Duplex/mother in law suite deal

3 Replies

Hello fellow BiggerPockets members. 

I will start by explaining my current situation. I am married with a 9 month old son. I work a full time construction job with a high credit score. I bought my first property with built in equity about 2 years ago in LaCrescent, MN. In that time I have done some renovations to the property to bring up the value. I've looked at the comps and talked to a couple of realtors in my area and believe I have about 30K in equity roughly. I don't have much money in saving .

I found a rare duplex/mother in law suite in my area 3 blocks away from my current residence. Its listed for 225K for sale by owner and its been on the market for 2 days. My family and I did a walk through today and want to put an offer on it. Full remodel in the last year. all new windows, doors, roof, soffit, driveway, sidewalk, stairs, fully finished basement, new hot water heater, new furnace. The problem is I don't have the cash necessary for the down payment and earnest money yet. This house has a lot of competitions for it and I believe it will sell in a few days. My wife and I were able to build good rapport with the seller for what that is worth.

In theory. I want to buy this duplex, live in one half and rent out the other. After I move to the duplex I would rent out my current residence. With the money coming from the singe family home and mother in law suite and my full time job, I should have more than enough money to cover both mortgages. 

I have never been a land lord before and the biggest risk I see is the transition period between my family moving and getting tenets moved into place as fast as possible. I don't have any money saved for Cap X expenses. Obviously I'm not in the best position to buy but this is the perfect deal to meet goals my if I can make it happen. 

So the way I see it my options are as followed:

I can get creative using the equity from my house.

I can try to raise money through private money lenders 

I can try to raise money through hard money lenders 

I can get the money through a traditional bank loan.

Should I do whatever it takes to put a offer in with a few thousands dollars earnest money and figure out the finances during the due diligence period? Im not sure what answer I'm looking for but any advise would be much appreciated.

Thank you, 

 Ryan Woodard

Hi Ryan,

You absolutely do not want to write an offer and a check on this property until you have your financing in place. If the listing is that hot you are going to need a letter of pre approval to submit it. One thing you might want to check out is an FHA loan. They will lend on a duplex if you are living in the property. The down payment is 3.5% and as long as your debt to income ratio can support it you should qualify. The one thing I'm not sure of is if FHA requires landlord experience. I would contact your local lender and they can give you the details on that. Sounds like a great opportunity Good Luck!!

Christi Hawkins

@Ryan Woodard : first thing's first: we'll need to know more numbers/details about the property to see if it's even that good of a deal in the first place. What do the expenses look like? Vacancy? Taxes? etc...

Assuming it's actually a good deal, I agree with Christi's advice above - you should probably try to take advantage of an FHA loan because 1) you'll meet the requirement many of us don't - you'll be living in the property and 2) the relatively low down payment is attractive for you because you don't have much savings.

Thank you for your timely responses. They helped point me in the right direction.

It's worth mentioning that my wife's grandma is strongly conceding moving into the mother in law suite which would be a win win for all of us. I think the seller likes that about us because their dad did the same this with his mother.

I have a the paper work collected to get pre approved for a loan and will start meeting with lenders ASAP. i have a good relationship with the lender that got me my first property.

Lets deep dive this my situation and property,

I ran some numbers roughly but with this situation there wasn't a standard way to calculate all the moving pieces perfectly that I could come up with but Im confident they numbers are close. My rent estimates are very conservative based  on the fact that they're almost no properties similar to my properties for rent currently and the few I compared are way above mine

I calculated everything annually.

Based on if I buy it for $225,900 (asking price)


Assuming everything goes according to plan:

$8,400      rent from mother in law suite 

$15,600    rent from single family

$34,320    net work salary 

-$480  Vacancy                   

$57,840  total income

Operating Expenses

$9,180      Single family mortgage 

$12,000    Duplex 

$15,000    Utilities/Repair/Insurence

$4,000      Tax for both property         

$40,180 total expense 

Net Operating Income: $17,660

Cap Rate:  7%

I feel like the way I calculated all this is unusual because I included my work income with total annual income from properties which obviously skews the numbers but in my situation with my goals its acceptable in my eyes. Tell me if I'm wrong...

My goals are to own both of these properties in great locations and have the tenets paying off both mortgages. At the very most if i still have to pay the mortgage payment I have now and esensually get two houses for the price of one then the deal is still a win to me. I feel the value for both properties have no where to go but up. Both of these properties are 3 blocks apart from each other too so that is convenient. 

Thank you

Ryan Woodard

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