Own house with sister, how do we turn this into a profit rental?

Question

My sister and I inherited a blessing at a high cost.

Our parents both passed away and we inherited their two family home in Somerville, MA.

My sister and I currently live together in the 2nd unit which has 4 rooms 2 full bathrooms.

We both single working adults, so since it is too large for the both of us we have decided to downgrade.

We want to rent the 2nd unit and move into the 1st unit which is a a two bedroom 1 full bathroom.

We are currently doing some renovations to the 1st unit to make it polished for us to live in comfortably.

Eventually, we both want to go our separate ways purchasing our own second homes and making our shared inherited property entirely a rental to help pay for our own ventures.

We are both first time homeowners and learning as we go and happy to have stumbled upon this site.

Although we paid off the mortgage of the home, it needs some renovations to get it up to date and fresh looking to attract renters.

We recently updated the heating systems to high efficiency tankless combination units.

However, that was a huge financial investment on our part and are looking to keep our spending down to what is essential, but will help get the house great looking for renters.

Any advice on how to maximize our rental profits in this kind of scenario?

Stats on our home:

Location: Somerville, MA in Union Square

Type: Two multifamily home

Total bedrooms: 6

Total bathrooms: 4

Basement: Partially finished

Any feedback would be awesome.. Thanks!

Adam Sankowski · Answer

@Marcia Maynard is totally right on about getting a HELCO on it!

First off I'm so sorry to hear about your loss, take care of yourselves. I lost my dad almost two years ago and it take a long time to get over it.

The silverlining is that you are sitting on a gold mine that is only going to keep on giving.  I own a 2 family in Union square myself and with the Green line coming in, you are sitting pretty.

To answer previous questions... its probably worth a bunch at least a million, Def. class A/ A+ property, market rent for a rehabbed 4 bedroom is at least $3,500.  The 2 bed is not far behind either, probably $2,800- 3,000 if fully rehabbed and renting it Sept 1st (we'll get into that in a sec).

Most people will tell you not to over improve a rental property.  And that is still true here but Somerville follows different rules because it is an A+ area where really nice properties have a market and can demand more in rent.

You're totally doing the right thing by moving into the smaller unit and renting the larger one.  My advice though would be the invest in this property.  Its paid for so take out a HELCO, you'll have no problem getting one.  Then re-do the bathrooms and kitchens unless they are ok.  Repaint (make it a shade of grey), get rid of any carpeting, put down luxury vinyl laminate flooring.  Some old houses have wood paneling or wall paper, that's gotta go.  The reason for all of this is because the market in Somerville will pay more for it.  We have a fully rehabbed unit and it was rented out in 6 hours when we put it on the market in July for Sept. 1st. because its all new and nice.

Here's the other thing, units that are just ok get rented to college students who are questionable tenants.  Units that are nice and re-done get rented to working professionals in Kendall Square and they treat it like gold.  This area with the Green line coming in is gold, you want to create the "highest and best" use for your property.

Def. follow the previous advice about a property manager.  You might not need an actual property manager but there is no reason not to use a leasing agent or realtor to rent it out.  In Somerville the tenants cover the leasing fee and also they take care of the lease/ security deposit etc.

So start by living in the 2 bed and turn it over/ make it nice and then move into the next one and then start flipping that, if that makes sense.  Two fully rehabbed units can bring you in probably 6-7K minimum for a house in Union Square.

Also, the amount that you can charge is vastly different for leases starting Sept 1st vs. any other time of year.  If your moving tenants in now make sure their lease is up Sept. 1st.  Even something starting on Sept 15th is going to be hundreds less per month.

Also is there parking?  Here's a tip.  Charge for the parking separately!  Its an easy way to add another $50-100 onto the rent.  PM and I can give you the name of the realtor we've used to rent our place.  Or shoot me any questions.  I'm a neighbor and happy to help!

Lien Vuong · Answer

That's a true tragedy to have lost your both your parents but it is a small blessing that have left you with a property to take care of you and your sister.

A HELOC on a property would like that would make the most sense since your equity is huge in a market hot as Somerville. The largest places for upgrades would be a beautiful kitchen and bathroom, that's where people spend the most time and you can truly have the wow factor there. Not only would it attract the best tenants, you can command the highest rent, and it is a renovation that will sustain over time.

The question of 'over-renovating' is always in question but ultimately this is a property that you're going to have for a long time, you will make it back in rents and appreciation for the home to come. Make sure you shop out the right contractors for the job, getting estimate from at least 2-3 professionals as theses repairs so need permits. Since Somerville is so hot with investors, it is important to follow the rules as they're very strict on them to make sure everyone does things property. Create a 'scope of work' for your project which is essentially a punch list of repairs and have the contractors create estimates based on that giving you specific timeline for completion.

