Bought 1/2 of the duplex should I buy more?

10 Replies

In December I bought 1/2 of a duplex in urban Seattle. . 

Purchase price: $350k
Size: 1,100 sq ft
Mortgage + taxes + insurance: $2,000/month 
Down payment: 30% = $105k
Age of house: 8 years
HOA: $0 - no HOA at all
rehab $$ spent: $0

Beginning in January I have been getting $2,750 in rent and I am sure I can get more next year when the tenants flip. I will go for $3,500 and see if I need to move down. This house has been brain dead easy and it has been cash flow positive from day 1.

We have the 1/2 of one house. When these were built the builder constructed 4 duplexes total. All the duplexes have no HOA for a total of eight units. I've talked with the owner of the other 1/2 of mine and I am set to buy that if we can come to terms. He is looking to sell in the summer of 2016.

My question to you is should I buy more of these? There are eight total and the prices are rising here (but so are rents). I can see why I would want to own both halves of my house so I can take care of building maintenance. If I buy parts of the others is the lack of diversification something to worry about? The units are right across the street from a small university and within walking distance to Capitol Hill ( very trendy) International District (like China Town), sports stadiums (go Seahawks), etc. This locations rents very well. 

Should I be looking to ultimately buy all eight or is that too much net worth to pack into one small street?

I'm going to just be honest here, that's not a great deal. There's very little room for error. You can invest $100k cash outside of Seattle and get a triplex or 4 plex that'll cashflow a lot better. This property doesn't even meet the 1% rule, meaning $350k purchase should have $3,500 in rent. However... you'll get good appreciation with a duplex that costs that much if it's in a good area. You'll get the best return to expand your portfolio by buying more small multi's that are in the range of $100k-$200k

I agree with @Vincent Crane.

@Allen Clark , I think you are missing a few things in your formula. you need to take into account vacancy, maintenance, and capital reserve. 

The rental market is hot in Seattle so the vacancy rate is low. But this is not going to last forever. Even as hot as it is now, I would consider 4% (2 weeks per year) vacancy in my calculation. You will need sometime to do cleaning and minor repairs between tenants.

The unit is relative new so you don't see much maintenance and R&R (repair and replacement). Regardless the age of the unit, drain will clog, garbage disposal will break, carpet needs to be cleaned/replaced, gutters need to be cleaned. 

It's unlikely you will need a new roof or furnace anytime soon but you should plan for them if you are going to hold the property for a long time.  

If you take into account all these into your calculation, you probably won't see much cash flow. 

I am not saying it's a bad investment. It probably is a good one if appreciation is taken into account. 

@Allen Clark - I agree with some of the comments. You didn't get a "smoking deal" - but thats ok - especially if you own an A class property in a great area. If you can get rents up to $3,500/month you would at least be meeting the 1% rule. But IMHO, if you just want to own REALLY nice property in REALLY desirable areas, and you are willing to get a smaller ROI - there isn't anything wrong with that. Sure, you could invest in C-/D properties and get a 2+% ROI, but you also might end up in an unsafe area.....

If you are a buy and hold investor and you plan to keep the 1/2 of the duplex that you own I would consider buying the other 1/2 and protecting your investment. What if your neighbor sells the property to an out of state investor that totally neglects 1/2 of your $350k property? If you own both you can also sell one off at a time in the future, or both to a single investor...

It all depends on what type of investor you are. Maybe you sell your 1/2 of the duplex and buy a 15 unit apartment complex in the seediest part of seattle so that you can hit that coveted 2% ROI ;)

Thanks for the comments all. Prices have been climbing in Seattle so I think the other half will go for $400k. Rent right now could get up to $3,500 but I don't think we'll see much above that this year. 

When I bought I did factor in vacancy and reserves but I was so very new to this so I did not really know what rent I would get. I've been happy with $2,750 but will put rent up as of Jan 1.

This is my first investment property and I bought off MLS so I knew it was not going to be a great deal. However, it seemed a good way to learn a bit. So I am ok with the return so far. The fact that renters have paid every mortgage payment this year helps.

I am only comfortable, for now, buying what I know and that's urban Seattle. < 25 min walk to downtown, high rentability etc. I am a buy and hold investor at this point. 

I am thinking about that other half of the duplex. I will try to buy it and try to cut a deal that doesn't get too high. I would be willing to walk away if he wanted too much. 

I owned 1/2 a duplex in Vancouver Canada as a primary residence many years ago and we just worked it out between neighbors. It's a good point and an answer I should know. I will look up the law and see. There is definitely no HOA so my assumption when there is roof, paint, or other joint issues is that the owners will determine the best course of action. Of course, that is also my motivation to own the whole thing.

Originally posted by @Derek Daun :

I'm curious, how do you own 'half' of a duplex if there is no HOA? How are repairs and maintenance handled for shared pats of the duplex?

 Happens all the time - it's really no different than any common wall residential property.   Around here many, but not all, such side-by-side duplexes are sitting on separate lots with the property line down the common wall.  Sometimes they both sit on a single lot as tenants in common.  Sometime's each half has its own water/sewer connections, but just as often the sewer is shared.

Maintenance and improvements of common areas are carried out the old fashioned way - by talking with your neighbour.

Originally posted by @Derek Daun :

I'm curious, how do you own 'half' of a duplex if there is no HOA? How are repairs and maintenance handled for shared pats of the duplex?

 Sounds more like a townhouse than a duplex.

Back to your original question, is it better to diversify or concentrate in an area.

We decided to concentrate on one 40 bock neighborhood, our 8 doors are all there.  But, they are scattered among the four corners of the neighborhood, not close to each other.  All are within a mile of each other, which is convenient for working on them, checking up on them, etc.

But I do wish they were even closer together.  If they were all on the same block,  improvements I made to tenant quality or property upgrades would make a bigger impact to my other investment properties.  And be that much easier to keep tbs on them.

You may be interested in these posts from my BP blog:

http://www.biggerpockets.com/blogs/4445/blog_posts...

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