Author Topic: Duplex woes: How to deal with a bum unit  (Read 9650 times)

Stachetastic

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Duplex woes: How to deal with a bum unit
« on: December 04, 2014, 10:45:33 AM »
First of all, "Bum Unit" makes me chuckle, so there you go. 

I purchased an up/down duplex in 2006 when I was single and looking to live in half and have the other half pay my mortgage. That worked well, especially when my sibling rented the other half. We have both since moved on and started families, so I have been renting out both units for the past several years. The downstairs unit has been great...little to no maintenance issues, new tenants beating down my door before I can even advertise its availability. All good.

The upstairs unit, however, has been a thorn in my side. I cannot attract and/or keep good tenants. It seems like people in my area who are willing to live in an upstairs unit are immature/incapable of budgeting/and have caused quite a bit of damage. IT has only been rented out maybe 4 months this whole year, and it has been a nightmare. We have even considered turning it back into a single family dwelling, but the PITI is a bit high to allow for any cash flow. Here are the stats:

Purchase price: 73k
PITI: 650
Mortgage balance: 60k (6.5%)

Utilities I pay:
gas:88/mo (on budget)
water: 50-80/mo
trash/sewer: 50/mo

Rental income:
Downstairs: 600/mo
Upstairs: 550/mo


SO and I have also discussed selling, but the market in our town has not rebounded much, particularly in regards to multi family properties. I don't mind being a landlord, and would like to add more single family units to our portfolio (we own one SF rental now). We just don't know how this duplex fits into all that.  Also, for what it's worth, our only non-mortgage debt is about 19k in student loans, which will be paid off in early 2015. Thanks for any insight!

Edit: I guess I should get to my point: Should we focus on attracting better tenants (how??) Sell?


« Last Edit: December 04, 2014, 11:06:12 AM by Stachetastic »

mooreprop

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Re: Duplex woes: How to deal with a bum unit
« Reply #1 on: December 04, 2014, 11:05:55 AM »
I faced the same issue and the only solution I found was to discriminate (illegally) on the basis of age.  I only rented that unit to people over 35 who had jobs.  I still had trouble, but much less.  For example, after being served with eviction papers for nonpayment one tenant left for the weekend with his stereo turned up as loud as it would go.  I was called by the neighbor and when I tried to get in to turn it off I discovered that he had also changed the lock and deadbolt.  I finally pulled the fuses to solve the problem.  (also illegal)  Eventually, I decided that I was tired of breaking the law and sold that property.  I have never regretted it.  Now I only own single family rentals and and townhouse apartment.  That way, the same person has the upstairs and downstairs.

Megma

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Re: Duplex woes: How to deal with a bum unit
« Reply #2 on: December 04, 2014, 12:55:35 PM »
A little off topic but do you have fewer issues with a townhome than a duplex? Duplexes are very reasonable in my area and I was considering buying one instead of a townhome but maybe they just don't attract a high enough quality tenant.

arebelspy

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Re: Duplex woes: How to deal with a bum unit
« Reply #3 on: December 04, 2014, 01:01:00 PM »
The downstairs unit has been great...little to no maintenance issues, new tenants beating down my door before I can even advertise its availability. All good.

The upstairs unit, however, has been a thorn in my side. I cannot attract and/or keep good tenants.

Next time it's vacant, ask the downstairs tenant to move upstairs, and offer them an incentive.

Even if you gave them $500 cash up front and knocked $50-100 off their rent (the upstairs is already cheaper), you end up ahead versus just one month's vacancy, if you can fill the bottom unit that quickly.

Otherwise drop the rent of the top?
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Stachetastic

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Re: Duplex woes: How to deal with a bum unit
« Reply #4 on: December 04, 2014, 02:39:39 PM »
The downstairs unit has been great...little to no maintenance issues, new tenants beating down my door before I can even advertise its availability. All good.

The upstairs unit, however, has been a thorn in my side. I cannot attract and/or keep good tenants.

