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Do I remember that you bought some rental property in the last year or so? I'm thinking about getting either a duplex or a 4plex, with the plan of living in one unit and renting out the other(s), and was wondering if you'd accumulated any wisdom on the subject you'd care to share.
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As overjoyed as I am that my name showed up in the subject, it wasn't me that did that. I do have a couple of friends that have rental properties, so if you've got any specific questions, I could see what I can find out.
I did own a condo, but sold it when I bought my current house. I thought renting it would be too much of a pain in the butt to make it worthwhile. But if you're living on one side, that's a different story.
Posts: 4625 | Registered: Jul 2002
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posted
Really? I've been wrong about stuff a lot today!
I wonder who it was?
At this point I don't know enough to have any fully formulated questions for you to ask your friend, but as I get further along in the process and come up with some, I'll definitely post them.
Posts: 16059 | Registered: Aug 2000
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Noemon, I went in on a duplex with my father and brother.
A lot depends on state laws. I know here in MA you have much more leeway as a landlord if you also live on the premises. You can be much more discriminating in who you accept a tenency from. This is useful especially in older houses without a de-leading certificate... If you aren't living in the place, you have to de-lead the place if a tenant with children (under the age of 6, I believe) wants the place, and is otherwise qualified to rent.
As far as mortgages go, if you are looking for a place with low upfront costs (useful if you find a place that needs cash to fix up), you can get an FHA loan. There are more hoops to go through, however (paperwork, mostly). One hoop, that is actually useful, I think, is that the house must be in a certain state of habitability to have the FHA loan approved. They require you, the buyer, to get a home inspection. If the home inspection shows problems, the _seller_ must repair the issues before completing the sale. This step occurs only after you both have agreed in principle on an offer, so this isn't screwing the seller. Even if the home inspection doesn't come up with anything deal breaking, it will still likely show some things to be on the lookout for, or future reccomemmendations, and they give you fairly comprehensive paperwork that you can keep around for future reference.
There is another advantage (though I am now foggy on the details) in that you can get an additional home improvement loan at the time of the sale if you apply in such a way that you clearly delineate certain improvements you plan on making to the place, and that these improvements would raise the value of the house. They will give you the amount that the house would gain in value, up to $50k, I think. I'm pretty sure I'm off on these details, but it is something to look at.
As far as my investment, we ended up taking a lot longer rehabbing the tenant side (its now nicer than the other side!), and we have since refinanced out of FHA into a more conventional loan, mostly so I could move back into the city near my job (FHA requires all the owners to live at the place, though I'm not sure how they enforce that). We have had the house since Oct. 2002, and only got a tenant in this past December. It's nice now, because the rent covers more than half the mortgage, which allows us to save up to purchase another house in the near future. Also, while the place was in a less than desirable neighborhood, but near decent ones, and it was a good property in and of itself, we've seen the house be re-appraised at ~150% of what we bough it for. This was useful for when we remortgaged to pay off all our debts from rehabbing the place. There is still a lot of work left, but it's all non-critical now that we have tenants. We don't need to rush.
Be careful about the 4plex, there are higher mortgage expectations from the banks. Apparently, rather than caring about your down payment, they want to see that you have enough available cash to cover 6 months of the mortgage ig no one was living there. This is not the case with 2- or 3-families. In fact, FHA may not allow 4+ separate units.
I will also say that, whenever possible, get a place that has separate utilities, particularly heat and electrical. This makes it easier to write up leases, since you don't need to haggle with your tenant when the electric bill spikes, and they refuse to pay half, thinking it's your fault. Also, it allows for condo-izing the place much easier. Also make sure that if they say the place is de-leaded, they have a valid de-leading certificate.
What is de-leading? I'm sure I'll have more questions later, but that's the first one that's popping to mind right now.
Posts: 16059 | Registered: Aug 2000
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I think that it was you that I was thinking of Tick. Are you converting your place into a single family dwelling now?
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posted
Yeah, by law, houses need to be certified that they have no lead paint, particularly if young children are living there.
Actually, my dad manages most of it, but being a bit of a micromanager (and having 10s of thousands of dollars on the line), I try to learn as much as I can
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Yeah, we're converting back. We need (and want!) the room, and we never had good luck with tenants who could pay and were sane.
Posts: 5422 | Registered: Dec 2001
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I would love to have someone to kind of apprentice myself with for this stuff, but I don't, so I'll have to just learn as I go. I'm going to be getting some books on various types of home repair, and I do have a new coworker with whom I'm beginning to become friends who is very handy, so hopefully he'll be able to show me a thing or two eventually.
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Sane and able to pay are two traits I'll be sure to look for in my tenants.
Seriously, that's something I worry about. I want to make sure that I get a place that I can afford even without the tenant's rent, just in case it goes empty for awhile, or I get someone who is an expert at not paying rent and avoiding eviction or something (I've heard some horror stories).
Posts: 16059 | Registered: Aug 2000
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I'm planning on having year leases. Anything else just seems like too much of a headache. Actually, it's occurred to me to try a property management service. It doesn't look like they charge too horribly large a percentage of the rent, and I think that they manage stuff like finding tenants, fixing problems, collecting rent, and the like. Anyone have any experience with those?
Posts: 16059 | Registered: Aug 2000
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We tried it, but they were never successful at finding tenants. We also started by overpricing the rent, so we had to lower it a couple hundred bucks (this is a 2-story, 3.5 bedroom, 1 bathroom apt.). Credit checks are key. Generally, they'lll have fairly poor credit, but you should see if the problems were far enough in the past (3-5 years), to take a gamble. Plus there's all the normal things to look for: are they quiet, do they have stable year-round jobs, do they swear like a sailor on the phone with the prospective landlord (this happened to my dad, a person we were considering started bad mouthing her current/last landlord, it rightfully weirded my dad out). Oh, and try to get the current/past landlord's name and number, and use them as a reference.
