Over my head- sell or keep multi family?

[essjay43]

I have a 6 bedroom 2 bath two unit house in the Boston suburbs. On paper it's a pretty solid investment, but in reality, I feel like it's a money pit. I currently live in the upstairs unit (4 br, 1 ba) with my wife and soon to be 2 children. The downstairs unit was rented until September when the tenant moved out. I have been doing steady upgrades to the home, but it was a total wreck when I first bought it and now it feels like I'm just throwing all my savings into it.

Since I owned the house, I replaced the electrical in the upstairs unit, replaced the porch, and gutted and replaced a bathroom.

I owe 196k on it and it was assessed for my refi (3.625%) at 250k.

I am going to install new windows on the first floor ($2400) with a friend, but now I'm having serious doubts about whether or not the steam boilers will make it through the winter. I have 2 very very old boilers with significant asbestos insulation. I had a hard time getting reliable quotes on new ones, but after incentives, it would come out somewhere around 14k which I could finance at 0% through a state program.

After I finish the downstairs apartment, the rent will be $800.

I'm just looking for advice on whether it's better to get out now, or keep adding $$.

[KingCoin]

What are your options if you get out? How much would it cost to rent or buy something comparable, sans renovation and second unit complications? We need something to compare this to.

[Another Reader]

The rent to value ratio on this one looks anemic, to put it nicely.  Putting in new boilers probably won't raise the value by the $14k they will cost.  What would be the rent be for the 4/1 you occupy?  The bank appraisal is $250,000, but have you talked to any agents familiar with the neighborhood or looked at comparable listings and sales to form your own opinion of what the property would bring if listed for sale?

What would you do if you sold this property?  Would you buy or rent a single family?  Would you look for another multi-unit in better shape?

[essjay43]

If I were to get out, I would purchase a sungle family home. Homes in the area are around 325k.

The rent for the 4/1 I occupy would be somewhere around 1300.

I haven't talked to local agents since the updates. My best guess would be somewhere in the ballpark of 235k.

[Another Reader]

So the gross rent if fully rented is $2,100 a month and the GRM is 235,000/(2100 x 12), or around 9.3.  Is the loan 15 or 30 years?  The payment is manageable with a 30 year term.  Your leverage is positive, but the darn thing needs a ton of work.  And even with new windows and boilers, an old building is full of maintenance headaches.  Do you like living in this property?  Or does the location (but not the property) suit you?  Can you afford the huge payment jump that buying a single family with no rental income means?

[essjay43]

30 year loan. I like the location but not the property. I could swing the payments on a single family but it would be tight. My plan is to fix the house bit by bit until it doesn't need much maintenance and then make the jump to a single family. Just kind of a downer to be throwing cash at a house I don't like.

[Another Reader]

My guess is your PITI is not much more than the rent for the upstairs unit.  That's quite a subsidy you get when the lower unit is rented.  In your shoes, I might follow through with your plan.  Any way you can upgrade the heating system to something more efficient and possibly less expensive?

What about your wife?  Is she happy with the situation?  How old is your older child?  Can you accommodate everyone for a couple of more years while you get the place in shape?

[Mazzinator]

Finish the downstairs apt 2bd, move your family into it, then rent out the upstairs 4bd. Unless there's some info i'm not aware of? Your kids can share a room, right? Then you'd live for "free" or close to it.

Btw, i would love love love to do this!!!

[ender]

Definitely didn't read "multi" in the title when I first read this.

lol.

[essjay43]

Heating options- I really can't wrap my head around the costs of heating systems. When I first purchased the home I definitely didn't have a clue how much upgrades would cost.

Wife- Haha, this is a sore subject- I bought the home when we were first living together. She wouldn't move into the place until I cleaned and painted every surface. Needless to say she's not thrilled about living there. After renovating the upstairs apartment she settled in. She wants the white picket fence colonial on the cul de sac, but she gets overwhelmed when it comes to putting together #'s to make it happen.

Kids- My daughter will be 2 soon and I have another on the way. I also have a chocolate lab. Our bedrooms are on the third floor and our only bathroom is on the second. And we have a walk out basement. So bringing in groceries is 1.5 stories, bringing the dog out at night is 4 stories- you get the picture. Definitely not very easy for my wife even being 6 months pregnant. I help out all I can, but when I'm at work or out doing errands, she's on her own.

I think we can stick it out for a few more years. She wants to take a few years off to be a stay at home mom, so this is the only way I can make that happen.

Moving downstairs- a real possibility, but would be a last resort. It's great to have the extra space upstairs- dining room, playroom, living room, etc.

Thanks for all the suggestions- let me know if you think of any more. I guess any heating suggestions would be a huge help. Especially if you can recommend any heating guys (especially w/ steam experience) in the Providence/Boston Metro West area. It's kind of a specialty, so I've had guys wanting $500 just to give me a quote.

[Another Reader]

Do you have natural gas?  Oil fired boilers are outrageously expensive to operate, maintain, and replace.  Check with your utilities to see if they offer any incentives to upgrade.

It's helpful that your wife understands the trade offs for being able to stay at home.  Once the new baby is here and settled in, can she generate any income working from home?

[essjay43]

Natural gas- But it's steam. If I replaced both boilers over the summer I would have qualified for total of $3600 in rebates.

However, since it's winter, they no longer have the early boiler replacement rebate. During the winter, they only offer rebates for hot water.

Either way I would qualify for a 0% loan up to 25k over 7 years.

Might just limp through the winter and give it some more thought next summer.

And as far as my wife- I really can't count on her producing any income w/ 2 little kids. Tutoring would be huge, but I have low expectations.

[Another Reader]

Would forced air furnaces be more efficient?  Would it cost a lot more to retrofit?  Is it feasible?

[essjay43]

I bet it's feasible, but I'm guessing the cost would be significantly higher. They would have to run ducts through three floors of an old house.

[Another Reader]

Might be worth a look.  What are owners of similar buildings doing?

[essjay43]

Every forum I've looked at has recommended replacing older steam boilers with new ones and insulating.