First 2 Family Rental Unit

5 Replies

I purchased my first single family home 3 years ago when I was 24 years old. It's a 4 bedroom colonial and I've been renting out 3 of the rooms to friends while I have occupied the 4th. The value of the home has increased and I've been able to put a dent in the principal on my mortgage. I am planning on selling the home after the winter and anticipate a profit of roughly 100-140k.

After the house is sold my plan is to purchase a two family rental unit just outside of Boston. I believe the area I'm looking at (Everett) will see an increase in property values within the next few years due to a new resort/casino "The Encore Boston Harbor" and its close proximity to Downtown Boston (2mi).

There are currently 2 family (4bd/2br) homes on the market for 500-600k. My plan is to put 30-40k down on one of these properties which would leave my mortgage payment at $3,000 +/-  The average monthly rental price for a 2bd/1br is $2,000. I think I would be able to collect roughly $4,000/month in rent.

I am wondering if it's a bad idea to rent an apartment for a year after I sell my house in the spring. It would buy me some time to find the right 2 family to purchase and would allow me to make any necessary upgrades to the property with the cash made from the sale of the single family property. The downside to this is that I will run the risk of not finding a renter and have to float the mortgage/rent for a period of time.

This is my first post on bigger pockets but I think this is the best way to find an answer based on the experiences shared within this community.

Please let me know what you think or if you've been in this situation!

Thank you,

Tim from Boston

@Tim ODonoghue I would be a bit more conservative about your 2 bedroom 1 bath estimates in Everett. The average may be $2000/month but that is due to the luxury complexes being put in pulling up the average. Depending on the state of the unit I'd say $1800 is a better bet.

I am currently house hacking in Everett and things are going really well! Feel free to send me a PM if you'd like to chat

Hi Tim! @Avery Heilbron has a great point of being conservative with rents. While $2000 is certainly achievable, that rate is mostly for very turn key units with better amenities. Using $1800 as a metric is going to be more realistic for your planning. 

Another market that would be notable for you if Malden which has two train stations that has a lot of upside and current developments as well as Chelsea which is only 15 minutes away from Boston. 

If your reservation is that you feel like you're constricted to find a home after you sell your home why dont you start looking at the inventory now? It would be good for you to gauge the inventory as well as know what price points are demanded on the market so you know the next steps to proceed. 

Hi @Tim ODonoghue , congratulations on getting started with real estate investing.

You will want to think about taxes when you sell your current property -- If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free. That being said, your use of the property wasn't solely for personal use. You or a tax professional can make the determination on how you want to handle potential taxes.

As for renting a property, no, I don't think it's a terrible idea -- there are plenty of landlords who own multiple properties but are renters themselves. That being said, is there any possibility you could float two properties? Perhaps if a property is rented, you could acquire it now with leases expiring in 2020. Then get your property ready to sell in the early spring.

As for your financing plan, you are proposing less than 10% down. Most traditional financing options are going to expect 15-20+% down for a 2-family. Have you talked with lenders and started lining up financing? 

@Tim ODonoghue

Any reason you can’t pull some equity out keeping the house now and buying a new one with the equity you pulled out? If you rented out your bedroom would you cash flow at the new mortgage amount?

@Tim ODonoghue congrats on your first investment! Some things I would think about based on what you said: 

1. Do you have to sell your current property? If it's cash-flowing well and doesnt require too much monthly maintenance, can you leverage a HELOC. Just a thought, why not keep a cash flowing property if it still makes financial sense.

2. Based on your downpayment amount, it sounds like you are going to be doing some low downpayment owner occupant loan, like an FHA. On those mortgages, you are technically saying that you'll be living in one of the units (though of course this is a gray line and I know plenty of people that just go ahead and rent all units --everyone has their own risk appetite).

3. In terms of a rental, going back to the second point, why wouldn't you just move into one of the units in the 2 family that you buy? If you go rent another apartment, then from a pure financial perspective if your rent is higher than the rent collected from the second unit, you'd technically be losing money. 

Just my 2 cents on this. Also, as a heads up 550-600K for a two fam today around the Everett area is going to buy you a pretty dated and small 2 fam. Make sure you account for potential upfront work you'll need to do and make sure you are pulling proper rental comps. As @Avery Heilbron said in his post, 2 bed/1 bath units are doubtful to get 2000 in rent. I've got a 2 bed in decent shape that I'm getting 1650 for (prob 50-100 below market, but still). Good luck! 

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