Author Topic: Move to a Duplex? 135K more than current house  (Read 1035 times)

Valvore

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Move to a Duplex? 135K more than current house
« on: April 26, 2018, 05:32:06 PM »
The plan was always to purchase a Duplex and live in one side and rent out the other. After looking at properties for 8+ months and seeing 1 duplex every 2-3 months and watching single family home prices rise rise rise, we ended up getting a single family home in a great neighborhood for a really good deal. I've been keeping my eye out for duplexes ever since. They are few and far between in the area I'm looking in. I've seen 3b/2ba and 2b/1ba duplexes but NEVER two 3b/2ba units

Current House - 3b 2ba 1800sq ft with small yard and pool. Near a large park and school, great neighborhood. no HOA. Current mortgage & insurance $1250 (I put an additional $200 as overpayment bringing monthly to $1450)

Purchased in 2015 for 215K @3.75%, immediately appraised for 233K. Houses in area were going for 250K. This house had a HIDEOUS kitchen which is why it was listed lower. I remodel kitchen with new floors, cabinets, appliances, counters and it looks GREAT. Recently put in a $10K roof too ( at no cost to me. thanks insurance!)

Current Zillow and Trulia value ~$280K which seems to be accurate.  Absolute WORST case my house sells for 260K. I owe just under 200K on mortgage.  6% realtor fees means I can pocket $45K - 63K. New job means my commute is now 30mins to 1 hr one way in traffic.

New Duplex
Two 3b/2ba units. 1100 sqft and 1050 sqft. Each with a private yard and seperate car ports. Listed for 320K max offer would be 310K. Mortgage & insurance would be ~$1600/mo no hoa

I would like to fully remodel both sides. After my experience remodeling my kitchen and doing the math, I believe I can do both sides for under 40K (floor, kitchen, bathrooms). Both sides would look clean, new and beautiful. The area is near a university so more college kids than my current family neighborhood.  There are new town home builds in the area going for 250K - 450K. Single family homes are going for ~250K. Some houses are a little more run down while others have been completely flipped and look really nice. Basically trying to say it's an up and coming area. DH and my commute would each also be <10 minutes!!!

Rents are going for $1,000 - $1,700 depending on the property. After the remodel I'm confident I could get the higher end of that. Minimum would be $1400. We also have a current roommate who is extremely trustworthy, that we would have rent out the other side. We would possibly give him a break on rent because he would be extremely lenient with repairs and could even do his own maintenance

Mortgage for the property with insurance is expected to be $1600. This means my housing costs could be under $300.

I understand this "rental" is no where near the 1% rule (310K purchase + 40K = 350K
 1% =3,500) but I'm not so much concerned with making a profit right now, as I am with living in a place with all the upgrades and design I want while simultaneously lowering my housing costs.

I see rents continuing to rise in this area and after 5 years would move to a single family home and keep the property as a rental.

My question: IS THIS A HORRIBLE DECISION??

Moving Pros
-housing costs goes from $1400/mo to ~$300 (I know, plus maintenance. But I am really handy and make most repairs myself. Only big ticket items scare me like A.C., water heater etc.  Duplex has new AC installed while current house AC may bust in under 5yrs)
-Pretty new house with all the finishing I want (!!!!) I can't help it, I want to live in a pretty house.
-keep 3b/2ba with yard (and no stupid pool)
-Commute (honestly biggest +)

Moving cons
- leave my awesome 10/10 neighborhood for a 7/10 neighborhood
- stress of selling current property & remodeling new property
-current house could continue to rapidly rise in value (could miss out on future gains)
- 2 properties to maintain with the duplex (one roof though)

What would you do?

 Thanks for the advice. I understand I'll get some face punches with the $$ involved in this but I think in the long run this can pay off tremendously.



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Valvore

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Re: Move to a Duplex? 135K more than current house
« Reply #1 on: April 26, 2018, 05:41:13 PM »
Other info!

CURRENT HOUSE - 3b/2ba 1800sqft single family
Market Value:  $280,000
Original Purchase price: $215,000 bought in August 2015, built in year 1972
Interest Rate:  3.75%
Mortgage Term:  30 years (matures 8/2045)
Amount remaining on mortgage:  $198,000
Mortgage + taxes (no PMI): $1250 + $200 overpayment = $1450

DUPLEX - two 3b/2ba units 1100sqft and 1050sqft
Market Value:  $320,000 (asking price)
Original Purchase price: $310,000 max offer, built in year 1976
Interest Rate:  3.85%
Mortgage Term:  30 years
Mortgage + taxes (no PMI): ~$1,600
Gross Rents: $1,400
Investment: 40K


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LessIsLess

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Re: Move to a Duplex? 135K more than current house
« Reply #2 on: April 27, 2018, 07:20:14 AM »
I haven't analyzed your numbers, but was wondering, would you be comfortable keeping your current SFR as a rental, while simultaneously buying the duplex and living in one side?  You would then have a choice of moving back to your SFR if you dislike the duplex, or if you can get great rent for the duplex etc.  It's more risky for sure - but perhaps you can make it work if you could dial down on the remodeling costs.

