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Updated almost 9 years ago, 01/20/2016
Buying cheaper vs. more expensive
I am on the verge of my first real estate deal. I am buying a duplex and plan to live in one rent the other etc... My question is that I found two that I like, both need a similar amount of work (mostly cosmetic). Both in pretty good neighborhoods, except one has a small yard and basement/garage while the other has only a very small side yard. Bigger house is a 2+2 home and the smaller one is a 2+1. The rent income/mortgage payment ratio would almost be exactly the same. The big difference is about a $40,000 price difference. I am leaning towards the cheaper of the two. I plan on living there for 2-3 years before moving on. What are the pros/cons of buying the cheaper or more expensive house? Any input greatly appreciated, thanks!
Assuming ALL things are equal, (they NEVER are) I would go with the cheaper on just because there is less risk in the deal for your first property. $40,000 is a lot of money.
I would evaluate the deals seriously and try to look at them both unbiased and go for the one that makes the most sense. Some thing will come up as you dig that will make one stand out above the other, or they might both be better off passing on.
good luck
Like Jay says, risking less money.
Cheaper is not always better. Things like a garage will be great during the cold winter and trust me your tenants will think so too. A 2+2 would also be a reason to get higher rents and a more livable space. The extra bathroom is a big deal for some people, especially those with children.
Do not forget that these are the things that will keep your vacancy to a minimum which in the long run will save you tons of money. A couple-three months of vacancy can kill a whole years profit and easily compensate for a slightly higher mortgage.
This is especially true if you plan to keep this duplex long term, and not as important if you are planning on selling it in 2-3 years once you gain some experience. Just don't let wanting to be cheap now lead you major hassles every time its time to re-lease because your unit is less desirable.
I would also talk to a realtor and see what they think each of these places would rent for depending on neighborhood and other differences between them, see if the better one will pull more rent to justify the cost. Happy hunting.
When I say 2+2 I mean both have 2 bedrooms/1 bath. The 2+1 means the top is 2 bedroom/1bath and the bottom is
1 bedroom/1bath. I do plan to keep the duplex long term after I move out and once I'm out both will cash flow right around the same. The main difference I see between them is that the down payment will obviously be lower for the cheaper house which will help me have as little of my own money in there as possible. And if I do pay a little extra on my mortgage each month equity will grow faster in the healer house.
Thanks for the feed back guys
don't forget the 3 L, s location location location, schools area comps, etc cheaper can be more expensive
Do you have a local investor that could help you pick these apart, to see the difference in location, cash flow, desirability, etc. These things are based on your local area and it would help a lot to have experienced eyes on this.
If you don't know someone, look up your town in the search bar here on BP and click on people. It is a handy way to find active people who could help guide you through the first buy. Take them out to coffee and you might be surprised the value of the free info you will get.