you or knocking on your door every time a bumblebee flies through the house.

So, as usual, CAREFUL tenant selection, and setting forth what your expectations are in the lease, and going over it when they rent so thy understand. Then, you tweak as needed verbally with the particular tenant as life goes on and you see how it goes with what they do.

Personally, I feel it's smarter to start with a 4-plex, rather than just a duplex. It's not that much more work, yet has far greater potential for living totally free, PLUS making some monthly money. As a bonus, you can still finance a 4-plex with a standard non-commercial mortgage. If you are going to live in it (you should) it's not that much harder to do this, especially for a beginning investor. You'll really either love it, or learn your limitations towards dealing with problems real fast.
« Last Edit: February 17, 2015, 07:22:24 PM by MikeBear »

powskier

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Re: Duplex purchase for owner occupy setup - should I do it?
« Reply #13 on: February 18, 2015, 12:44:57 AM »
I rent out our downstairs 2 bdr appt, when interviewing potential tenants I let them know we live upstairs and will kick them out immediately if there are any problems, only had to do it once. You want your tenants to "bug" you if there is anything wrong, it is far cheaper than having to do costly repairs. I always thank my tenants when they do....they rarely have to.
We also have a small appt building, tenant screening is very easy to do over the phone and in person, checking references, work , etc. Noticing how well kept the inside of their car is always helpful. The easy test is to ask them if you can swing by their current place to see if they take good care of it. The look on their face will tell you everything you want to know.
Keep the place nice and only take tenants who will do the same.
Buy the place,it appears a decent investment, do you have to upgrade immediately? Real Estate will always give you additional costs at some point, factor that in to your math. It frequently provides additional benefits too.
FYI for the future you should already have your promise to finance letter ( 90% letter or whatever) with you when you present an offer, if someone puts in same price offer as you but with financing already lined up their offer is more attractive than yours.
Cash offers always rule.