Valvore

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Re: Move to a Duplex? 135K more than current house
« Reply #3 on: April 27, 2018, 10:35:56 AM »
I haven't analyzed your numbers, but was wondering, would you be comfortable keeping your current SFR as a rental, while simultaneously buying the duplex and living in one side?  You would then have a choice of moving back to your SFR if you dislike the duplex, or if you can get great rent for the duplex etc.  It's more risky for sure - but perhaps you can make it work if you could dial down on the remodeling costs.
I have thought about that, but we need the finds from the single family home to do the upgrades and I'm honestly afraid of carrying two mortgages. We could afford both mortgages without renters but I'm focused on upping my retirement & savings as quickly as possible.

My DH really wants to have both properties but it's just not realistic to be landlords of 2 places without the capital to make improvements and repairs (modt of our  money is secured in 401K, HSA,  and IRA)

Thanks for the idea!

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waltworks

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Re: Move to a Duplex? 135K more than current house
« Reply #4 on: April 27, 2018, 10:47:22 AM »
I'd do it, assuming you are ok with the 7/10 neighborhood vs. your current 10/10. If you love your neighborhood that much, that's a pretty big deal, in my mind. Or are you saying the new neighborhood is a little less wealthy/generically desirable?

If you *love* where you live, just absolutely love it, then I'd stay put. If you like it but don't love it, the duplex is a great move financially and it sounds like it also cuts down on the commute which is HUGE both in terms of finances and life satisfaction/happiness.

The only caveat is that you have to be ok with someone sharing the building/surroundings with you. We rent out our basement apartment and it's never something that has bothered me, but I'm not you. Don't count on your buddy wanting to stay indefinitely.

TL;DR - I'd do it.

-W

Valvore

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Re: Move to a Duplex? 135K more than current house
« Reply #5 on: April 27, 2018, 10:52:26 AM »
Thanks @waltworks ! The new neighborhood is less desirable but not terrible. We love the neighborhood but don't love our house. It's not the layout we want, too big, don't want a pool. The duplex could fix all that.

Thanks for your help!
I'd do it, assuming you are ok with the 7/10 neighborhood vs. your current 10/10. If you love your neighborhood that much, that's a pretty big deal, in my mind. Or are you saying the new neighborhood is a little less wealthy/generically desirable?

If you *love* where you live, just absolutely love it, then I'd stay put. If you like it but don't love it, the duplex is a great move financially and it sounds like it also cuts down on the commute which is HUGE both in terms of finances and life satisfaction/happiness.

The only caveat is that you have to be ok with someone sharing the building/surroundings with you. We rent out our basement apartment and it's never something that has bothered me, but I'm not you. Don't count on your buddy wanting to stay indefinitely.

TL;DR - I'd do it.

-W

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Dee18

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Re: Move to a Duplex? 135K more than current house
« Reply #6 on: April 27, 2018, 12:03:58 PM »
I would do it for the better commute and for being near a university.  There is often a lot of free entertainment at a university and good outdoor space.  At the big one near me you can join the alumni club for $30 and then buy a reasonably priced membership to their great rec center. When you have a vacancy, you might first advertise it where facultyand staff would see the ads. I work at a university and landlords often get someone on the staff/faculty to post vacancy notices. 

Another Reader

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Re: Move to a Duplex? 135K more than current house
« Reply #7 on: April 28, 2018, 12:14:09 PM »
Looks like you are in Tempe.  The Phoenix market overall does not have a lot of 2 to 4 unit properties in good neighborhoods and Tempe is no exception.  They generally attract lower quality tenants.  Most higher end renters go for the single family homes or the newer apartments with all the amenities.  Not sure I would want a lower quality tenant as a close neighbor and a tenant.  Is the gross rent of $1,400 for one or both units? 

I can see selling the pool property with the awkward floor plan to buy a house in an equal neighborhood closer to work, if the job is a long term commitment.  If you are not sure you will be at the new job in 5 to 10 years, I would stay put until I was sure.  Transaction costs drain a lot of your equity. 

Pool properties make poor rentals, even in Phoenix, so keeping the property as a rental is not a good option.  If I wanted to buy investment properties in your area, I would wait until the market turns.  And it will turn.  Phoenix is one of the most cyclical real estate markets in the country.