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

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

Chris Hanisco
Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes

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!

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Most Popular Reply

Mark Burlison
Member since 2018 · 83 posts · 51 votes
7y

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.

20Reply
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  • Jassem A.
    Investor · PA · Member since 2013 · 1k+ posts · 602 votes
    7y

    Since you are handy I would see if there is 2-4 unit building nearby that might need more updates so that you can save money on the purchase price. This one will work but will not bring back a great return at that price.

    2Reply
  • Brian Ellis
    Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    7y

    I will piggy back what others have said, make sure to see the other unit first. 

    I would also ask to have the unit delivered vacant upon closing. Someone who wont allow a showing days in advance tells you everything. You don't want to feel like you are walking on eggshells in your own home. 

    I wish you and your family the best, good luck!

    5Reply
  • Ayne C.Pro Member
    Rental Property Investor · Tampa, FL · Member since 2018 · 251 posts · 124 votes
    7y

    @Chris Hanisco

    Dear single mom, you have my heart. I wish you all the best success!! I hope you will come back and update us in a year about how you don't know what to do with all the extra money. In 2 years you can update us on how you just snatched your 25th flip or something like that. ♥️♥️♥️

    By the way, I'm in Southern Maine travelling this whole month with my kids, thanks to homeschooling and rentals. Stay warm this week.

    6Reply
  • Wes Johnson
    Developer · Dallas, TX · Member since 2015 · 84 posts · 79 votes
    7y

    bought my first property when i was 21 and lived in it a few years then moved out and rented it out that was my first "investment". but if i could do it all over again i would ABSOLUTELY have done a duplex. i honestly had a chance to get one. single family is for the birds. the margins are too thin and one major repair can wipe out a years worth of profit. I could've lived in one half and rented out the other. essentially making my mortgage payment nil. and the management would've been easier because i would've lived next door so nothing would've taken days to address. the COC return is a little different when you're living on one half. i just look at it as "i'm living for free or very little, and when i move out, then i'll have two units to rent". think about it in the future when you have both units rented because that should be your plan. i kick myself everyday for not starting with a duplex or multifamily because you can still get FHA financing up to 4 units and in some cases (if they're already rented) the income from the other units can be used, thereby allowing you to scale up quicker right off the bat.

    4Reply
  • Scott WolfPro Member
    Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 956 votes
    7y

    @Chris Hanisco, first of all, congratulations on opening your options to MF rentals to keep your boys in a good school district, and supporting them.

    For house-hacking, (as we call it here on BP), in best case scenario you will live for free, but it seems in your case, you will be living at a similar payment level to where you would be in a single family home. I'm using your monthly expenses minus half the monthly income.  You will also gain a tenant helping pay down your mortgage and the ability to cash flow once you move out (should you choose to keep it). 

    Good luck, and remember, you can always make a lower offer than the asking price!

    2Reply
  • Gus Covarrubias
    Member since 2018 · 3 posts · 3 votes
    7y

    @Chris Hanisco

    Do it! I did and it has changed my life for the better.

    3Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    has the house been sitting on the market a while? I would pay extra attention to any deferred maintenance items (roof, mechanical, electrical, etc.) hire an awesome inspector that will crawl the space up/down/sideways for you. definitely check the leases and try to get both sides vacant (especially the one with trash all over their yard).  

    can you comp this to any nearby properties? are you paying retail or under market at this point?

    2Reply
  • Quito Keutla
    Real Estate Agent · Renton, WA · Member since 2017 · 204 posts · 151 votes
    7y

    @Chris Hanisco great job with doing your homework, starting out with a duplex is a great way to start. This totally makes sense. Happy Investing!!

    2Reply
  • Joe Scaparra
    Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
    7y

    @Chris Hanisco , Since this is your first, take a deep breath and remember you are in control especially with this property and here is why.  The one tenant not wanting to show and the yard they are keeping is making it difficult to market this property. As a seasoned investor, I like the situation.  It reminds me of the second duplex I bought.  I walked in the first side, the tenant had been there for 15 years, but she and hubby kept it immaculate.  I then decided in my mind to make an offer, but then we went to the other side and it was a total disaster.   I was pissed off because I was set to make an offer.  The bad side tenants had a big mess and had unauthorized pets in the unit.   There was no way I was going to accept that tenant.  I gave my offer which was less than asking and it was contingent on that side being vacant before closing. I got the deal.  I am here to tell you right now, you will need to paint the entire interior, patch a few sheetrock holes, replace the flooring and probably get some new appliances.  No problem, those are cosmetic items, assuming 1000 sq ft,  flooring installed about 4k, interior paint 1.5k, and miscellaneous 2k.  In your mind go in thinking 8-10k rehab.  Use that logic to lower the price.  You will be anxious but if it is cosmetic then this will work out great, as you rid yourself of the bad tenant, you rehab the side you move in and hopefully keep the other tenant but slightly raise their rent.  

    Put pressure on your realtor to put pressure on the listing realtor to see the other side.  There should be a lock box on the property allowing other realtors access.  The listing realtor needs to realize that they may lose an offer if access is not granted.  This will not go over well with the current owner.

    1Reply
  • Alvin Sylvain
    Los Angeles · Member since 2018 · 464 posts · 471 votes
    7y
    Originally posted by @Chris Hanisco:

    @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.

     Well if it makes you feel any better, RUN AWAY! RUN AWAY!

    OK, have we got all the negative chi flushed out of our system? Good!

    Remember, in this business, like most others, you have to be cautious -- and bold! How you balance the two is up to you.

