Buying a Duplex?

[stu]

I'm thinking about buying a Duplex and renting one side out to help cover the mortgage. Anyone have any experience with this?

My main issues are maintence and setting up a cash reserve.

Maintence:
I'm not handy, I don't plan to be, so a lot of my income from the rent will be lost in paying for things to be repaired. I've got family that builds houses and can repair things, but they may not be available right away, and that still doesn't cover things like hotwater heaters and stuff.

Cash Reserve:
I don't even have a cash reserve for myself, so I'd have to get serious about managing my own finances so that I could have a cash reserve saved up before the purchase, just to insure that I can hire someone to come fix shit if it breaks. I don't want to ever leave my tenant out in the cold becuase I don't have my shit together.

Anyone have any input on this idea?

[myshtern]

Make more money or have a house appraised a bit higher than what you pay for it and take out a mortage at the appraised value. I dont think you'll really have a problem taking out an extra $10k if you work things out properly. Put the $10k in a money market account or index fund to cover as much interest as possible. You can use it for any repairs as you need them.

[Weston]

Make more money or have a house appraised a bit higher than what you pay for it and take out a mortage at the appraised value. I dont think you'll really have a problem taking out an extra $10k if you work things out properly. Put the $10k in a money market account or index fund to cover as much interest as possible. You can use it for any repairs as you need them.

You're losing money that way. If the equity is $10k more than you owe on it, then wait until you actually need that money before you tap into it. Once you buy a home, you'll find that people are begging to give you more lines of credit. There's not much sense in taking out credit just so that it can sit in an account where it earns half the interest that it costs you.

Anyway, I would just consider what reasonably could go wrong and make sure I have enough money available to cover anything that insurance wouldn't. It's not going to be all that much... pretty much just appliances, plumbing, and roofing.

[Nightfall]

I need a place to live! Do this next week and i'll rent out a side. I won't even be picky about the place... shit... i'll help *you* fix it up :D

P.S. I'm very serious

[myshtern]

You're losing money that way. If the equity is $10k more than you owe on it, then wait until you actually need that money before you tap into it. Once you buy a home, you'll find that people are begging to give you more lines of credit. There's not much sense in taking out credit just so that it can sit in an account where it earns half the interest that it costs you.

Anyway, I would just consider what reasonably could go wrong and make sure I have enough money available to cover anything that insurance wouldn't. It's not going to be all that much... pretty much just appliances, plumbing, and roofing.

If he has to pay interest on $10k from day one and puts it into a 6 month CD, he would be earning over 5% and paying about 7%. Thats a $200 difference which would easily be recovered from the lease. Of course he'd have to have a buffer in case something happens 3 months into the CD.

There are other loan options like he doesnt pay interest until he draws from the account too.

In any case the only good thing he could do is actually be able to afford repairs without going into debt.

[myshtern]

Stu what kind of repairs are you worried about? If you buy a new place you make sure the builder has you covered with warranty for at least a year. It's not like you're going to get hit by a hurricane here.

[Nightfall]

Where are you Stu? I need a place to live! :D

[stu]

Nightfall, I'm in Aurora, but would REALLY like to move back closer to Denver. This wouldn't happen for a few months though as I'd like to look into it a lot more since this is a big purchase.

Weston/Myshtern: Just general maintence like plumbing and broken appliances and stuff. Plus cleaning and carpet repair and stuff.

I'm planning on getting a part time job since I litterally do nothing every day after work, so that will help me save up for a down payment, and a cash reserve. My lease is up in Febuary so I've got a couple months to save up. I'm also considering moving back in with my parents for a little while to save up even more. I just want to make sure I do this right since I tend to half ass things. It's time to grow up though, and throw my money at something I can consider an investment, instead of just wasting it on alcohol and hookers.

[Loud_Scott]

One quick thought... some people aren't jumping at the idea of living right next door to their landlord. I know I wouldnt sign up for that, just because they'ld always be around. The flip-side might be you freaking out everytime you hear a loud noise from the other side (OMFG did they just invent hammer darts?)

