I know a lot of you have income property and it has probably been a good investment for you. My daughter, single, 28 years old with a good job, is wanting to buy a duplex and live in half. I feel prices are very high (going over asking) and having to make an offer after a quick one time look seems ridiculous. The units are not in the best of shape with very few improvements over the years of rental abuse. Rents are pretty good in the area she is looking at. She has done quite a bit of reading and numbers make sense to her. I look at these units and just see work that needs to be done. I'm trying to be supportive but having a hard time thinking this is a good idea. Do any of you have advice for her or myself that would help us decide if a duplex is a good investment at this time? Do you have a rule of thumb when evaluating a property? Thanks for any advice.
Income property advice
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gauss
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Does she plan to use a professional property manager to deal with the tenants?
If not, I personally would be concerned about living that close to them.
Note I had only rental property and the tenant was not an arms-length transaction so my experience is limited.
-gauss
If not, I personally would be concerned about living that close to them.
Note I had only rental property and the tenant was not an arms-length transaction so my experience is limited.
-gauss
We own a handful of rental properties and it has been a good investment for us. I do recommend living nearby your first property at least so that you get a better understanding of landlording and rental property issues.
I haven't purchased recently and have been thinking of selling due to the crazy prices. My rule of thumb is to not pay more than 100x current or monthly rent after minor renovations.
The benefit of buying a duplex and living in one unit is that you'll have to put less down and that you will have better interest rates.
If the numbers work, I'd say go for it. It has been very good for us. We've purchased three properties that were ready for move in and two complete gut jobs. Gut jobs are far more profitable, but also require more oversight and floating more cash until it is completely renovated.
I haven't purchased recently and have been thinking of selling due to the crazy prices. My rule of thumb is to not pay more than 100x current or monthly rent after minor renovations.
The benefit of buying a duplex and living in one unit is that you'll have to put less down and that you will have better interest rates.
If the numbers work, I'd say go for it. It has been very good for us. We've purchased three properties that were ready for move in and two complete gut jobs. Gut jobs are far more profitable, but also require more oversight and floating more cash until it is completely renovated.
Yes; a lot easier to deal with those 9PM Sunday night calls if you are nearby.
pacergal
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Does she have the funds to do the repairs and work that needs to be done now and is she able to do much of it herself?
Can you walk through again with her and point out everything and possibly estimate beginning costs?
Good for her to research and doing some financial planning.
Can you walk through again with her and point out everything and possibly estimate beginning costs?
Good for her to research and doing some financial planning.
RetireBy90
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We have had a couple rentals and for us at this stage of our lives, having a property manager is a must. When I was much younger I managed our first property myself and attended to any repairs, collected rent, etc. I would say it can be a real challenge but you learn a lot about the business and people when you select who to rent to and when to be hard and when to give them a break. I would suggest she have an exit plan if she finds that being a landlord isn't what she wants or can handle.
Just a warning on possible issues with buying fixer upper. Possibly joining the 'nextdoor' group would shed light on this in the specific area to see if there are pleas for handy people. Where I live it is difficult to get reasonably priced work done on property.
LateToFIRE
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I've done the [self-managed] duplex live-in with tenant thing in the past. There are pluses and minuses:
Positives:
- Convenience - You're right there to handle problems
- Monitoring - You know what's going on, like whether tenant is throwing nightly raves in the unit
- You get know tenant, they get to know you, they tend to have more respect for the property (though important to keep the relationship arms-length because sometimes you need to have difficult conversations with them, like "where is the rent check" or "your lease will not be renewed"
Negatives:
- Convenience - You're right there to handle every little problem, like changing light bulbs (I kid you not).
- Monitoring - Sometimes you're better off not knowing ;-), but seriously your tenant has a right to enjoy their space even if they might be doing something that greatly annoys you, so good to have a measure of tolerance/patience.
- You get know tenant, they get to know you - if they get to know you too well, some people will take advantage of that and push their luck
- When tense conversations need to be had, it's made even more tense by virtue of living in the same building.
I'd say 28 years old is kinda young to be dealing with the people-issues and responsibilities that come with the landlord role. Expect that you'll be called in to help when things get out of hand, either people-wise or maintenance-wise, which is a given with rental buildings. That said, your daughter might be a very mature, self-assured, steel-willed 28-year old.
Positives:
- Convenience - You're right there to handle problems
- Monitoring - You know what's going on, like whether tenant is throwing nightly raves in the unit
- You get know tenant, they get to know you, they tend to have more respect for the property (though important to keep the relationship arms-length because sometimes you need to have difficult conversations with them, like "where is the rent check" or "your lease will not be renewed"
Negatives:
- Convenience - You're right there to handle every little problem, like changing light bulbs (I kid you not).