Next time it's vacant, ask the downstairs tenant to move upstairs, and offer them an incentive.

Even if you gave them $500 cash up front and knocked $50-100 off their rent (the upstairs is already cheaper), you end up ahead versus just one month's vacancy, if you can fill the bottom unit that quickly.

Otherwise drop the rent of the top?

Interesting proposition. The issue with that would be the downstairs unit includes a fenced in yard. The yard cannot be shared due to a doggy door in the downstairs unit. So I don't think my downstairs tenant would ever be interested due to having dog  and kids, but I could ask.

Do you think dropping the rent would help attract a better clientele? I've seen this concept mentioned here before, and I'm intrigued.
« Last Edit: December 04, 2014, 02:41:33 PM by Stachetastic »

MrMoneyPinch

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Re: Duplex woes: How to deal with a bum unit
« Reply #5 on: December 04, 2014, 03:03:21 PM »
Do you think dropping the rent would help attract a better clientele? I've seen this concept mentioned here before, and I'm intrigued.
Probably not.  Every move downmarket changes the clientele.  You may find a good tenant at any reasonable price, but putting a unit "on sale" attracts deal-seekers and/or people who want more than they can pay for. (I'm assuming you are currently charging market rate for that unit)

I have another suggestion:  if there are some weak spots in that unit, you could do some renos and make it more desirable.  Depending on the type of work, it could also be an opportunity to raise the rent and make the numbers better.  Then you will have the choice between many candidates.

Also:  do your homework before renting.  Credit scores and checking for adequate income is not illegal screening (in my jurisdiction, at least).  As a business owner you cannot be expected to accept a tenant that does not make enough to cover rent, food and utilities!  Calling the current landlord can also be instructive.

arebelspy

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Re: Duplex woes: How to deal with a bum unit
« Reply #6 on: December 04, 2014, 03:09:11 PM »
Do you think dropping the rent would help attract a better clientele? I've seen this concept mentioned here before, and I'm intrigued.

It depends on how many applications you're getting.  If it's very few, and it's the desperate people who can't rent elsewhere, yes.  Even people with good credit and jobs want a good deal.  The wider your potential tenant base the better, in general.  Too low, obviously, can be off-putting because they think there's something wrong with it, but there are times when the asking rent is just too high.  Sitting vacant for 8/12 months indicates to me that yes, you should probably drop the rent (but that's just a guess, of course, I don't know the exact situation.  MMP's suggestion of a rehab is another good idea.).
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Cpa Cat

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Re: Duplex woes: How to deal with a bum unit
« Reply #7 on: December 04, 2014, 03:25:37 PM »
Couldn't you decrease the price but increase the deposit/# of months rent paid up front? That might help weed out the losers.

You can also do credit checks, as noted, and contacting their previous landlord (if they have one) will be helpful. If they don't have one (or can't provide one), you either weed them out or require a cosignor, if they're moving from their parents' house. You could also ask for proof of employment (must recent paystub).

Given the number of months it's been vacant, it sounds like you're having some real trouble attracting tenants. Ideally, your price would be low enough that you can essentially take your pick of tenants who are able to meet your background check requirements.

Bobberth

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Re: Duplex woes: How to deal with a bum unit
« Reply #8 on: December 04, 2014, 03:41:56 PM »
I find it interesting that your market is such that people don't like top units.  When we were first married and moved into a 4 family, we specifically chose the top unit so we didn't hear foot steps and so the downstairs unit would pay to heat our floor.  Is it smaller or more outdated?  When I rehabbed my duplex and offered both for rent at the same time, most of the people looking/applying didn't have a preference between the two.  I'm not sure I can offer anything different than what has already been said but I'm shocked that for $50/month less in rent people aren't lining up to rent it if it's similar to the bottom unit.  Is there something else about the unit that makes it less/undesirable?