    3Reply
  • Milan Mehta
    Developer · Cary, NC · Member since 2016 · 98 posts · 53 votes
    7y

    @Chris Hanisco This is a great strategy and am just adding to the others by saying you should go for it.  Just be sure you can afford to cover the mortgage if it is vacant for 1-2 months.  Living where you invest is a great way to start.

    2Reply
  • Frances Buerkens
    Rental Property Investor · Lexington, KY · Member since 2018 · 40 posts · 26 votes
    7y

    I would double check rental property rates in your area since your income is a key variable. I do not trust the rates suggested by the seller's agent. Your buyer's agent may have your best interests in mind, but unless your agent is an investor or knows a lot of landlords, he/she might not know what they're talking about. Craigslist and Zillow are good places to search, of course, as are property managers. A 10-minute call will provide the information you need.

    CapEx: If your heating system only has "3 years" left, then your CapEx should either account for a new heating system or you should have a completely separate line-item budgeted for a new heat system. You don't need to be a numbers whiz here - but some simple planning will keep you safe.

    Expenses: I'm not saying your expenses are bad - but you should certainly ask if there are improvements you can make that will reduce the expenses you carry over time. Let's say you need to retire the heating system. Would the cash you have in hand be well spent to install heat pumps so the tenants pay their own heat? (This only works if the tenant pays their own electric, of course.) What are other ways you could reduce the expenses you carry? Heat pumps often need a backup heating system in New England, but many landlords in Maine are moving in that direction. 

    3Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    7y

    @Chris Hanisco I applaud you enthusiasm and courage to step out of your comfort zone. A couple of things.  I have not been in that next door unit but I know what it looks like and smells like, and I know that tenant. You won't want this tenant in there after purchase, be prepared for an expensive rehab and a couple of months of no rent. I also know that LL; he/she does not give a crap and has not done any improvements or maintenance during their tenure. One more item; check comparable rents yourself and always do your own due diligence in this business. Don't fall in love with this or any other property, I'd suggest looking at some more listings-especially with more doors if possible. I admire your strength of character and wish you all the best!!

    3Reply
  • Joseph Walsh
    Brookfield, WI · Member since 2016 · 191 posts · 108 votes
    7y

    The only flag I see is that you are buying a property that has an ARV of less than you're total money in, why are you paying more than it is worth?

    2Reply
  • Kiera Underwood
    Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
    7y

    As long as your rents are close to 1% of the value of the home when you move out. And while you're living there as long as the difference between what your tenants pay and what your mortgage is, isn't more than you'd pay for a SFH mortgage or what you'd pay for rent for a similar property, why not build equity and plan on making money when you move out!

    3Reply
  • Trevor Forbes
    Flipper/Rehabber · Topeka, KS · Member since 2019 · 3 posts · 3 votes
    7y

    It looks like a good cashflow scenario. More so when the minor rehab is attended to, I believe that you would be able to increase the rent on the other side.

    2Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    7y

    With two unit buildings, look at your mortgage payment when you are done.  Is it more than the rental value of that unit?  That's one thought.

    One of my first properties was a similar situation.  I took over the basement and garage, so I got the extra living space I needed.  

    2Reply
  • Nick Rutkowski
    Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Chris Hanisco

    I’m always an advocate for house hacking. Go for it and good luck. You’ll make money and experience, how can you beat that?

    2Reply
  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    7y
    Ian - I agree! There just aren't many opportunities like this here. I have to move quick.

    Originally posted by @Ian Walsh:
    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. 

    0Reply
  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    7y
    Originally posted by @Jeff Barnard:

    @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...

     @Jeff Barnard

    The utilities are separate, with the exception of septic and well which are shared by the units. I plan to get a septic inspection done. The age is unknown, so I have to assume it's from 1985 and might need replacement. Luckily, my current landlord installs septics and has good pricing. He did the septic at my last house (sold due to divorce) and did a great job.

    For exit strategy - I'm not sure. My plan is to stay put until both boys graduate HS (2023)  after that, I don't know. I'd probably keep it as an investment.

    1Reply
  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    7y
    Originally posted by @Kyle Joseph:

    @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.

     Kyle - I am month to month at my apartment, but I am somewhat anxious to get out. 
    And the $310k priced I calculated is already below the $325k asking. I will look further into the numbers adding in more for repairs. Thanks!

    0Reply
  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    7y
    Originally posted by @Jassem A.:

    Since you are handy I would see if there is 2-4 unit building nearby that might need more updates so that you can save money on the purchase price. This one will work but will not bring back a great return at that price.

     Thank you. There's nothing else here in the school district. Multi-families are rare here. We are fairly rural. 

    0Reply
  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    7y
    Originally posted by @Theresa Harris:

    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.

     Thanks! Yes, I do plan on making it contingent on being vacant at closing. 

    0Reply
  • Account Closed
    Rental Property Investor · Wichita, KS · Member since 2018 · 52 posts · 33 votes
    7y

    @Chris Hanisco

    https://goo.gl/images/uc2oMM

    2Reply
  • Chris Hanisco
    OP
    Rental Property Investor · New England · Member since 2010 · 86 posts · 75 votes
    7y
    Originally posted by @Brian Ellis:

    I will piggy back what others have said, make sure to see the other unit first. 

    I would also ask to have the unit delivered vacant upon closing. Someone who wont allow a showing days in advance tells you everything. You don't want to feel like you are walking on eggshells in your own home. 

    I wish you and your family the best, good luck!

     Brian - Yes! I agree! Between that and the condition of the yard (debris everywhere) and large dogs, I'm wary of keeping them as renters. Thanks!

    1Reply
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