- Monitoring - Sometimes you're better off not knowing ;-), but seriously your tenant has a right to enjoy their space even if they might be doing something that greatly annoys you, so good to have a measure of tolerance/patience.
- You get know tenant, they get to know you - if they get to know you too well, some people will take advantage of that and push their luck
- When tense conversations need to be had, it's made even more tense by virtue of living in the same building.
I'd say 28 years old is kinda young to be dealing with the people-issues and responsibilities that come with the landlord role. Expect that you'll be called in to help when things get out of hand, either people-wise or maintenance-wise, which is a given with rental buildings. That said, your daughter might be a very mature, self-assured, steel-willed 28-year old.
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LateToFIRE
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Additional thoughts on the investment side of the equation: You absolutely should NEVER jump into something based on only one look [always remind yourself that urgency is something that brokers and sellers use very effectively to tap into the emotional side of your head and short-circuit the logic side of your head]. I've bought & sold a few properties in my time, and the one constant is that the more you see it, the more problems you unearth. Helps to bring along a contractor if extensive work will be needed, both to help you spot issues, and also to help you estimate the cost of rehab [double the estimate for accuracy]. My last purchase, I probably visited the property at least a dozen times, and this was in the middle of an outrageous bidding war. My attitude: you want me to keep bidding, I need to see it a couple more times and bring my in inspectors/contractors. Haste is the quickest way to lose your shirt in r.e.
As far as economic sense, hard to say without knowing the full picture. The duplex arrangement is something I wish I had done a lot sooner - would have allowed me to get into owning much earlier with a larger property. It's all certainly worked out well for me financially - I'm fortunate to have owned in what have become really hot areas. I'd like to think that some of that was good judgement - DW and I have good taste, we reflect our target tenant market, if we like something, chances are others will too and will be willing to pay top dollar for it.
[Additionally, make sure you and daughter spend some quality time on the property. If there is a chatty broker/seller following you around, ask them to sit back and let you/daughter tour on your own. They do that chatty thing to distract you - something they must learn in broker school. Also, if the area is transitional/questionable, spend some time walking around it in the evening. See if you feel safe. Call, or better yet, visit the local police precinct - they know what blocks are good/bad. If the desk officer gives you a cross-eyed look at the mention of your daughter living there, you have your answer on that.]
As far as economic sense, hard to say without knowing the full picture. The duplex arrangement is something I wish I had done a lot sooner - would have allowed me to get into owning much earlier with a larger property. It's all certainly worked out well for me financially - I'm fortunate to have owned in what have become really hot areas. I'd like to think that some of that was good judgement - DW and I have good taste, we reflect our target tenant market, if we like something, chances are others will too and will be willing to pay top dollar for it.
[Additionally, make sure you and daughter spend some quality time on the property. If there is a chatty broker/seller following you around, ask them to sit back and let you/daughter tour on your own. They do that chatty thing to distract you - something they must learn in broker school. Also, if the area is transitional/questionable, spend some time walking around it in the evening. See if you feel safe. Call, or better yet, visit the local police precinct - they know what blocks are good/bad. If the desk officer gives you a cross-eyed look at the mention of your daughter living there, you have your answer on that.]
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LateToFIRE
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One more thought on the economics. You mention that rents are pretty good in the area. If the rental income is crucial to the affordability question, think long and hard about the minimum rent required, because rents can be cyclical. You didn't say region or type of neighborhood. I'd consider the local economic picture - population trends, reputation of schools if targeting families with kids, work trends (are businesses moving in or moving out), nearby amenities and how that's evolving, whether there lots of construction of new units nearby, etc. Basically, what are reasons people want to live there vs other areas.
Most of my r.e. has been in specific upscale areas, noted for top-rated schools, above-average safety, and extraordinary amenities. Also, housing supply limited by very strict zoning and building codes. That's allowed me to double rents over several years.
Most of my r.e. has been in specific upscale areas, noted for top-rated schools, above-average safety, and extraordinary amenities. Also, housing supply limited by very strict zoning and building codes. That's allowed me to double rents over several years.
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InsertCleverHandle
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I commend your daughter for the interest and hustle. This can be a great way to manage your living costs and build a long term investment. I would consider a few things:
Can you cashflow the property after the investments to fix it up. Do you really need to fix it up? What may not be livable for you, may be fine for a rental.
Can she do minor repairs (cleaning, touch up paint, hauling out trash from an old tenant, mow the grass) if she can do more than that even better. We've owned properties both where we managed them and then had a property manager, but you can make a lot of money on the margin with the small upkeep work. You can also erode any cash flow if you have to pay for everything to be done...
