New Build Duplex Opportunity

6 Replies

Hi Everyone--

A deal for a new build higher end duplex hit the market a few weeks ago. This consists of 2 units with  4 beds 3 baths and 2 car garage with a covered back deck. Other 3 bed 3 bath units in the area are renting out for 1400 a month. I would say with the nicer finishing and more space I could see these going for 1550 per unit. 

So my current situation has me living in a single family home I purchased 3 years ago with an FHA loan. I would really like to get into this duplex and house hack it. However I would have to get an FHA loan in order to do so. Thus needing to either refinance my current SFH and find a way to come up with the down payment on the duplex. Which ideally will lead me to renting the SFH and live in the duplex.

My second option would be to sell my current house and take the cash proceeds to purchase the new duplex. 

Im curious on how some of you would look at this situation and any advice is welcome on which path I should choose and why. 

Hi Brandon, I would first talk to your lender (or lenders if you have more than a couple to call) and find out whether they can qualify you for a loan on the duplex without having to sell your SFH first. If so, ask them if they'll then need a 12 mo lease in place. If not, you should be fine to move forward on the duplex regardless but if first needing a lease on your home, go ahead and put it on market for rent. Normally all the bank needs is a signed 12 mo lease to show that it'll be rented (not necessary to have already started renting it). That way, for instance, if the rent would be starting Sept 1st, it then frees your debt to income ratio from that loan (or maybe 75% of that debt vs. the rental amount) that way you can then qualify for the duplex loan.

That said, if it's going to cause issue in timing all this together or if renting your SFH doesn't qualify for the duplex, then I'd definitely just sell it. Long term, you'll get better value out of the duplex if you don't mind to live in it for a while. It should likely help or pay all the mortgage amount plus it'll be great cash flow when you eventually move out and also give you more 'outs' or options later as an investment vs. a single family home.

If it were me, I'd try to keep both instead of selling but you'll only know this once you've talked to a lender and given them all the info needed for them to make a decision. I believe with both FHA and Conventional right now, you can get in with as little as 3% down

Hope that helps...

Also don't forget that if you could get a 12 mo tenant into one side of that duplex, it would also lower your requirements on the loan (your debt to income ratio) b/c that tenant would be contributing a substantial amount to the debt owed... however, I don't know that you'd be able to go this route before ownership but in future, its yet another advantage of owning multi-family. If it weren't new construction and already had a tenant in it, then you could use this scenario and basically be able to afford more or a higher priced property

Thanks @Rory Cummins . My first goal was to keep both and rent out the SFH. I will get on putting it up for rent as soon as possible. I meet with my lender on Monday. I do believe that if I refinance it with the appreciation and 3 years of equity I will be able to drop off the PMI which adds up to a 120 extra per month. Long term plan is to live in the duplex for a year and then buy another next to it the following year once it finishes being built.

Yeah, that's a great strategy and game plan. Usually you just need that 20% (or 22%) equity in the property to drop that PMI but that would be the best way to go so you can continue to build equity on the SFH. Just make sure you will comfortably cash flow the SFH including PITI as well as mgmt and overhead (capital expenditures) year over year to make sure the numbers work based on the expected rent you should get. If you merely break even, it will be hard to justify keeping it and could be a drag in tough years where you have to replace things like roofs, or get involved with an eviction, etc. (pretty much anything that puts you in the negative)

Good luck with it

I moved out of my FHA-financed SFH by advertising it on Zillow, getting a signed lease from someone who was flexible on move-in (to show the bank) and bought another SFH to move-in using a non-FHA owner-occupied 5% down loan. It was only a little more than 3.5% on FHA. Those loans are out there and it wasn't hard to qualify for. A mortgage broker handled it. Now looking to do this again, and every year, like you. I bet a lot of people more experienced than me on BP would have ideas on how you could do this and sources of financing or banks.

@Rory Cummins - With a re-appraisal on the property it should put me a little over 20% LTV. Rent for a 4 bed 3 bath in that area is going for around 1600-1200 which should flow approximately 500 per month. Luckily I have just replaced the HVAC system last summer (Thanks 100+ degree Kansas heat) and the siding and roof are just a few years old. I dont expect many issues with the home for a few more years. I discussed with the builder if it was okay to put a rental listing up for the other side and he was fine cause if the deal fell through he would have a renter for it to carry his loan until its sold.

@Mary K. - I will have to give Zillow a shot as well the house behind mine just sold way over valued from a for sale by owner listing. I like the house hack every year option, does it seem to be working for you?