Be mindful of when you're renting it out as the spring market would command the highest rent (Sept specifically), so doing the work on your home in this Q4 season would be helpful. I would definitely partner with a rental agent once the unit is prepped and ready to go as they take care of all the screening and showing responsibilities for you. Delegating that task will save you a lot of time and emotional piece of finding a suitable tenant.

Good luck and you're in great hands in the BP family!

Carven Boursiquot · Answer

UPDATE:

We are considering renovating the entire home/condo conversion with the intention on renting the entire house as an investment property. We are just learning about HELOC loans, but are looking for advise on what would be the best way to pay off the renovations with minimal risk to our personal savings. We hope to use the rent money to pay off the renovation loans and help put a down payment for a second home if possible. So basically flipping our own home and renting it out so we can invest the funds on a new primary residence/etc.

We've already put in some major upgrades this year (high efficiency heating systems, new windows, quartz countertops) which we really hope we will be able to salvage now that we are considering gutting the place entirely.

Now our focus is finding the right contractor to guide us through the renovation with a great plan and reasonable price range.

Any one have recommendations for contractors who've done great work in the Somerville area?

Mary M. · Answer

It is very easy to go “overboard” with renovating.  It is fun to see how nice things start to look and it is easy to keep adding more renovatoins and upgrades.  I think what renters want is safe, comfortable and clean -perhaps you could tour some similar units local to you to get an idea of what the competition looks like

As i mentioned, I would for sure update the bathrooms ( budget can be small or huge depending on what you do) kitchen, paint and agree floors ,,  if carpet take it out,  if you have hardwood floors under then i would refinish those if possible.  If not luxury plank is also doable.

Be very careful with your budget as this kind of work can easily double in price if you arent careful

Also, having also owned RE with siblings after both parents passed, I suggest that you have a written agreement on what the scope of the work is and who will manage what aspects. This will hopefully keep siblings working peacefully together.

Inheriting an asset like this is a big shock especially at a time when you may not be 100% in the present due to grieving. I know for me I was in a bit of a haze for a time. Take it slow and be kind to yourselves.  Get a good contractor and try to stay on budget.

Carven Boursiquot · Answer

@Thomas it is hovering somewhere around $1.2 million, it’s a duplex, while living in rhe 2nd unit we charged under market value at $1.7k to attract renters and due to some issues with the space that the renters tolerated. The 2nd unit is in good shape and could easily grab renters around the $3-4k range.

However with renovations steadily underway we will eventually make the whole house up to code and very comfortable to live in all around.

Our main concern is since we’re both very new to homeownership we were looking for opinions on what would you more seasoned landlords would due if you were placed in our predicament.

As this is a shared property, sister wants to buy a second single family of her own and keep this one as an investment.

I am in the same future mindset, but wouldn’t mind staying put for a while as a landlord living in the home as my financial situation is not as stable as my sister’s to go and purchase a second home.

Marcia Maynard · Answer

Since this is your primary home, look into getting a home equity loan to do your upgrades.

As is your plan, move into the smaller unit and make-ready the bigger unit for tenants. Do this as soon as possible, but take into consideration the rental market in your area and how seasonal weather and the upcoming holidays may affect your ability to find good tenants. There are always people looking for a good home at all times of the year, but more prefer to move when the weather is warm and dry and at a time other than during the holidays.

Three important considerations:

• Offer a desirable product. Safe, clean, affordable, comfortable, quiet. Good neighborhood, close to amenities.
• Establish good rental criteria. Screen applicants thoroughly and select a great tenant who can demonstrate they are responsible, able and willing to abide by the terms of the rental agreement. Consider in advance what your policy will be regarding smoking and pets. Be aware of anti-discrimination laws and how to avoid running afoul of Fair Housing requirements.
• Establish a good rental agreement that is compliant with the laws for your jurisdiction. Communicate the terms clearly and enforce them as necessary.

Thomas S. · Answer

What is the property worth, what class of property is it and what is the market rent for each unit.

Difficult to advise how to profit without that info.

Andrew Faukner · Answer

Sorry for your loss Carven. When my parents passed away, my sister and I also inherited a house. One thing you might consider is using a property manager to rent the other unit out for you. I know many people here on Bigger Pockets are successful managing their own properties, but there are a lot of laws governing rentals, I prefer to leave it to the professionals. Another aspect is that since you and your sister lived in the four bedroom unit, you may have some "attachment" to the unit. Remember, now it is a "rental". This is a business. It does not have to be perfect to rent, and renters will probably not take care of it like your family did over the years. That has been a difficult lesson for me to learn over the years when renting out a place I lived in, and grew attached to. Keep telling yourself that it is a "business". Good luck, and when you have questions, ask on Bigger Pockets. This is a VERY knowledgeable group.

Mary M. · Answer

Hi sorry for the loss of your parents.

I would look to painting and new fixtures as an inexpensive way to update... you can do as little or as much as you can.  You can also redo kitchen cabinets and bathroom vanity if your budget allows.

Own house with sister, how do we turn this into a profit rental?

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