To Duplex or Not to Duplex.....that is the question

[Brandy Phillip]

So we have just closed on a 100 year old home for under $80,000.  The house is only 972 sq ft; however, the selling point was the detached garage.  The original plan was to convert the garage to a small living efficiency and turning the converted back to rooms into another small living efficiency.  It was going to be a triplex with a cash flow of about $700 after paying utilities and mortgage.

Sounds great huh?  We after the contracting came we had to drop the garage idea.  The debate is whether or not to still change the back rooms into a efficiency.  The total cost of the renovation is between $5000-$6000 to change the back area.  This change would allow us to cash flow about  $230-$300.    Leaving it as a single family home would allow us to rent it at about $895 which would give us a cash flow about the same amount.  Duplex however as we all know can have 50/50 chance of being occupied.  We would love your feedback and I can add any additional information as requested.   

[P.J. Bremner]

@Brandy Phillip

I'm not sure I am understand you correctly, but let's assume I am: The cash flow is the same between both scenarios BUT you have to pay money to get the extra unit?  The only benefit you are saying is that the extra unit would provide some stability for the rent because if someone moves out, you'll have some rent from the other unit.  To me, this is a no-brainer: I wouldn't do it.

You would have to spend your hard earned money with nearly 0% chance of getting a return on it because the rent will stay flat.  The only time you gain is if you have a vacant unit in which you are basically hedging your losses.  On top of that, you now have 2 tenants and 2 leases to deal with.  They will be living in very close proximity to one another, what if one tenant pisses off the other and they both stop paying rent until you resolve the issue?  You just never know what crazy tenants will come up with.  I think a single family home by itself would be the way to go.

If you said the extra unit would provide an extra $300 - $400 per month, then without a doubt it's worth the risk because you'll have the investment paid for within a year and a half or so and every rent check collected beyond that is gravy. No increase in rent, no ROI to be had, no deal for me.

I had a similar dilemma a few years back... I wanted to convert an attached garage into an extra bedroom and laundry room in order get a little more cash flow going.  The city wouldn't permit it, so I had to do it on the DL.  The cost was about $5,000 and it looked REALLY nice (better than the main house).  I was able to get an extra $750 per month so the project paid for itself in less than a year, plus I had extra savings to tear the conversion back down if I ever needed to sell the property.  It was a good investment and everything was done up to code (even though the city wouldn't certify it - I made sure it was safe).  The only reason I decided for it was the extra cash flow.  Without that, it would have been a no go.