All Forum Posts by: Justin O'Malley

Hey BPites,

I am trying to close on a SFH that I plan to live in the basement of and rent out the main level. It is set up as an ADU so I have a full kitchen downstairs and I will only need to add a laundry hook up in the top unit. Utilities and address will be shared so it is not fully divided into a duplex.

My question is, since the lender needs to see home owners insurance prior to close should I get standard home owners insurance for the whole house -or- get landlord insurance for the whole house and renter's insurance for my living portion?

I have heard that if lenders catch wind of you wanting to rent out a portion of the house then it can muddy the waters with an owner occupied loan. I have asked around and this seems legal to do but the lender doesn't always believe you will truly be living in the property.

So...what kind of insurance should I get and what companies do you like?

Thanks!

@Matt M. and @Grace Wang

I appreciate the feedback! So I’ll raise the stakes a bit. Our current lease runs through May and this seller is wanting a lease back for 2 months. So that’s a couple guaranteed rent checks with no effort. It allows time for rehab planning, pricing, and scheduling. Along with marketing time for our future roommates (after we close of course).

Does that change your recommendation at all?

@Michael C.

Thanks for the correction, I misunderstood that rule

Hi BP,

Here's a situation for ya...

We offered 470k for a house that was listed at $440k and we lost (welcome to the Denver RE market). The winning offer was 480k so we lost by 10k. The seller's agent told us we came in second place and that we would be their first call if the first offer fell through.

So our question is, should we submit a backup offer at 480k for the agent to keep on their desk if the other buyers back out? There are a handful of arguments to leave it the same 470 or increase to 480:

Stay at 470:

If the first offer drops then that technically makes us the highest bidder at 470k.

Who wants to spend 10k if they don't have to?

That is still 30k over asking!

Increase to 480:

Property would cashflow on day 1 which is rare in denver. So it's worth the extra 10k.

If the other buyer tries to negotiate price down the seller could let them walk if they have another equal offer of 480 on the table.

An extra 10k over 30 years is only about $45 per month against your cashflow.

I'm stuck on this and could use some input, thanks!

If you let the numbers decide:

Cashflow from 470 offer: +$75/mo

Cashflow from 480 offer: +$30/mo

...They're barely different

@Michael K.

Good points, the Master bedroom is an en suite so it has a private bath. And we agreed that the house should just be in my name if she ever gets tired of my bad jokes.

We've both lived with Craigslist roommates for number of years and we tend to get along with whoever. We will have a few requirements such as salary must be 3x rent, credit score above 600, and we are allowed to be a little pickier on their personality/family status since we will be occupying the house. I'd rather lower rent slightly to get a great tenant than increase the risk of an expensive eviction.

@Shawn Bhatti

Congrats Shawn!

And totally agree I’ve looked at this deal from many different angles. Even if we weren’t able to find a single renter I have some reserves to float the house for a while until we got things turned around.

@Ola Dantis

Thanks for the reply Ola!

So while we are living in it we will have some negative cash, but it’s much cheaper than our current rent. If we were to not live in it and just rent it out then we would come out only about $30/mo positive, which I would expect it would still be negative cash flow some years because I know maintenance isn’t a consistent number.

My theory is that rent will increase and it will cashflow more and more over time. And even if it came out dead $0 it would still be a heck of a deal to get free appreciation, debt pay down, tax savings, and experience!

I’m lucky enough to not be living paycheck to paycheck so I think this is great investment with my savings.

@John Mayer

Awesome! Hope you keep crushing it and I’ll try to follow in your footsteps haha.

And yes we would be spoiling ourselves a bit by keeping a second room but it makes sense at least while we’re working from home. Plenty of options with the extra room in the future!

@Matt M.

Totally agree! So this plan has been in the works for the last 3 years with both of us saving up every dollar we can for this purchase. My GF even started listening to RE podcasts so I think we are in a great spot.

And up until now we’ve been renting with roommates so we’re accustomed to living with folks. Our plan is to house hack for 2 years to take advantage of the tax free capital gains when/if we ever sell.

@Eli Kallison

Thanks Eli!

Great point, we’ve been trying to figure out the numbers for Airbnb especially since it’s not too far from restocks and the front range. Could be a great short term rental!