Single parent - Should I buy this duplex and live in half?

140 Replies

Hi everyone! I am totally new here, so I hope you'll excuse my newbie-ness.
I am located in Southern NH (about an hour north of Boston). I've been looking to buy a home for myself and my two boys. It's been very difficult to find anything in my price range, which for a single-family home is $275k. I've already lost out on a couple of fixer-uppers even though I offered above asking and little to no inspections. Also, I'm trying to stay in my sons' school district - which is rural and has little to offer for homes in my price range.

An opportunity to buy a 1985 duplex just came up. It's listed at about $325k. Each unit has 2 BR and 1 1/2 BA. It's a mirrored-floorpan townhouse style with 2 floors and walkout basement in a nice country setting. The yard is manageable for me at less than an acre. My mortgage broker says I would qualify and we will finalize a pre-approval tomorrow. I saw one side of the duplex with my realtor today and aside from some minor updating, it seemed fine. The other tenant wouldn't allow us access with several days notice, so my offer would be contingent on that and condition of the unit. (Red flag regarding that tenant not cooperating.)

I'm attaching what I got from the calculator. I treated it as if I were not living there, but technically the rents for this place should be $1600 and $1500, according to both realtors (mine and seller's realtor). Currently, the tenants are paying $1100 and $1200. I'm not sure why this is, because there is a shortage of rentals here. 

So, if I'm reading right, as investors, you all like to have the Cash on Cash ROI be over 12%, right? But if I live there, is it okay that it's just shy of 8? (I was generous with the expenses estimates.) I really just want to be able to subsidize some of my own "rent". My mortgage payment for the whole thing is estimated at $2238/mo from my mortgage broker fees worksheet.

Any thoughts would be so helpful! This is a big step for me and I'm nervous. I'm also not a numbers-whiz, but I'm trying. Do these numbers work? Thank you!

I personally think this a great idea. I've recommended my kids starting out like this instead of a SFH. After you build enough equity you could always go out and buy that SFH you want and rent both sides out.

Thanks, Mark! Yes. As much as I'd rather have a SFH, this might be a better idea. I'm a little nervous about being a landlord, but I'm willing to learn. I'm very handy too.
I forgot to mention that even after putting the 10% down and paying closing costs, I would still have about $25k to cover any repairs or remodeling. 
I'm just worried about the numbers. I'm don't really understand what the calculator is saying. I'm hoping someone on here will say, "Yes, the numbers work for your situation. Go for it!" :)

@Chris Hanisco Your the Woman!!!!! I love your train of thought. I would be a big Go on this decision if after your assessment that the rental market is strong in that town I am saying a Go with the understanding you're going to live in one side. Your monthly savings will be HUGE compared to buying a SFH with no additional income, and/or renting. Since you will live in one side, being a landlord will be easier on you but even as a landlord you will have a lot to learn. But hey its supposed to be that way.

You absolutely will feel nervous on your first rental buy, guaranteed and it is normal.  Mr doubt is 10 feet tall and Mr. Optimism is about 6 inches tall.  After this buy and 1 year down the road,  your going to slay Mr. Doubt.  Your will be nervous for a few months but find yourself a mentor and pick his or her brain for the cost of a cup of coffee, no more than that.  I mentor several your investors here in Austin.  I love what your doing and if you have any questions or need a little motivation, PM to get my cell and we'll talk.  I love investment real estate and duplexes are my specialty.  Cheers!!!!

Sorry I posted without writing.  Please look down the tread.

Hi Chris,

Regarding tenant not cooperating, it could be just a messy dirty house and the person wants to clean it up so they don't look like a slob.

Hardworking people's apartments don't always look like the maid just left (because they are tired from working when they get home), but a lot of them like to keep up appearances for others.

Things like do the laundry, clean the kitchen up, make the beds, pick up after the kids, etc...

Good Luck!


Originally posted by @Shaun Weekes:
Originally posted by @Chris Hanisco:

Hi everyone! I am totally new here, so I hope you'll excuse my newbie-ness.
I am located in Southern NH (about an hour north of Boston). I've been looking to buy a home for myself and my two boys. It's been very difficult to find anything in my price range, which for a single-family home is $275k. I've already lost out on a couple of fixer-uppers even though I offered above asking and little to no inspections. Also, I'm trying to stay in my sons' school district - which is rural and has little to offer for homes in my price range.

