Self prescribed Flipper to Buy and Holder Investor needs help!?

Question

I started my REI business not quite a year ago with full intention of Flipping properties and years down the road transition into the BH space (not unlike many folks out there). However, an opportunity has presented itself that would appear to jump start my BH strategy much sooner then anticipated. I live in a very small community in South Eastern Washington State that I would have liked to invest in for my Flipping business but there just isn't a market in the way of resell for homes. However, the rental market is extremely solid.

A large business is going to be breaking ground on a new plant/facility within the community and will boost the already good BH market as well as it might initially when the employee's for the said plant start to move to the area will need housing to buy as well strengthening the potential for an occasional Flip as well!

I have found an off market deal that seems to be pretty solid. However, I am not a BH guy. The house is a 3/2 approximately 1400 sqft (older home with a few nice updates; vinyl windows, new HVAC) but here is the kicker it also comes with a mother-in-law suite in the back. That home is a 1/1 600 sqft and is self-contained offering one the ability to not only rent the larger home but the smaller one as well. I have checked with two different PM companies in the area and they confirmed the rental market strength as well as gave me a ball park figure as to what both would rent for. The large one should rent for $850-$1100 and the small one $400-$600.

Since the houses are on the same lot the home owner is basically selling them both for the price of one. She wants $85,000 for both. So finally to the question! Does anyone out there recommend buying a property with an additional small house on the same lot? Clearly, I recognize that this makes it attractive from an additional cash flow perspective. But is it hard to rent two homes on the same lot? I know this sounds like a simple question and I understand you can do it but is it a weird situation to have two folks sharing the same yard and driveway but completely separate houses!?

Like I said, I am a Flipper, I am assuming you BH investors are probably thinking WHAT AN IDIOT of course this opportunity is better as it is a 2 for 1 but once again I have never done the BH thing before. So what do you think? Thanks for your advice ahead of time. Here is to wishing you all a successful 2017 in your REI ventures!

Jennifer Beadles · Answer

@Tony Wooldridge I've bought a few properties with two houses on one lot, and they've worked out really well at long term rentals. Obviously you want to make sure there is enough parking for both tenants and you want to make sure that both houses have their own power meters. You may want to check with your lender on financing, some appraisers are picky and may have issues with the MIL unless it's been approved by the city as an ADU. Most cities allow MIL for owner occupants only. Based on the numbers you mentioned this sounds like a solid deal and you should go for it!

David Clinton III · Answer

@Tony Wooldridge, I debated a lot in deciding whether to manage my own rentals. I decided to go with using a PM for a couple reasons:I know myself, and when it comes to the sad stories of tenants that cannot pay rent, I will always have a hard time discerning and treating my business as a business, rather than a charity. Having a PM in between us really helps.While I could learn to manage really well, I find it's best to focus on what I'm good at. I don't mow my own lawn and I don't change my own oil [though I could]... my time is better spend networking and solving problems for sellers. Same applies to property management for me. I have taken time to vet an excellent PM for Spokane and another for CDA, and they focus on what they are best at. Everybody wins!CDA is nice in summer and fall. Even with a heat wave this week, it's hard to beat!

Kevin Romines · Answer

Fannie Mae allows for accessory units in their financing. I have determined if it make a difference if the primary unit is owner occupied or is a rental? I could ask my underwriting staff on that one? But the accessory units are allowed. If its deemed a duplex by the local zoning authority, then financing is pretty straight forward at that point. See Fannie's comments below: B4-1.3-05, Improvements Section of the Appraisal Report. In response to lender questions, we are updating the Guide to clarify the policy on accessory units. Lenders may deliver a one-unit property with one accessory dwelling unit; multiple accessory units on the same property are not permitted.

David Clinton III · Answer

Go for it. Sounds like an excellent deal, assuming houses need no work to be rent ready. Up here the rental demand is so strong, they would be easy to rent quickly despite the unique shared situation. The local culture and rental demand would be the driving factor as to whether that was a big detractor. Even so, it will rent - you may just get a smaller number. But I'm sure your PM has already accounted for that...

Jordan Grimstad · Answer

From my perspective, it sounds like you should treat it like a duplex (where the units are not symmetrical). I don't think it's strange at all, and assuming the numbers work, you should absolutely go for it.

Tony Wooldridge · Answer

@Kevin R., Primary in this case would be a rental as this is the sole purpose of this property. On the county website under the description section it has it listed as a residential home and doesn't reference it as a duplex or similar MF dewelling. Kevin, as always especially as of late, I appreciate your continued knowledge and help on my threads. Maybe we can link up and discuss how you may assist in lending in the future(?) Thanks again Kevin and hope you too have a GR8 weekend!

Tony Wooldridge · Answer

@Jennifer Beadles, thanks for stopping in to share your thoughts on the matter. I have already planted the seed with my lender as they are looking into how this situation would be viewed from a lending/value perspective. You mentioned appraisers as this is something that I am interested in as to how they will value the property because of the unique situation(?) Do you recall or have personal experience with that? Well, thanks again for your time and insight on the matter. Here is to wishing you a GR8 rest of your weekend as well as year in your 2017 REI ventures!

Tony Wooldridge · Answer

@David Clinton III, we are going to take a second look at the properties again today because the first time we looked at them we were not able to access the mother-in-law structure as they could not locate the key. To your point, the bigger property (although older and needing updates) is rent ready with a few minor cosmetic things to do and will make sure the little one is as well today. I am on the fence as to the PM or not. I have heard on a lot of the podcast that there was a GR8 deal of value in managing properties yourself at first to see the ins/outs of BH investing. I realize the up front challenges associated with this and will make a determination soon if we go through with the deal. Thanks for stopping by to share your thoughts. How is the wake boarding up on Coeur D Alene lake these days? Beautiful place! Have a GR8 rest of your weekend!

Tony Wooldridge · Answer

@Jordan Grimstad, its funny you mention the duplex analogy as that is exactly what popped into my mind when I first saw the properties but without the symmetry! So far through my analysis of the property all of the #'s are making sense. However, one thing I forgot to mention is I currently have a flip going on right now as well. So it is time for me to get a little creative with the financing side of the house! Thanks for stopping in to share your thoughts Jordan. Hope you have a GR8 up and coming weekend!