Should I buy my rental (duplex)?

29 Replies

Hello all--new to the real estate thing. My landlord is selling my duplex, which I currently rent one unit in. It's walking distance to a major university, walking distance to downtown, Whole Foods, Trader Joe's etc. I've loved living here and they've done a ton of work to bring it up to snuff (including replacing most of the foundation). I've been looking for a single-family home in the $250,000 range ($1750 monthly payment including all utilities, savings for maintenance, etc), which is the max I can afford as one person. My landlord wants to sell the duplex for $380,000 ($2669 monthly payment). I estimate that If I rent the other side for $1500/mo, I can get my monthly payments to roughly the equivalent of my current rent ($1169). But do I take the risk? As a first-time buyer, what am I missing/not considering that would change my mind one way or another?

Thanks all! I'm so glad I found this place! 

If you would like, post all the numbers I will analyze the purchase and give my opinion regarding whether or not it will make you financially stronger in the future or will be a burden. Include total cost to purchase with all bank fees and closing costs. Do you pay for water and trash? How much? property taxes, total rental income including what your unit should rent for, life expectancy for roof, age of the property, HOA fees, monthly mortgage payment, your total down payment, property insurance, how many water heaters, do you have central air conditioners, how old are the furnaces.

Do you feel like you can deal with a tenant?

Do you have a reserve of cash in case the sewer goes bad and a contractor wants $15,000 to replace it, or you need a new furnace, air conditioner, or water heater.

What are duplexes selling for in your area?

I am 100% pro for purchasing multi-unit properties, but you want to purchase the best deal so you are happy to be a property owner and you don't want to purchase a dinosaur you have to clothe and feed.

Since the owner has been investing in the property then your maintenance should be as expected. The main variable will be  vacancy. The quality of the tenant you get will determine the size and frequency of cashflow options you have. If your seriously considering it, I would proactively start the process of screening prospective tenants. You will want someone in ASAP if not before you close.

It would be helpful to know the location of your duplex.  It would help in understanding the risk.  The number 1 risk to any rental property is the inability to find a qualified tenant.  If your duplex is located in Texas then that risk is minimized and I feel good about your purchase.  

Buying your first property or first investment property will most likely be the hardest thing you will do. That being said, buying a duplex will have less financial risk than a single-family home (SFH). Consider comparing both as you have rudimentarily done so far. If you buy the SFH you have to come up with $1760 each month. If you get into a financial bind and cannot come up with the mortgage payments, your options are to try and sell the home or rent it out for its payments. With no income coming in on a SFH, pressure builds quickly. Selling in a down market might cause you to actually lose your home altogether. Instead, you buy the duplex, your monthly nut is now $2669 but your rent from one side is $1500. Your nut each month is not what your SFH ($1760) is but a mere $1169. Thus saving $591 each month or 7092 a year! Yeah, you might have some vacancy and additional maintenance that your single-family won't necessarily experience, but if you're in a strong demand location (like Texas) then it is not a problem. In Austin, (where I live) I strive for a one-day turnover because demand has been so strong. I've been landlording since 2003 and the longest I have gone vacant looking for a tenant has been one month. Throughout that time I have only raised rents not lower them. But let's say you get in that financial bind and can't pay even your $1169 to cover your mortgage. Or your job transfers you out of town and you need to go. Either case you simply move, rent out your unit and now you have $3000 rent coming in and $2669 going out......easy peasy!!! The key here is for the first two years, make the difference in payments to yourself $591 monthly X 12 X 2 = $15,084. That will give you your maintenance reserve. Once your above 10k in reserve you have the option of paying down your note quicker should you decide to do so. House Hacking with a duplex should whet your appetite to want to acquire more properties. Good luck! Cheers!

I 110% agree with @Joe Scaparra a duplex might sound like a lot at first but it's easier on the wallet then a SFH. I just closed and moved into a duplex in downtown Round Rock, Texas. My tenant next door is paying Over half of everything. I pay net $2188 a month and he pays $1175 plus my side has been reno'd and is all new. I highly recommending running the numbers on your duplex AND location(very important) and let us run some numbers and advise you on what we think. This is my first property so I'm just one step ahead of you and would love to help you get started. Buying a house or duplex really isnt hard. It's just a lot of emails really haha, easy!!! Yes have some cash set away, really doesnt have to be a lot. I'm all in in a HOT market for under $10k tops, PLUS the first one is the hardest. Did I mention this was a MLS deal? We just sweetend up closing cost by nearly all of it thanks to @Sam Teifke . The first purchase is scary and new but the next time is just a repeat ordeal, you've done it all before. Don't be afraid to buy, be afraid to stay stagnate!! Seriously, pm me and I'd love to help you every step of the way. This is BP baby, we got you. @Joe Scaparra we still need to meet up!! First step Find BP, second step find a GOOD agent, third step find a GOOD lender, fourth step MAKE OFFERS, fifth step CLOSE! You got this!