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Re: Duplex woes: How to deal with a bum unit
« Reply #9 on: December 04, 2014, 03:50:54 PM »
I like the drop the rent idea...a little less cash flow but get a good tenant in there and you'll be ahead in the long run.

Also, can you refi?  6.5% ouch..

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Re: Duplex woes: How to deal with a bum unit
« Reply #10 on: December 04, 2014, 04:01:47 PM »
It seems to me that the units are possibly totally different, and have a totally different tenant profile. You are renting the downstairs one easily because it is pet friendly - dog door, yard - and family friendly (must have a few bedrooms?). You may be charging too little for the bottom one, as these things usually are hard to find and people pay a premium for them, and too much for the top one.

The top one has not got these features, and may not be what people are expecting of the neighbourhood. Think about both of them, and work out what type of tenant would like each. You might be tempted to get an agent to assess what they would charge for these, and see what difference they suggest. It could be you need to advertise them in different ways.

gimp

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Re: Duplex woes: How to deal with a bum unit
« Reply #11 on: December 04, 2014, 04:10:26 PM »
Out of curiosity, where are you geographically?

It sounds like the upstairs unit attracts single young people. Who are probably not young professionals, but just kids who treat your place like shit. Can you find young single people in your area who aren't deadbeats? And it sounds like your price is too high, $50/month seems too small for not having a backyard at all. Dropping the rent will get you different clientele - but if you get enough interest, you now get to be picky about whom your allow as a tenant.

Stachetastic

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Re: Duplex woes: How to deal with a bum unit
« Reply #12 on: December 04, 2014, 05:15:50 PM »
Lots of good questions. Both units are 2 br/1bath. The downstairs also includes a full basement (although it's an old, unfinished  musty space)  I forgot to mention I typically get 650 for the bottom, but I gave the current tenant a family discount and he takes great care of it. I had several tenants in the upstairs unit throughout this  year, and they each ended up moving out on their own without much notice. One moved out late at night and never even told me. He also broke the key off in the door when he left. It seems like when I advertise this  unit, I get a lot of lookers but few who are interested in it can actually afford it. I get a lot of young kids just moving out of their parents'  place who seem shocked when I tell them they need to have rent and deposit both before they can move in. I very rarely find someone who has enough cash on hand to even move in.

The upstairs is a decent space in good  repair. New carpet, fresh paint, some hardwood floors, etc. It's in a great neighborhood just down the block from an elementary school. I feel like I need to be patient for the perfect tenant, but that unicorn never seems to show up.

Stachetastic

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Re: Duplex woes: How to deal with a bum unit
« Reply #13 on: December 04, 2014, 05:19:54 PM »
I like the drop the rent idea...a little less cash flow but get a good tenant in there and you'll be ahead in the long run.

Also, can you refi?  6.5% ouch..

 I have looked into refinancing for the last three years, and I still don't have enough equity. It just won't appraise for what I need, since  the market around here is still sucking. That rate does hurt, for sure.
« Last Edit: December 04, 2014, 05:21:31 PM by Stachetastic »

Stachetastic

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Re: Duplex woes: How to deal with a bum unit
« Reply #14 on: December 04, 2014, 05:23:06 PM »
Out of curiosity, where are you geographically

I'm in rural Ohio. Go Bucks!

Seeking the Brass Ring

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Re: Duplex woes: How to deal with a bum unit
« Reply #15 on: December 05, 2014, 07:08:21 AM »
I'd try to figure out how to do some specific marketing for the place.  Think about what's close by in terms of employers who might have likely tenants.  Schools, hospitals, clinics, banks, anyplace that would have professional people working there.  See if you can get an add posted in their break rooms, coat rooms etc.  I'd also try the online listings for the military community (I forget the name but it's been posted here frequently). 

Security deposits and 1 year leases are a must in terms of cutting down on unplanned vacancy.  Hope this helps!

money_bunny

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Re: Duplex woes: How to deal with a bum unit
« Reply #16 on: December 06, 2014, 09:19:04 AM »
Market at the local hospitals get some Nurses!

