Should I sell my house and buy a duplex?

17 Replies

I'm thinking about selling my house and buying a duplex, but to do so I would want to move to SW Florida and I'm not sure if I should live in one side and rent the other side or if I should rent both sides and live in a separate place as a renter so I could have some more investment options. Any advise, please consider the fact that I'm self employed and may have some issues getting a mortgage right away unless I use a private lender.

If you live in the duplex you will be eligible for an owner occupied loan, which means you have the option of a considerably lower downpayment ( as low as 3.5% for FHA loans, and 5% for conventional loans). A loan for a rental that you don't live in will require at very least 15%, often 20% down.

The biggest question is about your quality of life. Would you be happy living in one half of the duplex or in an apartment? While you would have cash flow from the rental(s), if you would have regret giving up your home, it is not a good idea. No amount of money would be worth your happiness. 

If you are fine with living in the duplex, move into one side for a year while you plan you next investment.

I have house hacked two duplexes now. I would highly recommend it. However, make sure you buy it as a rental and don't try and justify a property that isn't a deal just because you will be living in it. Also, It seems like you need to confirm whether you will be able to get a loan before you make this decision. If you can't get a loan then this is a moot discussion..

Originally posted by @Steve Combs :

The biggest question is about your quality of life. Would you be happy living in one half of the duplex or in an apartment? While you would have cash flow from the rental(s), if you would have regret giving up your home, it is not a good idea. No amount of money would be worth your happiness. 

If you are fine with living in the duplex, move into one side for a year while you plan you next investment.

I'm sort of parroting Steve's comments, but I would think long and hard about sharing a property with your tenants. I think it's a great way to kickstart your investing career, but speaking from experience, it can be very stressful and uncomfortable to come home and see them every day. After going through it myself, I'd probably never do it again. The income isn't worth the stress and anxiety after your first hack. I have a greater respect for for peace of mind as a result of my experience.

I am not sure what you have to lose by giving it a try.  If you do have something to lose, like a spouse, then this might not be a great trial run.  You could always rent somewhere else if you find that you don't want to live near your tenants.  If you qualify for a traditional loan I would go for it!

I had a question about buying a property with an FHA loan.If he lived in it for one year and moves out does he have to refinance the loan or can he keep it FHA?

@Tameka Martin you can move out after one year and no the loan stays the same. The only thing is that you he cannot (in most cases) use a FHA loan for his next purchase because they only allow one FHA at a time. He could in theory refinance out of the FHA and then use an FHA again.

@Nick Stango I am self employed and have two mortgages -- if you need a reference for a mortgage company, drop me a line and I will inquire with a lender that I work with licensed in VA and can find out who to put you in contact with in Fl. There are 1099 / SE friendly lenders out there.

To your question -- why only a duplex?  You can qualify for residential lending for up to 4 units.  Other than that, I would echo comments that others have made and add, make sure you have an executable plan mapped out. 

I hope that helps.

A fellow investor asked this question and I didn't have the answer. This is his scenario.

Home 1: Duplex purchased with an FHA loan.

2 years later...

Home 2: Currently moving out of the FHA financed duplex into a owner occupied SFR (5%) down.

Outside of the requisite 20% - 25% down payment for an investor owned building, he's now thinking of how to finance HOME 3 (multi unit or SFR) and possibly HOME 4 (multi unit or SFR) and how using an FHA loan again might possibly factor in again. FHA can be used again (after 36 months is what I've heard) depending on when, where, what etc. We discussed 1081 one of the buildings into a larger building but he'd rather keep both and add a third.

Thanks!

WOW! Lots of great replies here, I wasn't expecting so many so fast. While I was readings these replies about 5 more questions popped into my head, thinking about what  

@Jordan Williamson said about making sure you get a good deal instead of looking at the lower my expenses aspect and it rang a bell, I was definitely looking at this the wrong way, This would be my first investment property and I don't want to regret it, the more I analyze this without living in it, the worse it looks, but when I see the lower my expense aspect when living in one side it appears great. My mortgage payment would be very low and I could easily manage one door that I was living next to. My wife and I are fine with leaving my house in PA for one side of a duplex in FL. But now that I'm crunching the numbers, it's not looking so profitable. I kept coming up with a negative cash flow but that is mostly because of me wanting to do a 15 year mortgage. I can't stomach another 30 year mortgage. I'm 51 years old and I need to build up a retirement package in the next 10 to 15 years or I will be swinging a hammer the rest of my life. What kind of cash flow should I be looking for with a duplex with a 20% down payment and a 15 year mortgage? Should I be happy with just equity growth and no cash flow? Thank you everyone for the great response.

Originally posted by @Jean Bolger :

If you live in the duplex you will be eligible for an owner occupied loan, which means you have the option of a considerably lower downpayment ( as low as 3.5% for FHA loans, and 5% for conventional loans). A loan for a rental that you don't live in will require at very least 15%, often 20% down.

According to my local lender's, buying both units of a duplex and living in one unit requires a minimum of 15% down on a conventional loan.  The way I understand it, you aren't eligible for a 5% down conventional loan because half of the property is for investment.  Lenders typically require 20% down on an investment property, but because you're occupying one of the units of your duplex, the lender lowers the down payment requirement from 20% to 15%.  I hope this clarifies things.

i would hate to live next to a bad tenant!

Originally posted by @Edward Stephens :

According to my local lender's, buying both units of a duplex and living in one unit requires a minimum of 15% down on a conventional loan.  The way I understand it, you aren't eligible for a 5% down conventional loan because half of the property is for investment.  Lenders typically require 20% down on an investment property, but because you're occupying one of the units of your duplex, the lender lowers the down payment requirement from 20% to 15%.  I hope this clarifies things.

Anything up to four units, with yourself occupying one of the units, is considered owner occupied in the banks eyes and can qualify for as little as 3.5% through FHA. You shouldn't have to go the conventional route if you don't want to. As Edward has stated, you have to have much more skin in the game if you go with conventional...

@JordanWilliamson Thanks.

I am also considering buying another property as owner occupied. I currently live in a single family residence and need to rent my house. I hope to qualify for an FHA loan so I can put down 3.5 down . My income cannot qualify me for both mortgages, so I need to rent the house. Will the lender take a year lease for proof and allow me to purchase another property.

@JordanWilliamson Thanks.

I am also considering buying another property as owner occupied. I currently live in a single family residence and need to rent my house. I hope to qualify for an FHA loan so I can put down 3.5 down . My income cannot qualify me for both mortgages, so I need to rent the house. Will the lender take a year lease for proof and allow me to purchase another property.

@Tameka Martin ,

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@Michael Roy thanks for the reply and the offer to help me find an SE friendly lender, I'll keep that in mind when I'm ready. My wife and I are driving down to FL soon to check out the area. We are willing to rent for a little if we have to but really want to get our feet wet with an investment property of some kind soon. 

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