Thanks all so much! It took some time but I got all the numbers. The location is Asheville, NC. 

I currently rent for $1000 utilities included. The other side rents for $1250 utilities included. It may be able to go up more (it's an optional two bedroom). (Note, I may have underestimated PMI and insurance because I've been doing the math for a single-family home)

0  Advanced issues found ▲  
3.House 389,000
30 Years
Down Payment Percent 3%
Down Payment $11,670
Present Value $377,330
Future Value 0
Years 30
Number of times per year 12
Number of payment periods 360
Annual Rate 4.00%
Monthly Rate 0.003333333
Monthly Payment -1,801.43
Total Interest Paid $271,185.21
Taxes $3,500
Insurace $800
PMI $1,080
Water $480
trash/sewer $400
Utilities $6,000
Maintenance $2,000
Total Monthly House Cost ($2,989.76)
Originally posted by @Jack Orthman:

If you would like, post all the numbers I will analyze the purchase and give my opinion regarding whether or not it will make you financially stronger in the future or will be a burden. Include total cost to purchase with all bank fees and closing costs. Do you pay for water and trash? How much? property taxes, total rental income including what your unit should rent for, life expectancy for roof, age of the property, HOA fees, monthly mortgage payment, your total down payment, property insurance, how many water heaters, do you have central air conditioners, how old are the furnaces.

Do you feel like you can deal with a tenant?

Do you have a reserve of cash in case the sewer goes bad and a contractor wants $15,000 to replace it, or you need a new furnace, air conditioner, or water heater.

What are duplexes selling for in your area?

I am 100% pro for purchasing multi-unit properties, but you want to purchase the best deal so you are happy to be a property owner and you don't want to purchase a dinosaur you have to clothe and feed.

Thanks so much! I've posted all the numbers.  

I would like to make it clear that you should not rely on my advice nor the advice of any other person. I made enough of my own mistakes and everyone has different reasons for purchasing a property. You may be willing to pay twice the value for a property if there is some reason you want to live in it.

Aside from your loving the property for some reason, I would not give it a 2nd look for an investment. Unless you can raise the rent significantly. My calculations show that even if you paid rent, yourself, this property will always be in the red with the exception of appreciation, but inflation eats up slow appreciation.

I may have to create 2 posts to show my breakdown. I would also appreciate input from other BP members. I may be totally wrong.

If I am correct, you are saying the property is worth a little less than you are paying. Get the book 'Never Split The Difference' and read it a few times. Never listen to your real estate broker when it comes to offering less. Always offer far less and the worse that can happen is the seller won't budge and if you lose the property their are millions more.

The tough thing about purchasing a property is; "There Is A Fool Born Every Minute". That means, there is almost always some fool who wants a property for whatever reason and he (or she) is willing to pay the asking price. Not Me! When I purchase a property for an investment I have to crunch the numbers and the numbers have to make sense. I present the numbers to the seller and if he won't budge then let some fool purchase the property and look for one where the numbers make sense.

Put your numbers together and make an offer based on what the selling price has to be to make sense. I put the price on the 3rd & 4th charts.



Are the units one or two bedrooms?

Two bedrooms can be more challenging to rent and don't command that much extra rent for the additional bedroom. I saw two bedroom apartments in the Grove Park neighborhood for rent for under $1000 a few months ago.

We've noticed a little softening in the rental market recently (price and time to rent), so I would look closely at your assumptions about what you can charge.

The main question is do you want to be a landlord?

Also, are they separately metered for utilities (electricity/gas) - why was your landlord paying yours? If not go to Development Services on Charlotte and inquire about that. If you can shift those expenses to a tenant that's ideal.

My friend just sold 69 Magnolia 28801 in Montford for $370k. Zillow and you'll get a decent comp, and I believe they asking $1200 for the upper floor recently...but don't quote me? 

I lowered the price to what is very reasonable from an investment point of view, but I this property not make you a profit without appreciation and increased rent. I would offer $310,000 and fight for no more that $320,000

Last image. Just my opinions. I think many people have a desire to own their own place, but the happiness goes away really fast when the place needs a $25,000 roof, of $30,000 worth of plumbing work, or whatever and then the tenant leaves, passes away, or whatever. Only you know how you will be able to handle this property with such a small margin to cover major repairs and tenant issues.

I agree that rents are softening a little bit in Asheville. There are so many apartments being built that offer pretty nice amenities that it can be hard to compete. I just read an article last month that mentioned a 251 mixed unit building being built on South Slope sometime in the next couple years. My duplex is downtown and I just lowered the rent on one of them from $1600 to $1450 and it has been vacant for about 2 months. The caliber of tenant seems to be getting better but in turn they expect more. This is a tough call because when you are buying a duplex to live in one side you are buying an investment but you are also buying a home for yourself. So it probably isn't all about the numbers from the OP standpoint. I agree that vacancy will be your number one issue. Can you afford the mortgage if you are vacant in the other unit? Do you have friends or family you can lean on if things get tough? Only you really know your financial situation. Buying an investment property in Asheville is definitely a good move "if" you can make it work. I am also aware of a few landlords selling their properties now because they feel we are at the top of the market here. Have you looked at other duplexes for sale in Asheville? Based on what you said this property could be in a good location or a fairly dicey one. I would  offer a number that gives you some more buffer. This landlords price is just an asking price. Every thing is negotiable. 