Disclaimer the poster is an RN.

richschmidt

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Re: Duplex woes: How to deal with a bum unit
« Reply #17 on: December 08, 2014, 11:03:25 AM »
Have any of those tenants who left told you why they left? Perhaps there are issues you're not aware of... perhaps with the downstairs neighbors? If they have a dog & kids, there could be noise issues...?

We have a law school in our town and have had some luck with flyers on their bulletin boards. Though I think both of our current tenants (3rd floor, 1br 1 ba, in our house) came from Craigslist.

Our tenant who just moved in 2 days ago is on a temporary work assignment, helping build a new industrial building. His wife and kids are a few hours away. He was living in a hotel. Our apartment is much cheaper. Everyplace else he was looking was asking for a 1-year lease, and we were willing to do a 6-month one (which will end in the summer, perfect time for picking up another law student!).

lakemom

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Re: Duplex woes: How to deal with a bum unit
« Reply #18 on: December 10, 2014, 06:10:06 AM »
Have you thought about rethinking the yard situation?  Obviously this would depend on the actual layout of the house/parking/lot but is there a side yard or front yard that could be fenced in with access only to the upper unit?  Maybe the addition of a patio area or at least a space for a grill/table?  Was the building built as a duplex or is it a converted single family home?  If converted is there something not obvious about the upper unit that tenants only realize once they've been living in it?  Logically if the lower unit is $600 and includes a yard and a basement then $550 for the upper without those amenities seems rather high.  Are you marketing it heavily in the immediate neighborhood (schools/employers/colleges/craigslist/newspapers/local advertising sources)?  Have you spread the word amongst all your friends/relatives/coworkers that you have a nice upper 2/1 available at a good rent?  Word of mouth is usually a decent pre-qualifier for new tenants.  Your contacts won't want to hurt your relationship by sending you a deadbeat.  Finally are you doing a background and credit check on any serious applicant or falling into the trap that they showed up with deposit and 1st month and are breathing.....hey move in and I don't have to subsidize the mortgage this month?

Stachetastic

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Re: Duplex woes: How to deal with a bum unit
« Reply #19 on: December 11, 2014, 08:34:19 AM »
Thanks for the replies! Lakemom-It is a single family home that has long been converted. Every tenant I've had leave has either moved to purchase a home or has not been able to afford rent. The downstairs unit typically rents for $650 (I've got a relative in there now, so he's getting a discount.) I agree that the upstairs may be over priced. DH and I have discussed lowering rent, and we're going to try $500 and hopefully increase the prospective tenant pool. It seems like upstairs units are just not desirable in our area--DH and I laugh that in bigger cities, people actually prefer upstairs units. People around here do not want to have to schlep their kids/laundry/groceries up a set of stairs. Anyway, we have also discussed reconfiguring the yard situation. The back yard is completely fenced in and has an alley along one side and across the back (with a garage not used by tenants.) The only exterior door to the upstairs unit is in the front, so logistically, it would be difficult to allocate much of the yard. The side yard is only a few feet wide on either side, and again, butts up against an alley. There is not front yard to speak of aside from a small strip of grass.  There is no good place to put a patio of any sort. There is a very small covered front porch (shared) that tenants use to smoke, etc.

As for credit scores, most of my prospective tenants don't have any credit. I live in a small rural community, where properties can be purchased for 20-30k. It seems that most people with decent credit purchase homes. Most who look at the upstairs unit are very young and just moving from their parents' homes.  I always do background checks, including previous landlords (if any).

bye-bye Ms. FancyPants

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Re: Duplex woes: How to deal with a bum unit
« Reply #20 on: December 11, 2014, 10:54:25 AM »
We charge a $20 application fee that covers the cost of running them through the National Tenant Network. Even if they have never rented before and their score isn't very good the $20 application fee wards off those who aren't serious or worse those who can't afford the 20 bucks. ... Yet I am still shocked at how shocked people are that they need a deposit and rent up front. We do plenty of "payment plans".     

