Thoughts on a purchase of a home with an accessory dwelling unit

Real Estate Deal Analysis & Advice
9yFollow

Thoughts on a purchase of a home with an accessory dwelling unit

Chris Jargens
Columbus, OH · Member since 2017 · 9 posts · 3 votes

Hi all,

Long time reader but I haven't had anything to really post about but now I'm thinking about moving forward more into real estate outside of just owning a property to live in.

I currently own half of a duplex that I've been living in for seven years. My neighbor rents his side out. Both of these properties are in a very walkable urban area of Columbus, OH. I currently have a $1500 mortgage and my unit would rent for about 2200/month. I really want to invest in a duplex building, live in one half and rent out the other side. I can know that being a landlord can be time consuming and I'm trying to make the process as efficient as possible. I just don't want to get in over my head. However, these type of properties rarely come up on the market in the area I live in. Recently, I spoke to my realtor about a home that was being built for 650K about a 2 minute drive from my current home that will include a ADU (450 sq ft) that has a kitchen and bath. It should meet all the zoning requirements to rent out. It would probably rent for 1000-1100. My mortgage on this place would be about 2800/month including taxes and insurance based on the downpayment I can afford.

My question is would this property be worth it? Also, would it be a better idea to keep my current place and rent it as well or sell it? I have about 160K of equity in my current home. I don't relish the idea of managing my current home as well but I don't know if its a good idea to sell. It has increased in value about 5% per year over the last 7 years.

1Reply
22 views

Most Popular Reply

Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y

Hi @Chris Jargens,

I'm not going to offer a direct answer to your question, but I'll offer some "bonus points" for that property: 

- Duplexes come with a rate bump and higher conventional loan down payment requirements. 

- SFRs w/ ADUs do not come with that rate bump or the higher conventional down payment requirement. 

2Reply
See this reply in the discussion

12 Replies

Jump to latestLatest
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y

    Hi @Chris Jargens,

    I'm not going to offer a direct answer to your question, but I'll offer some "bonus points" for that property: 

    - Duplexes come with a rate bump and higher conventional loan down payment requirements. 

    - SFRs w/ ADUs do not come with that rate bump or the higher conventional down payment requirement. 

    2Reply
  • Keawe Enos
    Wholesaler · Mesa, AZ · Member since 2016 · 12 posts · 7 votes
    9y

    Hey @Chris Jargens

    This exact question has actually crossed my mind as well. We are in the process of moving and I am considering both options. Wish I could provide more thoughts on those two. 

    One additional option that may be worth some thought is purchasing a SFR like the one you were talking about, and then turning the ADU into a short term rental. Wish I could say that was my idea but I actually got it from @Ben Leybovich, which is what he just recently did when he moved to arizona. However, a huge determining factor would obviously be if your market can support a short term rental, which I have absolutely no idea about there in ohio, but if possible it may be able to provide significantly more cashflow compared to the traditional long term rental. Just something to think about!

    2Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    9y
    Originally posted by @Chris Jargens:

    Hi all,

    Long time reader but I haven't had anything to really post about but now I'm thinking about moving forward more into real estate outside of just owning a property to live in.

    I currently own half of a duplex that I've been living in for seven years. My neighbor rents his side out. Both of these properties are in a very walkable urban area of Columbus, OH. I currently have a $1500 mortgage and my unit would rent for about 2200/month. I really want to invest in a duplex building, live in one half and rent out the other side. I can know that being a landlord can be time consuming and I'm trying to make the process as efficient as possible. I just don't want to get in over my head. However, these type of properties rarely come up on the market in the area I live in. Recently, I spoke to my realtor about a home that was being built for 650K about a 2 minute drive from my current home that will include a ADU (450 sq ft) that has a kitchen and bath. It should meet all the zoning requirements to rent out. It would probably rent for 1000-1100. My mortgage on this place would be about 2800/month including taxes and insurance based on the downpayment I can afford.

    My question is would this property be worth it? Also, would it be a better idea to keep my current place and rent it as well or sell it? I have about 160K of equity in my current home. I don't relish the idea of managing my current home as well but I don't know if its a good idea to sell. It has increased in value about 5% per year over the last 7 years.