You can also make an offer and as long as you have a due diligence period you can re-negotiate or walk away. I've lost several deals where someone went high on the initial offer on a property only to ask for a lot of concessions during due diligence. I believe this was their strategy. Discuss this with your realtor and get a good realtor...
Instead of a duplex, she could also buy a house and get roommates and charge them rent. I've had a few friends who covered their full mortgage this way. Good luck!
Can you cashflow the property after the investments to fix it up. Do you really need to fix it up? What may not be livable for you, may be fine for a rental.
Can she do minor repairs (cleaning, touch up paint, hauling out trash from an old tenant, mow the grass) if she can do more than that even better. We've owned properties both where we managed them and then had a property manager, but you can make a lot of money on the margin with the small upkeep work. You can also erode any cash flow if you have to pay for everything to be done...
You can also make an offer and as long as you have a due diligence period you can re-negotiate or walk away. I've lost several deals where someone went high on the initial offer on a property only to ask for a lot of concessions during due diligence. I believe this was their strategy. Discuss this with your realtor and get a good realtor...
Instead of a duplex, she could also buy a house and get roommates and charge them rent. I've had a few friends who covered their full mortgage this way. Good luck!
Thanks for all the input everyone. You have given us some very good information. We will have to come up with a formula to determine a fair price. I have always offered less than asking and then negotiated on the price. I have always had a contingency of an engineers report and lawyers approval too. That gave us plenty of time to think about the purchase. Now it seems realtors show the house and offers have to be in by a certain time with no contingencies (or you won't be accepted) and they usually go for much more than the asking price. I'm told that's the way it's done now. I know things change but it still seems crazy to me.
aja8888
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Show this to the realtor
https://wolfstreet.com/2023/11/21/h...ly-jumps-people-are-finally-on-buyers-strike/
https://wolfstreet.com/2023/11/21/h...ly-jumps-people-are-finally-on-buyers-strike/
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I would not want to be a single 28 yo woman with tenants sharing a wall. Or a neighborhood. I would only become a landlord with a property manager.
No matter what kind of screening you do, she needs to be prepared for an angry bang on the door at 3am when the toilet is overflowing, or worse.
Aside from that, I would also probably wait at least through the spring before deciding on any property (especially one that requires significant uplift already - which also means significant issues for the renters to find). I know it's nuts out there, and every location is a bit different. But the current combination of crazy prices and interest rates isn't sustainable, and something has to give.
I totally understand the urge to buy and own and start building equity, but I would hope she can either rent somewhere or stay where she is now for a year, and start shopping again in 6 months.
No matter what kind of screening you do, she needs to be prepared for an angry bang on the door at 3am when the toilet is overflowing, or worse.
Aside from that, I would also probably wait at least through the spring before deciding on any property (especially one that requires significant uplift already - which also means significant issues for the renters to find). I know it's nuts out there, and every location is a bit different. But the current combination of crazy prices and interest rates isn't sustainable, and something has to give.
I totally understand the urge to buy and own and start building equity, but I would hope she can either rent somewhere or stay where she is now for a year, and start shopping again in 6 months.
LateToFIRE
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What this means is that THIS is a MARKET maybe you don't want to jump into unless absolutely necessary. Things change but r.e. is cyclical. It might take awhile (like years) but demand ebbs and flows, just like other markets. I say this as someone who's about to sell. I've got realtors literally stalking me and investors barraging me with letters telling me they can do all cash - and the property isn't even on the market yet. It's never been quite like this - NEVER. We'll see how long it lasts.
LateToFIRE
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Agree, current market may hit a bump in the road, but it may take a few years to play out. Private equity and other types of big institutional investors have discovered the rental property asset class and gone in full tilt. Their funding cost is not driven by current mortgage rates, they are in it for the long-run, and they have cash to burn. So, if the property in question is in a region big dollar investors like, gonna require some long patience.
OldShooter
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Buying a duplex as our first house at age 23 worked well for us. It was a decent older house in a nice neighborhood and launched me on a reasonably lucrative 25 year career as a landlord owning small residential properties.
I won't re-cover the ground covered in this thread already except to say that I think that the idea of having a property manager for an owner-occupied duplex is a silly waste of money. Her tenants will know she is the owner and will deal with her whenever possible. This leaves the property manager to happily bank the fee without doing much work.
I won't re-cover the ground covered in this thread already except to say that I think that the idea of having a property manager for an owner-occupied duplex is a silly waste of money. Her tenants will know she is the owner and will deal with her whenever possible. This leaves the property manager to happily bank the fee without doing much work.