Stachetastic

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Re: Duplex woes: How to deal with a bum unit
« Reply #21 on: December 11, 2014, 12:05:50 PM »
... Yet I am still shocked at how shocked people are that they need a deposit and rent up front. We do plenty of "payment plans".     

We've done more payment plans than we'd like to admit. It's just so hard to see the unit sit empty month after month, while every showing is to people who don't have the rent and deposit money in hand. I can't remember the last time we had a tenant with $1k ready to go before move-in.

Fallenour

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Re: Duplex woes: How to deal with a bum unit
« Reply #22 on: December 12, 2014, 08:22:16 AM »
"Also, can you refi?  6.5% ouch.."

Thats why I ALWAYS tell people to buy points. Over the long run, it will save you a fortune. It will also drastically increase your profits over time.

Case and point:

Scenario 1:

Base: 200,000

Down: 25% (standard)

Principal remaning: 150,000

Interest: 6.5%

Years: 30

Payment: 948.10



Scenario 2:

Base: 200,000

Down: 25% (standard)

Principal remaning: 150,000

Interest: 6.5%

Years: 30

Points: 1.5 (3,000)((2,000 per 1 point, 1% per point)

Payment: 716

Total savings on monthly: 252

You break even on your points in a year. Over a 5 year hold, you save over 12,000


Remember, ALWAYS...BUY...POINTS.


Now that we've gotten past that point, lets address the root problem here, duplexes.


Alright so with duplexs, they offer a unique alternative to SFM, they allow you to split your risk on your tenant vs mortgage.

With two tenants, you are able to effectively "break" your mortgage + additional costs between two (or more) tenants, which balances your risk load across more area, reducing the properties "overall" risk of default or short sale due to lack of tenancy and/or profit.

The downside, if you lose one of your tenants, you fall into a negative operation cycle unless you bought the property very cheap compared to its $/sqft value.

This occurs often with landlords who own dup/multis, and is often times why I tell people that if you didnt buy the property as a short sale or foreclosure to begin with at a good value, dont invest on it.
« Last Edit: December 12, 2014, 08:54:49 AM by Fallenour »

Stachetastic

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Re: Duplex woes: How to deal with a bum unit
« Reply #23 on: December 12, 2014, 12:20:58 PM »
Thanks for the reply, Fallenour. I apologize for my ignorance, but how do I buy points? Is that something that needed to be done at the time of purchase?  Thanks!

Fallenour

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Re: Duplex woes: How to deal with a bum unit
« Reply #24 on: December 12, 2014, 01:30:13 PM »
Thanks for the reply, Fallenour. I apologize for my ignorance, but how do I buy points? Is that something that needed to be done at the time of purchase?  Thanks!

Yeap. Make sure you know the points rate as well. Sometimes youll get a really shady lender who will draft the paperwork in .25% increments from time to time, trying to get you to sign the dotted line, which in the fine print translate to "you're screwed".

Just make sure its a 1% for 1 point, and make sure thats exactly what the writing says. Dont just rush through the process because you want to buy now. Buy smart, so you dont regret buying later.

arebelspy

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Re: Duplex woes: How to deal with a bum unit
« Reply #25 on: December 12, 2014, 10:49:39 PM »
Remember, ALWAYS...BUY...POINTS.

No.

I'd say rarely buy points.

A lot of times you will want to refi, will be selling, etc.  Then that money was wasted.  If rates lower, it was wasted.

Also sometimes it makes sense mathematically and sometimes it doesn't.  You need to run the numbers and see.  There are times it makes sense (I have bought points, multiple times), and times it doesn't (I have passed on it multiple times).

But a blanket statement like the above.. no.
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Fallenour

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Re: Duplex woes: How to deal with a bum unit
« Reply #26 on: December 13, 2014, 07:18:59 AM »
Remember, ALWAYS...BUY...POINTS.

No.

I'd say rarely buy points.