     In a good location in Columbus you could generate $80 per night or more on AirBnB. Beats the snot out of $1,000...and much easier systems. Read my book. It's perfect for you :)

    2Reply
  • Chris Jargens
    OP
    Columbus, OH · Member since 2017 · 9 posts · 3 votes
    9y

    Wow, thanks for the great advice! I was assuming that everyone would say its a horrible plan financially (please say that if you think it is, I can handle it). I imagine the more lucrative route is to look for multi unit apartments in the OSU campus area but I know that I will not be able to handle that well in terms of organization and time management. 

    I didn't consider the AirBnB angle. It would probably be easier to rent it as a 450 sq ft "hotel" than an apartment. Its in the Grandview area about a 5 minute walk to Grandview Ave. Pretty lively neighborhood. I will check out the book!

    2Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    9y

    @Chris Jargens - I am from Columbus, though thankfully out of Ohio now :)

    Understand - I call this Luxury House Hacking. The "luxury" component applies not only to quality of area and structure you buy, but also the ease of management. Everyone else is buying **** duplexes. You buy something very attractive, and because it's attractive to you it'll also be attractive to Class A guests/tenants, who are easier to manage, case fewer damages, and result in much less stress and drama - that's luxury in the rental business!

    You buy in the right location in Columbus, you will knock off $15,000 of cash flow and live in a great spot to boot. Easy...read the book for step-by-step :)

    Good luck!

    1Reply
  • Robert EllisBusiness Member
    Developer · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
    9y
    Originally posted by @Chris Jargens:

    Hi all,

    Long time reader but I haven't had anything to really post about but now I'm thinking about moving forward more into real estate outside of just owning a property to live in.

    I currently own half of a duplex that I've been living in for seven years. My neighbor rents his side out. Both of these properties are in a very walkable urban area of Columbus, OH. I currently have a $1500 mortgage and my unit would rent for about 2200/month. I really want to invest in a duplex building, live in one half and rent out the other side. I can know that being a landlord can be time consuming and I'm trying to make the process as efficient as possible. I just don't want to get in over my head. However, these type of properties rarely come up on the market in the area I live in. Recently, I spoke to my realtor about a home that was being built for 650K about a 2 minute drive from my current home that will include a ADU (450 sq ft) that has a kitchen and bath. It should meet all the zoning requirements to rent out. It would probably rent for 1000-1100. My mortgage on this place would be about 2800/month including taxes and insurance based on the downpayment I can afford.

    My question is would this property be worth it? Also, would it be a better idea to keep my current place and rent it as well or sell it? I have about 160K of equity in my current home. I don't relish the idea of managing my current home as well but I don't know if its a good idea to sell. It has increased in value about 5% per year over the last 7 years.

     Coming from someone who owned an Airbnb and cash flowed with a high mortgage like this as well, it's a lot easier to cash out and get a duplex that you can live in and rent out the other. Mine was in German Village. Also an urban neighborhood of columbus. I took the steps to sell it, get the equity, do a 1031 exchange and move into the new property without paying tax. Great time to sell as well. there are condos in German Village going for over $350 a foot right now. Can't believe it. 

    [email protected]786-494-6766
    Section 8 Launch52 Reviews
    WebsiteView Page
    0Reply
  • Chris Jargens
    OP
    Columbus, OH · Member since 2017 · 9 posts · 3 votes
    9y

    I'm pretty excited about this now but I don't want to let this cloud my judgement regarding a purchase. As a somewhat related question, do any of you use price per sq ft to negotiate purchases if you are comparing builds by the same company within the last year. I realize that price per square foot is misleading and is usually non-helpful with random properties but since it is the same builder with similar design styles and finishes, I would help.

    Thanks!

    Chris

    0Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    9y

    Price per sure foot is the key metric in SFR!

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Chris Jargens, on the face of it, wouldn't this be setting you up for paying MORE per month than you are already? ie. Isn't investing supposed to be about RECEIVING more money per month (or, costing less)?

    ie. Are you MAINLY counting on continuing appreciation? [Did I read that right: $650k purchase price?]

    In principle, I reckon owning (only) half a duplex is worse than owning an SFR, so yes, you're on the right track with the idea of buying MULTI-family, but, starting at $650k? For just a (relatively) tiny added-on extra income capability?

    Don't forget to look at what you could get older homes for, not just new-builds. My 2c. Welcome to BP...

    0Reply
  • Chris Jargens
    OP
    Columbus, OH · Member since 2017 · 9 posts · 3 votes
    9y

    @Brent Coombs, thanks so much for the feedback. I appreciate it and that's one of the issues I've been struggling with regarding this. A couple months ago, I wouldn't have even considered about 400K.