[Weston]

"Invest" your money into another turbo Honda, Stu... it's what all the cool people do.

[Dave_L]

I wouldnt want to be a landlord let alone live next door to the tenant(s). Think about it, if something breaks, they can just walk right next door and start bitching/complaining. Also, if you arent handy, you have to pay people to do all the work which can add up pretty quickly.

[stu]

I know Dave, that's why I was saying I'll need a large cash reserve set up first.

Loud_Scott: I'm actually hoping that living right next to the landlord will scare of irresponsible tenants. I don't want to deal with any cock suckers.

[Dave_L]

Loud_Scott: I'm actually hoping that living right next to the landlord will scare of irresponsible tenants. I don't want to deal with any cock suckers.

Yup, with you living right next door, you'll get tenants that are old or maybe a family thats just getting started. Either way, It'll be a quiet type that will most likely (Not gauranteed) be needy. But it could be worth it if you can make bank on the property.

[smithz]

Make more money or have a house appraised a bit higher than what you pay for it and take out a mortage at the appraised value.

:rofl: How many houses have you bought?

I wish I knew it was just as easy as asking the appraiser to just value my house higher. I could have saved alot on PMI if I had just done that...

Stu, if you aren't ready to be a landlord, then don't. It doesn't sound like you are from the fact that you are as worried about it as you say. There is no reason you can't just buy a condo or townhouse in/around Denver. Then you don't have to fuck with it at all and you can always just rent out a room to one of your many thousands of homeless friends. :D

Kidding. I understand why you are thinking about this. It allows you to buy something that is an investment, and now is a damn good time for that. It also allows you to have a "roommate" to help float the cost that doesn't live in your space so you can feel like you actually have your own place. My advice is find someone that you know, Nightfall for instance, that is willing to help out and not be a pain in the ass about stupid stuff. If you find a good tenant it will make all the differenece in the world. Good luck...

[myshtern]

:rofl: How many houses have you bought?

I havent bought any but I've certainly been around quite a few sales/purchases.

[Brian]

If the home is worth more than you buy it for you can get a HELOC (Home Equity Line Of Credit). You don't have to use it and it wont cost you anything unless you do use it, but it's an easy way to come up with capitol for things like that.

[smithz]

I havent bought any but I've certainly been around quite a few sales/purchases.

Gotcha. You might want to research how appraisals work a little more before giving advice. Just a tip. ;)

[Martian]

Stu, although the idea of owning your place of residence while renting out a part of it sounds like a good idea, you'll regret it. The renters market is a great way to make money, but this is by far one of the worst routes to go. My grandparents own several income properties. At one point they lived in one of their own appartments. They had much trouble getting tenants at that time. People don't like to feel like their every move is being watched. My grandfather ended up using a brokerage in the end to find and collect from tenants, while he paid another guy to maintain the properties.

[stu]

Yeah, I think this may end up being a pipe dream. I think it's for sure worth looking into though.

[slowfocusguy]

If anything, buy the duplex, fix it up, and sell it.

[Mark_H]

That idea always sounds like a good idea but your right on some points. The cost of regular maintenance and the occassional problem such as a hot water heater add up. My Dad owns a dozen rental properties and he forks out LOTS of cash. And for what it's worth he suggests against it right now due to the economy and the market. He always is able to find renters for his small 1 bedroom duplexes but right now it's harder to find tenants for his nicer homes and duplexes. I only mention that because I assume you would consider a nice place and not a cheapo type property.

A good friend of mine does pretty heavy real estate investing and I'll run it by him.
Mark

[myshtern]

Gotcha. You might want to research how appraisals work a little more before giving advice. Just a tip. ;)

Most banks will allow for you to use your own appraiser as long as he doesnt cost them more than their appraiser which is usually around $300. If it costs more, the additional expense will be included in your fees.

It's not difficult, you just need to research it ;)

[myshtern]

Also, other than just using your own appraiser, I think you can appeal an appraisal by just proving sales value from your neighborhood. Last year my cousin bumped an appraisal by showing that a house about a mile away was sold for $1.3 million.

