Its a duplex that is getting sold on a short-sale in 20 days. 5bdr, 3ba, 1368 sq.ft. - that’s each side. Bank negotiated for $245,000. Neighborhood is a typically duplex rental neighborhood. There were kids running all over the place, so family neighborhood. This duplex does need new appaliances, new air conditioner, fix a hole in the sidewall of the roof, and mold where it looks like the water heater burst its pipes in between floorboards. Paint and carpet, but its a rental, so I don’t care too much. I’m estimateing $6000-$8000 repairs/upgrades per side. I talked to the neighbors and they said they are paying $925/month for rent.
So, I’m thinking I can get this as owner occupied (I live in one side, rent the other). That would make my mortgage payments about $1700. Rent one side in a heartbeat for $800 and effectively be paying $900/month mortgage. :biggrin Fix both sides up, rent it out higher at $900+ each side (any takers? ), move to a nice place for myself and family in a few months and still have the owner occupied financing in place.
Does this sound like I found something good? What am I forgetting to think about? Thanks.
If you live in one side, maybe. However could you be living in a nicer place for the $900/month mortgage (difference between $1,700 of your mortgage and the $800 rental income from the 2nd unit)?
From a purely rental perspective I don’t think it is a good deal… You would be getting $1,800 and paying $1,700 mortgage. How would you cover your other expenses? $100 per month doesn’t seem enough…
You’ll be in a negative cashflow if you rent out both sides. You’ll be paying out of your pocket regardless. You may find that people can buy a home for $1000/mo. If that’s true, why would they rent? Basically you want to only pay a mortgage that one side can pay for. ($900/mo). I think your price range is about $140k for it to be a good deal ( I don’t have a calculator). If the bank owns it, you should be able to get a better deal. Not knowing your area/situation, I think you can get a better deal for an owner occupied property.
Buying a duplex with owner-occupied financing is a good deal. Here it is much easier to get an owner-occupied loan if it is a SFR (single family residence) with a guest house. The guest house becomes the rental unit or vice versa. But it’s not considered income property. So the loan is much easier to get.
But your duplex seems really expensive! Are you in a high-priced area? What does the average duplex go for? Also, the sq. footage seems off–1368 SF seems too little for 5 bedrooms, 3 baths unless the rooms are really small. Can you measure it yourself?
I agree with the 2 previous posters…this deal seems too risky. Is it a good deal for your area?
I agree, it can be risky. You’re leaving yourself with at best $100/month cash flow assuming you’ve got occupants in each paying close to $1000/month. If even a small thing went wrong it will be out of your pocket, and if something big goes wrong, or just general upkeep this could turn into a nightmare. I would agree that you can probably get the loan discounted quite a bit since it is a short sale, assuming there are 2 mortgages currently, you can probably get the 2nd discounted for pennies on the dollar. Like the others though, I would only pursue if you can truly get a great deal out of it. If there are any doubts or worries do not go through with it, there are more deals to be found that are ripe for the picking. You never know, if you walk away from this one now you will find a better one, or later on this current one will drop down to a more manageable price. Just my opinion
I don’t think it’s that bad if you are in a high-priced area and are going to live in 1/2.
What are you currently paying for rent? That is the clincher to this deal in my opinion. Will your rent (1/2 mortgage payment, taxes, insurance, maintenance, etc) go up or down if you do this deal?
Do you really like the area? Schools? Work commute? It is high-priced for a starter property, so enlighten us on your area.
The goal is to be better off than you are now if you purchase this property.
That is WAY too much for no more income that it’s producing whether you are living in one side or renting both sides out to other people. That $150 that rentrent is talking about won’t even cover the taxes and insurance for the place - let alone ANY issues that come up at all. If you pay that much for the place, you’re going to be taking a bath on it each month. When people on here recommend people starting out living in one side of a duplex and renting out the other, we don’t mean buying a losing property from the beginning.
Fix both sides up, rent it out higher at $900+ each side (any takers? ), move to a nice place for myself and family in a few months and still have the owner occupied financing in place.
The stated intention is to move out in a few months and for this to be a rental. The bottom line is that this is a horrible rental and will lose a lot of money. I’m not sure how losing more than $700 per month could be a good deal.
What’s your exit strategy should things go horribly wrong?
That deal is a money loser, not money maker, 1600 a month mortgage, does that include taxes and insurance, I don’t think so. There goes the 100 you thought you would make. What happens when a pipe bursts, floods the unit and the flooring has to be repaired/replaced? When you go 3 months with the other side vacant? There is no guarantee to this place even appreciating in value with this real estate market, so I’m not seeing any concrete upside to this deal. Don’t do it man! Run, don’t walk from this deal.
), move to a nice place for myself and family in a few months and still have the owner occupied financing in place.