Buy 2nd Multi-Family Vs. Renovate Current For Higher Rent

[Justin Kestler]

Hello! My Name is Justin K. and I currently reside in Lakewood Ohio (a suburb on the west-side of Cleveland). I bought my first duplex 2 years ago and I currently live on the top half with two friends from college and rent out the bottom. I have built up about 25k in capital, and I am wondering if I should use that to renovate my top half of the duplex, or buy and move into another rental property. 

I purchased the duplex in 2017 for $180,000 with a 30- year conventional loan ($1,385 monthly mortgage payment with tax and insurance) and have about $35,000 worth of equity in the property. I rent out the 2 bedroom bottom unit for $1,150 and charge my friends who live with me in the 3 bedroom top half unit 400 each. The top unit is functional, however potential updates include, refinishing the hardwood floors, updating the kitchen, updating the bathroom, replacing 7 windows and most importantly blowing insulation into the attic (my bed room) so that it is more inhabitable during the summer months. I estimate all of these renovations will run me about $15,000, however I believe that after my friends leases are up in a year I will be able to charge around $1400 in rent ($500 more than I currently could charge if I moved out). If I chose to go this avenue I would then buy a second multi-family home in about a year with about $35,000 (this including the subtraction of the $15,000 for renovations) that I could save up during that time.

My other option is to buy a multi-family right now with my $25,000 using a FHA loan. I am currently looking at a triplex in Tremont ( a Cleveland borough) that costs $310,000. The current gross income is $3,200 a month (it would be $2,500 with me living in one of the units) and my mortgage with tax would be about $2,300 a month.

I am open to any suggestions about my situation, please and thank you.

[James Wise]

Originally posted by @Justin Kestler:

Hello! My Name is Justin K. and I currently reside in Lakewood Ohio (a suburb on the west-side of Cleveland). I bought my first duplex 2 years ago and I currently live on the top half with two friends from college and rent out the bottom. I have built up about 25k in capital, and I am wondering if I should use that to renovate my top half of the duplex, or buy and move into another rental property. 

I purchased the duplex in 2017 for $180,000 with a 30- year conventional loan ($1,385 monthly mortgage payment with tax and insurance) and have about $35,000 worth of equity in the property. I rent out the 2 bedroom bottom unit for $1,150 and charge my friends who live with me in the 3 bedroom top half unit 400 each. The top unit is functional, however potential updates include, refinishing the hardwood floors, updating the kitchen, updating the bathroom, replacing 7 windows and most importantly blowing insulation into the attic (my bed room) so that it is more inhabitable during the summer months. I estimate all of these renovations will run me about $15,000, however I believe that after my friends leases are up in a year I will be able to charge around $1400 in rent ($500 more than I currently could charge if I moved out). If I chose to go this avenue I would then buy a second multi-family home in about a year with about $35,000 (this including the subtraction of the $15,000 for renovations) that I could save up during that time.

My other option is to buy a multi-family right now with my $25,000 using a FHA loan. I am currently looking at a triplex in Tremont ( a Cleveland borough) that costs $310,000. The current gross income is $3,200 a month (it would be $2,500 with me living in one of the units) and my mortgage with tax would be about $2,300 a month.

I am open to any suggestions about my situation, please and thank you.

Use the funds & move into another rental man. Build your empire!