Advice - OO duplex strategy/using first property to reach the next one

[Jason Khoury]

Hi everyone,

My wife and I recently bought our first property, an owner occupied duplex in northwest Washington. We purchased it for $778k and it appraised at $825k, so we do have some built in equity from the start. We live in one unit and rent the other.

The rented side is currently at $1,980/month. Based on the appraisal and what I am seeing locally, market rent seems to be closer to around $2,400 in current condition. Even with the rental income, we are still covering about 63% of the monthly PITI ourselves.

Obviously one of the main reasons we wanted to house hack was to lower our personal housing cost, increase savings, and use this property as a stepping stone into the next one. Right now I am trying to figure out whether I should view this property mainly as a stable long term asset, or more as something we should actively improve and reposition over the next 1-3 years.

The interiors are dated and mostly original early 2000s finishes, so I do think there is upside there. At the same time, I do not want to force a plan onto a property just because I want to keep moving quickly.

For those of you who have more experience, how would you think about a property like this?

Would you focus on keeping it stable, or would you look at it as something to actively improve so it can better help fund the next purchase?

Thanks in advance for any advice!

[Stacy Raskin]

It depends on how much more rent you would get if you were to remodel the tenant side if we are talking about potential upside on the rents. Also, how reliable are the current tenants and how well do you guys get along? Since you live there, getting along with them is a factor besides the rent received.

If I were in your shoes, I would want to know how much would a remodel cost and how much more rent could I possibly get if it were remodeled? Also, the issue with rental versus sales listings is that it is often difficult to get true closed rental comps (as in you know what the rent was when it was leased and not the asking rent), because in many markets, landlords or agents don't use MLS for rentals unless a very high end property. Sometimes what is advertised and what the landlord actually rents for is not the same. Getting reliable data on rents would be helpful.

Also, important are landlord tenant laws. For example, the landlord experience in Los Angeles CA is a different landlord experience compared to Cleveland, OH. As an investor and mortgage broker, I would want to put my money in a location where the state, county and city landlord tenant laws would not make my life difficult and my financial returns limited. 

Thinking about these items as well as where can your money yield the most for you and your goals are good to consider for what would best for you. That might mean investing locally or using your money elsewhere perhaps in an area that will make sense for the returns you want and the type of landlord experience would work best for you- whether that's being on site or an out of state investor for other properties.