A lot of times you will want to refi, will be selling, etc.  Then that money was wasted.  If rates lower, it was wasted.

Also sometimes it makes sense mathematically and sometimes it doesn't.  You need to run the numbers and see.  There are times it makes sense (I have bought points, multiple times), and times it doesn't (I have passed on it multiple times).

But a blanket statement like the above.. no.

I can see your point there, what I should say is this:

If you are going to buy and hold for long periods of time (10 years or more), buy points.

If you are looking to do more short term (0- 7 years) hold it.

If your interest rate is below 4% and your mortgage princ is below 100k, dont buy points.

Situation is pretty varied. For me though and the houses I target, its almost always beneficial to buy points. To each their own.

arebelspy

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Re: Duplex woes: How to deal with a bum unit
« Reply #27 on: December 13, 2014, 08:05:15 AM »
I agree with that, but the flaw is you don't know where rates are going to go.

Even if you buy and hold for 30 years, if it's five years from now and rates are at 5.5%-6%... do you buy points?

If you do buy it to, say, 4%, and rates drop to 4%, you miss out on that (and refinancing to it) because you paid to get there.

The uncertainty of the future can make buying points the wrong move, even if you are buying and holding long term.
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Paul der Krake

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Re: Duplex woes: How to deal with a bum unit
« Reply #28 on: December 13, 2014, 08:33:12 AM »
That's so odd to me. Upstairs units have more light, and you have no risk of hearing people stomp around above your head. All else equal, I'll pick an upstairs unit any day of the week. Have people grown that lazy that not having to climb a short flight of stairs is preferable?

MrFrugalChicago

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Re: Duplex woes: How to deal with a bum unit
« Reply #29 on: December 13, 2014, 11:27:03 AM »
2 things

- Don't always buy points. Points only work in certain situations. In both properties I owned, I would have lost significant money had I bought points.

- You get better renters by charging MORE and not less. Its a downward spiral to lower rent more and more to get more people in, but those people will be of lower and lower quality. Of course being rural, not many well off people want to rent. But I suspect there are SOME. Say doctors to a local hospital just moving to town, or older single retired teachers.  I would look into what pimped out rentals go for in your area, and see if you could recoup say a 10k or 15k investment in sprucing up the place (and maybe raising rent to 600, 700).  Obviously don't throw good money after bad. Make sure that there is a demand before you do this...

Stachetastic

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Re: Duplex woes: How to deal with a bum unit
« Reply #30 on: December 14, 2014, 07:09:06 AM »
MrFrugalChicago- interesting points. I don't feel there is enough demand to justify a remodel. Again, in my area, people just do not want upstairs units.

Stachetastic

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Re: Duplex woes: How to deal with a bum unit
« Reply #31 on: January 26, 2015, 12:59:55 PM »
Update for those following along at home:

I called my lender directly and was able to refi without an appraisal. My rate was 6.75% (I was incorrect in previous post) and is going down to 4.5%!  That means the rent collected on my downstairs unit will be close to paying all of my costs on the entire building.

In other news, I've had the upstairs listed for 2 weeks, with about 6 showings. I've had a few people interested, but they don't pass the background check. (Assault and rape charges, No thanks!)  I've got another showing tonight and one this weekend, so I'm crossing my fingers. This part is so frustrating.





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Re: Duplex woes: How to deal with a bum unit
« Reply #32 on: January 26, 2015, 01:23:34 PM »
Thanks for the update.  Keep marketing that place hard...it's a tough season to get new renters anyway, no one wants to move in the middle of Winter. 

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Re: Duplex woes: How to deal with a bum unit
« Reply #33 on: January 31, 2015, 03:06:40 PM »
You said the unit is near a school.  In my experience, most schools have some new teachers every year.  They are usually responsible and some would love to live near work (a short, Mustachian commute!).

How are you advertising to them?

Can you adjust your lease to ensure the property is vacant and clean next summer, when a new teacher would be in the market for a residence?