An opportunity to buy a 1985 duplex just came up. It's listed at about $325k. Each unit has 2 BR and 1 1/2 BA. It's a mirrored-floorpan townhouse style with 2 floors and walkout basement in a nice country setting. The yard is manageable for me at less than an acre. My mortgage broker says I would qualify and we will finalize a pre-approval tomorrow. I saw one side of the duplex with my realtor today and aside from some minor updating, it seemed fine. The other tenant wouldn't allow us access with several days notice, so my offer would be contingent on that and condition of the unit. (Red flag regarding that tenant not cooperating.)

I'm attaching what I got from the calculator. I treated it as if I were not living there, but technically the rents for this place should be $1600 and $1500, according to both realtors (mine and seller's realtor). Currently, the tenants are paying $1100 and $1200. I'm not sure why this is, because there is a shortage of rentals here. 

So, if I'm reading right, as investors, you all like to have the Cash on Cash ROI be over 12%, right? But if I live there, is it okay that it's just shy of 8? (I was generous with the expenses estimates.) I really just want to be able to subsidize some of my own "rent". My mortgage payment for the whole thing is estimated at $2238/mo from my mortgage broker fees worksheet.

Any thoughts would be so helpful! This is a big step for me and I'm nervous. I'm also not a numbers-whiz, but I'm trying. Do these numbers work? Thank you!

This is all great work. The only thing I would strongly recommend is looking into an FHA loan. Since you're going to live in one unit it will be considered owner occupied. This will allow you to put down 3.5% instead of the 10% percent that your numbers show. This will save you almost 20K and no matter what you invest in cash is always king in my opinion.

FHA does have a rule that states that the market rents of all units must be more than the P.I.T.I. (Principal, Interest, taxes and insurance) which you will for sure be able to cover. Just giving you another option.

I hope this helps and have a great night.

@Shaun Weekes you are correct on the FHA but in this case, I like the idea she is putting 10% down. It will make her monthly payments easier, she still has reserves left over to do rehab if needed and she is a lot closer to building 20% equity that will eliminate PMI. The rental game is cash flow and the faster her cash flow builds the more confident she will become. Confidence is paramount in this game and life itself.

If you plan on living in one side, make the offer contingent on the existing tenant (of the side you want to live in) be out of the unit before closing.  This, of course, depends on what the current leases are.  

When making the offer, make sure the offer includes that the seller provide you a copy of their schedule E (the tax form they file that includes expenses and income on the property) and a copy of the existing tenants' leases.

Good idea of having someone help pay your mortgage.  Good luck!

Originally posted by @Joe Scaparra :

@Shaun Weekes you are correct on the FHA but in this case, I like the idea she is putting 10% down. It will make her monthly payments easier, she still has reserves left over to do rehab if needed and she is a lot closer to building 20% equity that will eliminate PMI. The rental game is cash flow and the faster her cash flow builds the more confident she will become. Confidence is paramount in this game and life itself.

I guess this all depends on your strategy. In your case you're looking to gain maximum cash flow per property. Some investors grow their portfolio with purchasing more and more homes with as little as you can put down. Sure, she will cash flow approximately $200 more per month but I would rather have 20k in the bank than 2.4K more in rents every year. Cash flow isn't just rents, you have to look at the acquisition monies as a key factor in growing a sustainable rental business. After one year she has the extra 20K to put down on another property and she can use an FHA again if it's an SFR and it makes sense to the Underwriter.

I respect what you're saying, and it works it's just a slower pace and sometimes that's best. But again, cash is king and having large reserves for me at least makes me sleep better at night.

Great post Sir and take care.