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If I post my horror stories, you'll never buy. Just follow the advice above, get references (hopefully ones that call you back in a timely fashion!), check employment (and hope the company still exists a week after they move in), and make sure they don't smell. Oh and if they leave a note on your door, held up by a knife like you see in the movies, kick 'em out.
Posts: 5422 | Registered: Dec 2001
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posted
My wife and I bought a duplex the same time Bok did, back in October 2002. We did the FHA loan, and got some grants to help with the down payment. We live in the upstairs unit and rent the downstairs. We've had two different tenants since we bought the place, and so far no problems.
We even got Spanish Fork City to put it in writing that ours was a legal duplex. That was very important. Up in Orem, there's a zillion "illegal" apartments attached to homes, and Orem is starting to crack down. They've detailed a few investigators to do nothing but track down these apartments. I imagine the owners face fines if they're caught renting out an apartment that's not up to the city's rather stringent codes.
We became familiar with zoning laws in several cities while we were looking for a duplex. It's quite an education. Just owning an "investment property" and facing the different fees and regulations has made me much more interested in getting into local politics.
However, we've gone back and forth many times on whether it's worth it to be landlords. We're going to do our best to pay the place off in much less than 30 years, so that it'll be pure profit for us to rent the place. But we're still deciding if we want to run a rental property for that long.
We've found that the most effective method of advertising our unit for rent is to buy an ad in the major daily paper. At least, that's what got us the most responses by far, and we were able to be somewhat selective in prospective tenants. We currently rent to a single man who works all day, and that's just fine.
I'd say if you can sock away at least 3 months worth of savings to cover you when the unit is empty, you can get by. It's nice to have a little more coming in that you can use for repairs. Having a duplex is a major, ongoing investment and does take a fair amount of effort and diligence.
Posts: 5957 | Registered: Oct 2001
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quote:got some grants to help with the down payment.
There are grants that you can get for that kind of thing? I had no idea! How did you find them? How can I find them?
Posts: 16059 | Registered: Aug 2000
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I will warn, that in some cases, it can be a negative to rent for profit, particularly starting out. We are just trying to keep the mortgage payments low, mostly for the tax incentives. That's another thing, there are different ways you can itemize costs on the duplex, depending on which side is having something done. I reccomend Quicken (or MS Money), and keeping track of everything you buy for the house, and which side it is for, as well as hiring a trustworthy accountant (we have a family friend who is a great one). As a rough example of the potential tax benefits, I made roughly 50k last year, and the house is going to provide roughly a 10k tax deduction this year (which is actually only a third of the total deduction). BTW, there are some interesting ways to set up shared ownership (if you are going in with other people)... The way we have it now is such that if any one of us dies, the ownership share is immediately split evenly between the survivors. No court fees, no probate appearances.
Of course, my family is in a different situation than afr... We are thinking of buying 2-3 places; enough to do well with, but not so much that any of us have to become full-time landlords. We had an easier time with our house, since each side already had separate addresses, and the utilities were mostly split. So we didn't have any zoning issues to worry about.
A .5 bedroom, rivka, is a room that isn't expressly a bedroom, butcould easily become one. Our apt. has 3 rooms (plus a full bathroom) upstairs, and 3 rooms (plus a .5 bathroom [just toilet]) downstairs. One room downstairs is the kitchen, and one is the living room/dining room. However, since one of the downstairs room isn't directly accessible from the front hall, it's an easy thing to put a door on it, and it could be a bedroom.
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Yeah, we're not expecting much profit at this point. Part of the reason we bought the duplex was that it allowed us to buy a higher-valued property than we might have considered if we were just buying a single home. Kind of a leverage issue. We're not in over our heads, as we can pay the full mortgage on our own if we need to and still stay in the black. And the duplex is essentially a single-family home if we want it to be, with a stairway connecting the units. But that's not a big temptation for us. When we gather up the courage and enough of a down payment, we'll probably buy another place, probably a single family home.
Renting both the units in our duplex, we actually will turn a small profit by a couple hundred dollars. As rents naturally increase, so will our margin. The problem is keeping both units rented and in good repair, which we're wondering if we have the energy to do.
The tax benefits are nice. We do keep track of any expenses we incur maintaining the place. A lot of those can be deducted. The downside is that our taxes suddenly got complicated because we own a rental unit. We've had an accountant prepare our taxes for the last two years.
Noemon, the grant we got was for first-time homebuyers. I can't remember if it was connected to the FHA loan we got. We found out about it during an early meeting with our loan officer. It amounted to $5000 towards the down payment. I can't for the life of me remember what it was called. There seemed to be plenty of those types of grants out there, each with their own special requirements. A loan officer would know about them, and probably recommend a few to you. My advice is to talk to a loan officer specifically about investment properties. They can tell you a lot. Try to find a real estate agent who specializes in investment properties as well. We're glad we did that.
I doubt we did everything right or got the best deals on everything, and we're not the most clever investors. This was our first home purchase as well as our first investment property, so we were pretty wet behind the ears. But we managed a pretty solid deal, found good people to work with, and didn't step into anything we shouldn't have. We're pretty satisfied. I like owning this kind of asset and knowing it could be immensely valuable to us later on.
Posts: 5957 | Registered: Oct 2001
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