All Forum Posts by: Risa Mendel

Hey all,

So here's my situation: 

1) About 2 1/2 years ago, I partnered with my mom to buy a duplex in cash for $140k, intending to live in one side and rent out the other. We put an additional $17k into renovations, and nearby comps have recently sold for $225-$250k. Our partnership split is 80/20 in my favor.

2) With mortgage interest rates so low, I think the time is ripe to go for a 2nd duplex if I can find a deal comparable to the one I got on my current home. I recently inherited $20k, and I have an additional $25k accessible in savings for a down payment, closing costs, and some light renovations if needed. Right now I'm debt free, save for 3 credit cards which I pay off in full every month & my credit score is in the 790s. I'm primarily looking in Columbus, Ohio because I have strong ties to the area & a few relatives willing to help me scope out potential properties, they have many more duplexes available to purchase, and their market seems to be about where Raleigh's was ~3-5 years ago in terms of what you're able to get for my price range.

I'm wondering if it would be better for me to finance the purchase of my new property with a traditional mortgage, or to use my inheritance & some of my savings to buy out my mom so I can take out a home equity loan to purchase a new property in cash. 

Here are the pros & cons as I see it:

1) Mortgage 2nd Property: With my income & savings, I figure I can qualify for a purchase of $150-$175k (though I'd really prefer to stay under or as close to $150 as possible so I can still have some money left over for renovations or unexpected expenses). Deals for duplexes in my target market are harder but not impossible to come by in this price range. The biggest pro is that I won't have to involve my mom in any way. If I do it this way, the plan is to start saving my profit from the 2nd property to buy my mom out from my 1st property as soon as possible, and once I've done that I'll be free to take the equity loan whenever the opportunity is ripe for property #3 within the next 5-10 years.

2) Home Equity: In theory, I could use my inheritance & some of my savings to pay my mom back for her original investment in my property right now. If my home is worth $225-$250k, I can take out a home equity loan for 75-80% of that without needing mortgage insurance (at least according to what I've read so far). That extra room in my budget could give me a lot more choice as the buying & selling season heats up, and I'd be in a much stronger position as a cash buyer. That said, I don't know if my mom is willing to be bought out at this time, and I haven't thought through all the possible consequences of mortgaging my primary property. It's more complicated because it seems to be a lot harder to find free online resources to help me calculate the principle & expected monthly payments on a home equity loan compared to a traditional loan, and at this early stage of investigation I'm not willing to enter all my personal information into a loan website that'd end up contacting me at all hours with offers I may or may not be prepared to take.

What do y'all think?

@Daniel Sheftman, welcome to RTP! It's a very exciting market to explore because there's a ton of revitalization and new outer-ring development happening simultaneously, and we expect it to stay that way for quite a while. And Wake County has been a great place to call home for 17+ years.

Are you looking for rentals or properties to flip? There are a lot of great areas for both, but they rarely overlap. And if you want new(er) construction, have you considered your budget for HOA/COA dues?

Hi @Account Closed! And belated welcome to BP & congratulations on your new home. I'm also a recent grad (Meredith) and currently house-hacking a duplex. Looking into brokerage as well in the near-ish future, so I'd be interested in sharing some experiences :)

Congratulations on your first property! And welcome (virtually) to NC. I'm a proud owner of a (somewhat) similarly situated duplex in Raleigh so here's my two cents on miscellaneous matters.

1) What exactly does "completely rehabbed" mean to you? From your basic description, I can imagine a ton of small things you could do to add value in the tenant's eyes and increase your cash flow, but I won't waste time telling you to do what's already been done.

2) Pros of renting to service members...As others have said I wouldn't expect any more than the usual wear and tear for a 20 or 30-something tenant (probably less). You may be able to minimize your vacancy time if you include more amenities or if you're willing to consider shorter term leases (possibly for a higher price). Looking up the current BAH rates for your area takes a lot of guesswork out of pricing for your market. And once you have tenants, their individual BAH rate is basically guaranteed rent money.

Honestly, my main concern about renting by a military base would be that most 18-30 year old (mostly single) people with little credit/rental history aren't exactly whizzes with personal finance.

That said, my day job is in multifamily leasing & we have our ways of attracting lots of no credit, first-time renters who become model tenants. I can usually get the tenant to apply with a high-credit cosigner by offering a very low security deposit. At my first leasing office, it was $200 deposit with a co-signer vs. $200 + 1 month's rent without. 

3) The main downside = SCRA. Hundreds of pages of federal legislation that protect service members & their dependents from having their property seized while they're deployed, on leave, etc. So it's all but impossible to formally evict a tenant who is deployed, and it could be very difficult - but not impossible - to enforce lease break fees, etc. 

NC is not a very landlord-friendly state, and you definitely don't want to go anywhere NEAR violating that particular law. Or any federal law for that matter. Get an appointment with a local landlord/tenant attorney ASAP to cover your bases. Even if you never rent to a service member, a good legal education will save you from a ton of headaches. Basic FHA, FCRA, accounting/banking requirements, eviction processes, etc.

I assume you own this property in your individual name - if you employ a property manager and they make a big enough mistake, you could get sued personally for the full amount of damages (and ignorance of the law is NOT an excuse here - I've seen that one play out). 

As everyone else has said, good PMs are pretty rare in the wild, and you have a long learning curve ahead of you. So take this time now to read up on how they're supposed to do their job, just in case you need to find a replacement :)