Buying the duplex I live in..?

Question

Hello BiggerPockets! This is my first post. :)

The duplex that I am currently living in is for sale. It is in a good section of Cincinnati, OH. There are upstairs and downstairs units (both 2 bedrooms/ 1 bath) 1000 sq. ft each, as well as a fenced in backyard, basement with washer/drier for each unit and a 2 car garage. The house was built in 1900 and therefore has some issues that are to be expected from houses over a century old. The center of the downstairs apartment floor is uneven from the home 'settling', the insulation is not great, and the kitchen and bathroom are pretty out-dated. The owner is asking $104k. Each unit rents out at $700/month.

What my fiancé and I are considering is buying this duplex and renting out the top apartment since we live in the bottom unit already. The only things holding us back are the potential costs of renovations and the fact that we are pretty broke currently.

Any and all advice is welcome!

Brian Mathews · Answer

No matter how tempting it may seem.   If you're broke, don't buy it.   Its an old building and it will require maintenance.   Most likely expensive maintenance.  It will be a curse.  What will you do if 6 months after you buy it, the roof needs replacing or the "settling" floor gives way and takes out plumbing or electrical?   And definitely don't buy it with your fiance until you can call her wife.

Rob Young · Answer

There are two financing issues: getting the financing to purchase the property and getting the financing to repair and maintain it. It seems that you may be able to get financing to purchase the property, which is great. As others have commented, though, there are potentially significant costs to repair and maintain the building due to its age. I think your best bet is to invest a few hundred dollars in a professional inspection so you know what costs you are likely to incur to repair and maintain the building. That way you can make a good decision based on data rather than speculation.

Shawn Fitzgerald · Answer

A lot of Ohio investors!

My neighborhood is the Norwood area.

Theo Hicks · Answer

@Shawn Fitzgerald what part of town is it in? That is very important.

My first deal was a duplex in Oakley that was older (pre-1900), more expensive ($170,000), and had lower rents ($550 and $650) than yours, and I was also tired of being broke. I was a complete newb, and knowing what I know now, I probably wouldn't have purchased it. However, I put in some renovations and got it rented out for $1200 and $1400.

My point is that sometimes you have to just jump in feet first! Mistakes will be made, but the learning experience is worth it, trust me. I have some "great" stories about screw ups I made, but as long as you don't get overwhelmed and have a "figure it out" attitude, you will be fine.

Joey Palmer · Answer

Hey Shawn,

My very first deal sounds very similar to your situation. What part of town? You may be able to get more than $700.

Don't hesitate to PM me.

Best of luck.

Richard Bradshaw · Answer

If I were you, I would definitely negotiate with your landlord to get the price down and get a creative financial agreement together, hopefully one where the other apartment covers all or most expenses, save the excess you would have spent on rent and use it to invest in another property down the road or as down payment to get conventional funding to pay back your landlord. (if you get the property at the right price and fix it up/bring the value up, you may be able to refi without at down payment)

Option 2: get an FHA loan, try and get seller assist. You have enough money right now to get that.

Shawn Fitzgerald · Answer

Everything I've read so far I appreciate the and definitely will keep in mind.

To elaborate:

"Broke"

My financial situation recently turned around so that I'm finally saving money again. Currently, I have somewhere between $3k and $8k in cash (short version). The fact that I'm 'throwing away' $700/month keeps me up at night.

To generalize my post in the form of a question: Is it better to 'throw away' $700/month for another year, save for a 20% down payment on a great rental property or pay 5% now on a fair rental property and stop paying rent? I'm hoping this better explains my dilemma.

Also, I think I could work out a fair and creative financial agreement with my landlord/ the seller.

Jacob Sampson · Answer

Shawn,

You have received solid advice all around.  The fact that you are broke makes this tough but asside from that, based on rents, you need to get it for 80-85k to make it cash flow.  Clearly that is a rough estimate since I am missing a lot of info.

Jacob Murphy · Answer

Hey Shawn, glad to see another cincy investor on the site! I've got two multi families in cincinnati, one built in 1927, the other in 1891. So I definitely can relate to the old house issues. What neighborhood is this in?

Are you wondering if $104K is a fair price? Or are you just looking for a lendor that can help you out? If its just a finance thing then I recommend Guardian Savings Bank. They have 5% down loans if you are an owner occupant.

Unless you think renovating would make a huge difference in the rent, I would leave it the way it is. I over rehabbed my triplex as my first property, spending 10 weeks doing it myself and raised rent by $100. I came to realize though that people would have paid the $100 extra either way...

Buying the duplex I live in..?

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