[smithz]

Yes, you can use your own appraiser. But guess what? They are licensed. They should all come up with very similar numbers using the same techniques. Is it possible for them to miss things from time to time? Of course, such as the case of your cousin. But that is an exception and not the norm. There will be variances, granted, but you can't just "get a higher appraisal value", which was my original point.

As you may have guessed, I don't need to research it. I've actually purchased a house and dealt with appraisers for refinancing. You'll figure it out in due time when you buy a house and try to "get a higher appraised value". :rofl:

[stu]

That's like getting your totaled car appraised for more than it's worth to get extra money from insurance. It just doesn't work that way.

[smithz]

That's what I've been trying to explain to him. But his cousin bought a house, so I guess that makes him an expert. :confused:

[myshtern]

That's like getting your totaled car appraised for more than it's worth to get extra money from insurance. It just doesn't work that way.
There is so much more that goes into a house that doesnt go into a car appraisal. When you appraise a car, you dont look at the cost of other cars parked in the garage. Also you can look up the value of a car in KBB or NADA to get a fairly accurate number. There is no such standard for houses. USPAP gives appraisers professional guidelines not exact dollar figures.

How do you appraise the value of a house when it has a beautiful view of the mountains? One appraiser can tell you that the view is worth $5k another appraiser can tell you that the view is worth $30k.

Because I add my thoughts to the topic doesnt make mean I claim to be an expert. Smithz, social skills help out in life sometimes too. Stu can use his good looks to seduce his appraiser.

Long story short: it can be done and it is done. If you're still seriously considering it, this could be a way for you to be able keep a small cash reserve for repairs. Your comparison to insurance was wrong because that would be fraud, this is money that you pay back with a healthy interest so no one is a victim. Unless you decide not to pay the bank back :)

[smithz]

There is so much more that goes into a house that doesnt go into a car appraisal. When you appraise a car, you dont look at the cost of other cars parked in the garage. Also you can look up the value of a car in KBB or NADA to get a fairly accurate number. There is no such standard for houses. USPAP gives appraisers professional guidelines not exact dollar figures.

:rofl:

How exactly do you think KBB and NADA arrive at those numbers? Do they just pull them out of their asses? Not really. They do statistical averaging of sale prices for new and used cars that take into account many, many variables such as options, color, location, etc.

Like I said, we'll talk after you have actually bought a house of your own and been through the process. We'll see how far your charm gets you with the appraiser. :rofl:

Back on topic. Stu, just buy a condo or something you can afford to live in by yourself. If you get a 2 bedroom place, you always have the option of renting the room out for extra dough. Just don't depend on it and you'll be set regardless.

[Steve_C]

Back on topic. Stu, just buy a condo or something you can afford to live in by yourself. If you get a 2 bedroom place, you always have the option of renting the room out for extra dough. Just don't depend on it and you'll be set regardless.
Or you can always use that other bedroom to host your own Bum fights or rip off that pr0n site "Mike's Apartment" and make it into "The STUdio". That'll pay off your condo real quick. Be sure you get the end unit though or find a unit with some cool neighbors so they don't call the cops on you. Not sure how the HOA will feel when they find out your hosting fights for sammiches

[smithz]

:rofl: @ STUdio

[stu]

I just got that. heh

[Weston-work]

:rofl: @ STUdio

:werd: :rofl:

It's like that bad song from the 80's... "Stu Stu STUdio"

[myshtern]

:rofl:

How exactly do you think KBB and NADA arrive at those numbers? Do they just pull them out of their asses? Not really. They do statistical averaging of sale prices for new and used cars that take into account many, many variables such as options, color, location, etc.

Exactly, thats why you cant do it with houses. There are too many variables in houses to use any of form of statistical analysis. Also, many of those variables can be based on opinion (i.e. mountain views and traffic). How do you know if the mexicans who lived next to Hung lowered the value of his house by $5k, $10k, or $15k?

You're telling me that something cant be done which I have done. Too much of your argument is based on the false assumption that I havent done any of this.

[smithz]

Whatever you say chief.