First Time Buyers: House or Duplex?
How I Stopped Paying Rent
My husband and I, along with our two children, live in a nice home in the historic district of our town. Living in the historic district here means that you get the same house for twice the money. Location is everything, right? Even though we love the area, we really would love to simplify our life. I stay home with the children and do a lot of volunteer work. We would like to sell our house and buy a duplex.
The one that we are considering is near our home (still in the historic area) and we can live on one side and rent the other. Not only would this give us a steady income from the rental, but it would also free up our weekends and afternoons so we could do more of the things we would like to do. We see the positives, which include an additional savings $1200 per month and less yard work. Can you or your readers share some of the negatives or even positives that you may know of?
As landlords, we own several types of housing units including duplexes. I am wondering if the savings you mentioned of $1200 per month is taking into account the income from the other side unit. If so, that would be a savings that is a gamble since that unit may or may not stay rented at all times. So, you'll want to take that into account.
That being said, I believe the positives are all pretty obvious such as the income from the rental paying off your mortgage, possibly making some additional income from the other unit, less yard work, etc.
You will want to consider several things though. First off, that other unit may sit empty at times between rentals, which would mean loss of income at those times. Also, if by chance you pick a tenant with whom you have problems, it may be hard to address those problems being you are landlord as well as neighbor and possible friends. And what if your children bother the tenant? And if you've never been landlords before, you may find the upkeep of the unit between renters may be a lot to handle, especially if you are the one doing repairs, etc. Those repairs can eat up a deposit, plus so much more when tenants move. Even the small repairs, such as cleaning, add up. And, with a duplex, privacy can be difficult too. Are you ready to give up being a homeowner to be a duplex renter? In effect, that is what you will be.
There is much to be considered and what may or may not work for some may well work for another. So, you will have to decide if the gamble is worth it to you and your family or not.
Since I've lived in an owner-occupied duplex for over three years, I think I can give you a few suggestions.
First, talk to some of the rental property owners in the area and you'll definitely get more realistic information from these people than from the seller's real estate agent.
Second, give serious thought about how you'll be handling repairs. While some renters are trouble free, most will do much more damage to your duplex than your family. If you'll be contracting out many of those inevitable repairs, it will seriously reduce your net income. This will be especially true if you live in one of those historic districts that place restrictions on building materials and that sort of thing. For this reason alone, you might want to consider purchasing a duplex just outside the official boundaries of the historic district.
Third, make any purchase offers contingent on obtaining hazard insurance. Iinsurance rates have increased and insurance for rental property (even owner occupied units) can be a major expense.
Fourth, in the interest of happiness, it's important to be very selective about choosing among rental applicants. For example, in my case, I have a no smoking inside or outside rule, and I also require quiet hours between 10pm and 7am. This improves my enjoyment of my home and reduces complaints from our neighbors who're mostly homeowners.
Fifth, check out mrlandlord.com. It's a really helpful Internet site, especially the questions and answers section.
We own a second property that we rent, and I have a few thoughts to share with you. First, be prepared to repair problems in the other duplex. As the owner, you are responsible to your tenant to repair or replace faulty equipment, plumbing, etc. This can involve quite a bit of time (depending on the situation) and money. I would suggest that you create a separate checking account for the rental property only and then make sure you have at least $1000-$2000 in it for repairs or replacements.
We have also contracted with a homeowner's warranty company that we call when a problem occurs. It costs $350-$450 per year, but when (as an example) the old dishwasher finally conks out, it will pay to have a replacement installed. You need to read the contract very carefully and know for sure what they will and won't cover, but when you have a plumbing problem (as an example), this is very useful. Frequently, the only charge is the minimal fee (ours is $35) to have someone come out and complete the repairs. This helps immensely when you are not a handyman, or like most folks, can't take the day off work to go fix a problem in the duplex. This is by no means the end of your responsibility, and you'll have to keep on top of the situation to make sure everything is taken care of properly and promptly. You don't want shoddy work done just because it's done under the warranty contract. After all, this is still your home!
You'll need to find a cleaning service that will do a good job to make the duplex ready for another tenant when the first one moves out. This is not always necessary, but you'll want to make sure the carpets are cleaned and that the kitchen/bathrooms are spotless for another tenant. I also like to have the carpet cleaned no less than every 18 months when it is occupied to make sure that the carpet is holding up. You'll need to make arrangements with your tenant so that they will be prepared to let you do this, but it is well worth the effort and cost.
Depending on the state of the rooms, you might need to paint again before another tenant moves in. Remember that these are all costs that you as the landlord will have to shell out if you don't do it yourself. I recommend hiring someone for these tasks to make them tax deductible; your time is not tax-deductible, only the supplies you have purchased are. Keep all your receipts for everything that is done. This will be your tax record for what you have spent to maintain the rental property. And make sure you understand what is/is not tax deductible. Information is your armor!
We also did one thing that is working very well right now with our tenants. To encourage them to have the rent to us by the first of each month, the rent is $50 higher than we normally charge. If the tenant pays us the rent before or on the first of the month, we write a check on the spot and give them a $50 rebate. If it is later than the first of the month, they don't get the rebate. It has worked exceptionally well. I'm not sure this will work with all renters, but it sure has been successful for us.
So far we've had pretty good luck with renters, but I believe it is only because we are very thorough about doing credit checks, previous rental references, etc. before we ever sign a contract with them. If you can't substantiate where your renter has lived before, there is usually a good reason. Be very careful about the people you have living in your home even if it is next door.
CA in TX
My aunt owns an apartment building, yet chooses to rent an apartment outside of the building. When the landlord lives on the premises, the renter may feel free to contact you at any hour of the day for items needing repair, including non-emergency.
You'll have to check with the laws where you live, but you may be able to put a clause in the lease stating non-emergency calls must be reported during certain hours only.
My husband and I own a duplex unit that has an additional 400 square-foot studio apartment at the rear of the two-car detached garage. It is located in one of the "older" parts of town, is surrounded by lovely historic houses, and is considered to be a very "family friendly" neighborhood. If we have any two of the three units rented out, it pays for our mortgage. Living on the property allows the owner to be immediately responsive to maintenance issues and potential tenant difficulties. An added bonus is that if you inform prospective tenants that the owner/landlord lives on-site, the irresponsible folks will tend to avoid that type of situation. We have been delighted with our tenants and it has become a very compatible "neighborhood" for all of us. We take care of the lawn maintenance (raking, mowing, watering, shoveling snow, etc.), but in the past, we have offered rent rebate/reduction to tenants who offered to take over these duties when we went on vacation, etc.
Owning a duplex can be a wonderful way to cut down on your monthly bills, but it can be a big headache.
Don't buy a duplex unless you are handy. When things go wrong, your tenant will be on the phone or at your front door asking you to fix it as soon as possible. So unless you know plumbing, remodeling, some electrical and like to paint and put in carpet, forget it. You can lose all your savings calling others to fix things. And with people moving in and out, you need to be able to clean the place up and get it ready to go.
Also, make sure you know all the laws in your state about being a landlord. Know how long it takes to evict a person. Have a strong lease, stipulate how many days rent can be late, note any fines you will levy, how you will accept rent, and when you are allowed to enter. Hire a service to do a background check (criminal and credit) on the people who will be living next to you. They may look nice, but it doesn't mean they are.
Basically do your homework about the laws, be handy, and be firm with what you ask. People can easily take advantage of you if you let them.
Sarah in Florida
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