Should I buy a duplex or rent ?

Question

In a pickle. I’ve been looking to move out for about a year now. My partner and I are considering renting vs buying. We are currently under contract on a duplex (2 separate home on 1 lot) here in CA. One home is currently being rented and the other we would live In. The homes are live

-able but need some updating. 1950/1980  around 800~ sqft per home. Cost to rent in the area is around 2k per month. Mortgage cost is around 2600 after deducting current rent. We would be out of pocket around 70k at closing and this does not include any updates on the homes. Hypothetically, we could refinance in the future and up the rent after some updates and break even on the mortgage if we moved out and rented both units out. Wondering if it would be a good idea to buy now or rent and wait for a better opportunity to come. Any words of advice?

Julien Jeannot · Answer

@Alex Gonzalez

Hands down house hack the duplex!

That's how my wife and I built the foundation of our real estate portfolio. 10years later we own 10 properties and it gave me the ability to chose to exit the corporate world.

Here is the thinking behind buying the duplex in the first place and the results.

Goals

• Start building a rental portfolio
• Needed a place to live and did not want to rent
• Safe location
• Subsidized living (house hack)
• Garage
• Privacy
• Able to commute to work
• Value add play that I could do myself or hire a contractor without breaking the bank

Solution

• Property: Duplex
• Condition: Cosmetic rehab & rents under market
• Neighborhood: 1970ish, safe, long but doable commute
• Garage, big yard & subdividable – will build DADU eventually
• Did not match any of the of the “standard” rules. Ex: the 1%.

Results over time (5+ yrs)

• ·      2x equity
• ·      Cash flows $1500/mo
• ·      Fully rehabbed
• ·      Used a HELOC to finance another property’s rehab

Andrew Reising · Answer

I personally wouldn’t buy the property to be in a worse position than while renting.  I had a studio apartment that was $900/month and shared lot parking.  I am single which was perfect because I didn’t want anyone else creating issues down the line.  I purchased my home for $255,000, invested about 40k cash to pull it all off rented three rooms out at $750/month and lot space to someone for a trailer home for $400 a month.  My escrow payment is $2,000 per month.  The rooms and trailer rental put my income from property at $2650 per month.  I am immediately paying next to nothing for the property after utilities, so saving big on rent but have 10 times the space between the house, yard and two garages.  Yes, what you want to do is way better than renting in the long term, I am arguing, look for a deal with bigger potential immediately, and than you will be super on top by the time you would have just broke even. I actually won a bid on a duplex and backed out during negotiation and purchased a single family home instead.  Everyone wants duplexes and the pricing reflects that, making profitability difficult with interest rates.  I’d argue now there’s not as much money in duplexes as house hacking, plus house hacking is easier in terms of keeping an eye on what’s going on.

Carlos Ptriawan · Answer

I would buy ten properties in california oh sorry I meant in my own backyard

Dante Feria · Answer

@Alex Gonzalez is the property in a good location ?  Can you afford the mortgage not having a tenant? Are the upgrades really needed now and will it add value to the property when you refi ?

Buying in most cases is the better choice but you have to consider what to buy and if you can afford it.  If this will be your primary residence, an FHA loan make work for you.  Run your numbers for that is what will help you decide how to move forward.

Alecia Loveless · Answer

@Alex Gonzalez Regardless of whether you buy this property or something else with an unmarried partner I would strongly recommend some sort of partnership/ownership agreement with exit strategy lined out.

I had a partner for 20 years and even though I owned the property when we broke up I offered a portion of the proceeds of the sale to her thinking that after 20 years of the relationship she deserved as much and it ended up a huge mess because we had no official agreement. She  told all our friends she was entitled to 50% and that I was screwing her. I lost all my friends and when the dust settled she ended up with about 45% anyway after I paid all the taxes and commissions and repairs necessary after the inspection.

So please please make an agreement.

Jaron Walling · Answer

If you're not married already don't buy real estate together.

Charles Carillo · Answer

@Alex Gonzalez

It doesn't seem like this property will have cash flow, even if you move out. There are additional expenses with rental properties than just the mortgage that you would need to cover, in addition to the $70k and any repairs and upgrades that may be necessary now and in the future. Plus, you will be paying a few hundred dollars more monthly than simply renting in the neighborhood, and you need to become a landlord. Lastly, everything is more expensive than you think, and as I understand it, it is more challenging to be a landlord in California.

If you are betting on appreciation in the future, that might work, but it is a gamble. You should invest the $100k+ (purchase, repairs, upgrades, etc.) elsewhere.

Russell Brazil · Answer

Buy a duplex.

Alex Gonzalez · Answer

@Preston Dean I agree. After writing the details out in this post and reading it back, I realized it didn’t make much sense to shell out quite a bit of capital with the hopes of breaking even on the mortgage in the future. Thanks all for your input!

Should I buy a duplex or rent ?

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