Triplex or Mother in Law?

Question

Hey everyone I am trying to get into my first property and I have a dilemma. I currently have a triplex under contract well below appraisal value but I am reluctant to close on it because it was built in 1920 and eventually wiring(knob and tube) and some plumbing will need to be replaced. Overall there will be more things that pop up that need to be fixed which scares me.
On the other hand there is a single family home with a 2 bd 1 bathroom mother in law with it that we could rent out and eventually turn into a duplex. It was built in 1950 so it would mostly just be cosmetic updates. While we would live in the triplex we would be spending about 900-1000 a month after rents on the mortgage and with the mother in law probably 1300-1400 a month after rent. Considering cash flow would only be about $200 better with the triplex after we move out what would be the best option for us? Lmk if you guys have further questions! Thanks in advance!

Andrew Postell · Answer

Account Closed I would strongly recommend you to speak to your realtor about this. You might be in a scenario where you lose earnest money...or the other property doesn't like your loan type...or a slew of OTHER things that require someone to advise you on your rights in your legal contract. If you don't mind, speak to your realtor on this.

Vitaliy Volpov · Answer

Hey Account Closed,

I think Andrew's advice is very sound. I would add that you should speak with your attorney in addition to the realtor with regard to the current contract. While your realtor usually does the initial negotating and filling out the contract, it's the attorney's job to provide you with legal advice.

Alecia's points are also well-taken. I would also add this consideration to help you compare the two options: which property will attract better tenants who will be easier for you to manage? A lot of new investors and house hackers don't take this intangible into consideration when they are looking for their first or next property. The nicer the area and the property, the more likely it is that it will attract more responsible and conscientious tenants. Knowing that you will have to live next to your tenants for a significant period of time, this becomes an even more important consideration in my opinion.

When I bought my first house hack, I intentionally opted for a two-family in a good area and good school district (choosing it over 3- and 4-units in less desireable areas) because I wanted to ease into becoming a landlord and because it was important for me to be comfortable with where I lived. My cash flow after I moved out of it a few years later is no-where near as good as any of my non-owner occupied rental property purchases, but I spend almost no time managing that property, which I still keep in my portfolio. I think there are literally months that go by that I never have to deal with any issue at the property. My tenants take care of the lawn mowing and snow removal, never cause any disturbances or have any arguments with each other or the neighbors, and always pay their rent on time.

The mortgage continues to be paid down by them and the property continues to appreciate over time with little to no involvement on my part. To me, there is a lot of value in that. Just some food for thought...

Vitaliy

Alecia Loveless · Answer

@Payton Nelson I live in an area where knob and tube is still fairly common. I have a reasonably priced electrician so I could likely get a bid on the whole project but it would become much more complicated if there were tenants in place that had to be worked around.

We don’t have much “new” construction here and I think my newest building is from the ‘40s so things like plumbing issues are common place.

I’d want to compare the neighborhoods of the two properties and which one appeared to be appreciating faster and had more gentrification around it and other things to attract more people and buyers into the immediate area.

If the ultimate cash flow isn’t that much different then I’d also look at which one fit my family’s needs the most and how long we intended to live there.

Then I’d discuss these things with my realtor and see which property he thought would sell better down the road if this wasn’t planned to be a long time hold property in my portfolio. If it was planned to be held a long time perhaps some of this just doesn’t matter as much.

Triplex or Mother in Law?

Triplex or Mother in Law?

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