Originally posted by @Jack Orthman:

Last image. Just my opinions. I think many people have a desire to own their own place, but the happiness goes away really fast when the place needs a $25,000 roof, of $30,000 worth of plumbing work, or whatever and then the tenant leaves, passes away, or whatever. Only you know how you will be able to handle this property with such a small margin to cover major repairs and tenant issues.

This is so awesome. Can you help me understand how you arrived at these numbers? Are you using a program or do you have your own equation? I'm guessing it takes into account appreciation and inflation? 

Originally posted by @Jon Arsenault :

I agree that rents are softening a little bit in Asheville. There are so many apartments being built that offer pretty nice amenities that it can be hard to compete. I just read an article last month that mentioned a 251 mixed unit building being built on South Slope sometime in the next couple years. My duplex is downtown and I just lowered the rent on one of them from $1600 to $1450 and it has been vacant for about 2 months. The caliber of tenant seems to be getting better but in turn they expect more. This is a tough call because when you are buying a duplex to live in one side you are buying an investment but you are also buying a home for yourself. So it probably isn't all about the numbers from the OP standpoint. I agree that vacancy will be your number one issue. Can you afford the mortgage if you are vacant in the other unit? Do you have friends or family you can lean on if things get tough? Only you really know your financial situation. Buying an investment property in Asheville is definitely a good move "if" you can make it work. I am also aware of a few landlords selling their properties now because they feel we are at the top of the market here. Have you looked at other duplexes for sale in Asheville? Based on what you said this property could be in a good location or a fairly dicey one. I would  offer a number that gives you some more buffer. This landlords price is just an asking price. Every thing is negotiable. 

Yes as a current renter I've noticed this, too. But what do you think is driving it?  

No! It does not take into account appreciation nor inflation since you cannot depend on their being any appreciation and inflation eats up the appreciation, anyway. This is only very simple math to give you an idea whether or not you want to look into the purchase any further unless there is something very special about the property that will increase the ROI i.e. adding a room addition, bathroom, rent it to enough college kids to make a good profit. etc.

If the numbers make sense you should buy it.  Live on one side and rent the other.  This will allow you to live for free and learn the process of real estate transactions.

@Rebecca Helm , I don't have a lot to add, as a lot has been covered already.  First you really have to know if this is a good deal from market value standpoint.  Is it $50K above or below market values?  My guess would be it is above.  Folks rarely start off with a price that is below market.  That leaves room for negotiation.  Even if the value is good will it make you money or lose money.  This deal does not leave any room for positive cash flow.  To make matters worse I do not see an allowance for vacancy.  I always put an 8% variance to account for vacancy.  This makes your bad cash flow numbers even worse.  You would have to get some significant price considerations in order to make this cash flow.

No, I think you are confusing two different issues. Vrbo is illegal in the city although there are obviously several operating illegally . But I don’t think that has anything to do with it. If anything that would make rents go up due to less inventory. There have been hundreds of apartment built and more to come .

@Jon Arsenault though I think you know this, let's not put out information that isn't accurate- VRBO's aren't "illegal." Short Term Rentals, anything less than 30 days, are not allowed in most residential zoning areas. There are a few zoning areas they are still allowed and there is also the ability to have a homestay permit which will allow up to two bedrooms to be rented short term. I believe you understand that, but it can be confusing if you throw out a blanket statement like the one you did.
With that said, rentals 31 (30?) days or more, aren't being regulated against. These aren't considered "short term." These can be advertised on VRBO/AirBNB/wherever.

You are absolutely correct- the many apartment buildings are what is causing rental rates to soften. It really is incredible how many are being thrown up in the greater Asheville area.

That and new construction developments are having a (small) impact as well. Each of these developments will see a small percentage of homes purchased for rental purposes.

@Rebecca Helm a few questions for you.

Why do you think you can rent one side out for $1500 if your rent is only $1000, utilities included?

Your numbers show $6000 for utilities, not counting water/sewage/trash. So that's electric, what else? You're not seriously paying $500/month on electric, are you?

AirBNB, regardless of what WAX and the many other FB groups may lead you to believe, aren't the (primary) reason for increased rent rates. I'm sure they have a small influence in some cities, but not Asheville. As Jon spoke on, AirBNB is highly regulated in Asheville. Rent rates are high because of other factors impacting supply and demand (the ultimate reason). Frankly, there's a housing shortage with no significant push to correct it. NIMBYs are highly resistant to improving the area's infrastructure and new development.

@Account Closed $25k roof? $30k plumbing? Those numbers are insane. She could renovate the entire place with money like that.