    I guess I should explain my motivations a bit. I'm a professor at OSU and I run a consulting business as well, working about 3-4 nights a week. I'm honestly not sure how much time I can put into renovating a duplex that I can afford. That's why I initially looked into relatively finished duplexes. Ideally, I'd buy my neighbors place. If I would have purchased it three years ago, I could have covered that mortgage and $800 of my mortgage. But he was smart, didn't want to sell and probably gained about 15% in value during that period in addition to rent. Our places are a block from the short north in one of the most popular places in the city.

    A couple weeks ago, I saw a house selling for 680k with a carriage house garage that rented for $1200/month. In the areas that I'm looking at, SFRs range from 430-700k. Things are crazy around here now. The SFRs that I can find without a garage (so I can build one with an ADU) range from 450-700k. I imagine that a garage with an ADU must cost 150k to build so the difference between that and the new build isn't that much. In addition, a lot of the new builds are getting a tax abatement for 15 years in central Columbus. At first, the price tag of the new build blew my mind but once I started running the numbers, renting out part of it would cut my mortgage to close to what I am paying now.

    TL;DR, I don't know if I will have enough time to renovate a multifamily home, function as a landlord for multiple units and reap the benefits of cash flow. I think I would be able to manage a built in unit. In the end, I would like to move to a property that pays me something since that will go towards monthly mortgage and equity if not major cash flow.

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @Chris Jargens, is this an example of: expenses "automatically" increase when income increases? [The same principle as: stuff always accumulates to fill the available space?] Too often I read threads here on BP from people on triple figure incomes, who still bemoan that getting into Real Estate is too hard for them where they live! (I'm not sorry for them).

    So you're saying, one property there rents for just $1,200/m, but entry price for buying it is nearly $700k?

    Whereas your (half) property would rent out for $2,200/m? [What's IT worth, if you don't mind me asking?]

    I hope you realize that YOU don't have to be the expert AND do all the work regarding rehabbing/landlording?

    ie. That's what Contractors and Property Managers are for! Also, you don't have to invest where you live!

    ie. There are many markets where you'd only need to invest ~$100k to gross $1,200/m (or even $2,000/m). Cheers...

    0Reply
  • Robert EllisBusiness Member
    Developer · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
    9y
    Originally posted by @Chris Jargens:

    @Brent Coombs, thanks so much for the feedback. I appreciate it and that's one of the issues I've been struggling with regarding this. A couple months ago, I wouldn't have even considered about 400K.

    I guess I should explain my motivations a bit. I'm a professor at OSU and I run a consulting business as well, working about 3-4 nights a week. I'm honestly not sure how much time I can put into renovating a duplex that I can afford. That's why I initially looked into relatively finished duplexes. Ideally, I'd buy my neighbors place. If I would have purchased it three years ago, I could have covered that mortgage and $800 of my mortgage. But he was smart, didn't want to sell and probably gained about 15% in value during that period in addition to rent. Our places are a block from the short north in one of the most popular places in the city.

    A couple weeks ago, I saw a house selling for 680k with a carriage house garage that rented for $1200/month. In the areas that I'm looking at, SFRs range from 430-700k. Things are crazy around here now. The SFRs that I can find without a garage (so I can build one with an ADU) range from 450-700k. I imagine that a garage with an ADU must cost 150k to build so the difference between that and the new build isn't that much. In addition, a lot of the new builds are getting a tax abatement for 15 years in central Columbus. At first, the price tag of the new build blew my mind but once I started running the numbers, renting out part of it would cut my mortgage to close to what I am paying now.

    TL;DR, I don't know if I will have enough time to renovate a multifamily home, function as a landlord for multiple units and reap the benefits of cash flow. I think I would be able to manage a built in unit. In the end, I would like to move to a property that pays me something since that will go towards monthly mortgage and equity if not major cash flow.

     In the historic districts that you are talking about I think it's all about maximizing the properties that you have. You can easily build a carriage house for less than $100k depending on size and what you need. If you have the equity, then i'd pursue that as an option before going out and trying to buy others. Or Maybe sell and move into more commercial apartments. 

    [email protected]786-494-6766
    Section 8 Launch52 Reviews
    WebsiteView Page
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free