@Joe Scaparra
Thank you for your pep talk! That really helps. I was so worried I'd wake up this morning, look on here and find people telling me to run from this deal. I'm glad you think it's a go. :)

@Scott Mac
Oh yes, I totally understand about working people's messes. I work full-time myself. My current apartment that I share with my 2 teenage boys is not neat as a pin - I'll tell you that. The slob comment was because they have trash all over the yard. Empty buckets and a broken down 4-wheeler and all sorts of yard trash everywhere. They wouldn't let us into the unit yesterday after requesting almost a week prior. I do know that they have 2 dogs as well. I heard one bark and it sounded huge. I have to admit that I'm worried about what I might find on that side with 3 people and 2 dogs in a small 2 BR rental. 
Thank you! :)

@Shaun Weekes @Joe Scaparra
Thanks for the info!
My mortgage guy suggested I not go FHA due to the everlasting PMI. I'd put 20% down if I could, but I just don't have enough saved yet. Putting 10% down at least leaves me with some cash (about $21k) for repairs and living. (My youngest is getting braces tomorrow. Eeek!)

Regarding the tenant next door:  You have a lot more latitude as a landlord when you live in the property in NH.  So once you buy it, should the tenant be uncooperative,  consult a NH real estate attorney specializing in landlord/tenant.

The numbers don't look good if it were a straight investment, but as a starting point and a place to live inexpensively,  it will likely work.  All my rental properties are in NH, so if you want to talk about this separately, send me a colleague request.  One point:  Your maintenance costs are likely to be FAR more than you have allowed for.  By thousands.  So keep funds in reserve.  

Regardless of the strategy, make sure the numbers work.

@Chris Hanisco I would definitely recommend viewing the other unit before making an offer because if you do not get a good feeling from the current tenant you can always write up an offer with the home vacant upon sale. 

@Ann Bellamy
Thank you! Yes, I think I put like 1% in there. My thought was that my teen boys and I would be doing the lawn and landscaping. I can reach the gutters myself too. Snow removal shouldn't be much despite hiring someone. The parking is literally 4 spaces with no driveway. The roof seems to be in good shape and the siding is vinyl. 

@Ian Walsh
Thanks! My problem is that this all just happened so quickly and I don't know how to understand the numbers well. I haven't had time to really learn. I'm trying though. I think as long as I'm living there, I'm fine. It won't pay for my whole mortgage, but it will knock my half down to what I can afford. 

@Michael Noto
Yes, the offer would be contingent on seeing the other half for sure. Thanks!

If it were me, I would get a much better understanding of the numbers and not let speed blind my logic.  If the numbers don't work , I would pass and not allow the speed of closing to pressure me.

Originally posted by @Chris Hanisco :

@Ian Walsh
Thanks! My problem is that this all just happened so quickly and I don't know how to understand the numbers well. I haven't had time to really learn. I'm trying though. I think as long as I'm living there, I'm fine. It won't pay for my whole mortgage, but it will knock my half down to what I can afford. 

@Chris Hanisco I think this is a great strategy and is one I am currently using myself in southern NH. I like that you ran the numbers assuming both units are rented out. This way you will know how the numbers look when you move out. One piece I do not see in your numbers is Utilities. It may be the case that the units are metered separately for heat and electric, but is there a common electric meter that will be your responsibility? What about Water/Sewer? If the house is on a well and septic like many in southern NH, you may want to bump up the CapEx % you used. All in all - great strategy with decent numbers. I would just recommend you think about the exit strategy. You don't want to be in a negative cash-flow situation when you move out...

@Chris Hanisco Are you under any kind of deadline to move out of your current residence? Purely from an investment perspective the returns are not wildly exciting + some have mentioned you may want to increase some of your repairs and maintenance. If you have the time you could continue to look. Longer term once you move out, you may find that having your money tied up for <8% ROI may not be best use of your money so it's important to understand what the exit plan may be. That said, the benefits of you eliminating your current rent and living in one unit may make it worth it. Other option would be to offer below asking so that the numbers from an investment perspective are more attractive.

Even if it doesn't pay the entire mortgage, it pays a good chunk of it and you have another source of income.  Make sure you save part of the rent for taxes and repairs.

I agree with the others that if after viewing the rental unit, you aren't comfortable with the tenant, write the offer such that it is vacant upon possession AND inspecting the vacant unit before closing to check the condition.

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