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Should you buy a duplex?



If you want to save on housing costs, the usual council is to move to a smaller house. But some people go in the opposite direction, investing in duplex, triplex or quadplex. By living in one unit and renting the rest, these so-called "housekeepers" can use the rental income to pay their mortgage loans and basically live in their home "free".

Housekeeping is not for everyone; There are some residence costs involved in buying a duplex and getting it ready, and you must also be willing to take responsibility for becoming a landlord.

I went to two housekeeping experts, Chad Carson from CoachCarson.com and Craig Curelop from the real estate investing social network BiggerPockets ©, to learn more about what it takes to buy a duplex, how to budget for the project and how to find good tenants. If you have ever considered buying a duplex and renting out the vacancy, use this advice to help you decide whether it is time to start a housekeeping project. Here are the 5 most important questions to ask:

Who should consider buying a duplex and becoming a landlord?

Carson: I have had a lot of success with directly owning properties as a landlord, but I have come to realize that it is not for everyone.

Think about your free time first. When you first start buying and managing the duplex is like a part-time job. When you search, buy and maybe rebuild a property, it can take another 10-30 hours per week. Eventually, when things sit down and you get a stable tenant, you can spend much less time. For example, I spent 1-2 hours a week on my portfolio of rental properties while living abroad in Ecuador for 17 months.

The second question is temperament. I find those who are attracted to being a practical landlord are those who want more control and freedom as an entrepreneur. But in exchange for these benefits, you must also be willing to take on more responsibility.

On the bright side, this entrepreneurial structure can give far better results than just passively investing in the market. But the challenge is that you also have to be okay to handle people, situations and make regular decisions. For example, if you are going to lose sleep and stress out because you have to decide on a plumbing leak, you may want to reconsider being a landlord.

I remember once again calling for a water heater leaking at our rental while my wife and I were traveling on the southern tip of South America on the Magellan route. It was pretty much just a sea between us and Antarctica! We were ready to go on a trip in the penguin colony when I got the message, so I called my trusted plumber, told the situation, asked him to handle it and continued to see the penguins.

If prospects of these types of calls or situations cause you to lose sleep, you may want to reconsider being a landlord.

Curelop: I will advocate this by saying that anyone can hack. There are different levels of housekeeping, some of them more aggressive than others. The most aggressive buys a house and rents it while staying under a bridge, but most do not want to. The traditional way is to buy a duplex or quadplex, stay in one unit and rent the other units so that the rent from these units covers your mortgage. Anyone can do it: a single person, a couple, a family.

If you are a family that wants a little more space than you can get from a square, you can buy a large house with an additional home. You can Airbnb or rent the extra home, which will partially offset your mortgage. Instead of paying $ 2K or $ 3K each month for your loan, you pay half of it.

Is it better to buy a built-in finished property or a fixer-top?

Carson: An old mentor of mine used to say "always look for good dogs with fleas". What he meant was that the best offers otherwise are good properties with problems. It's the idea to buy the worst house in a good street. So, fixer-uppers are really a common property challenge that you can learn to overcome in exchange for a lower price.

Of course, the challenge does not go over the head with a fixer-upper as a new investor. I recommend that you stick to cosmetic rehabs, where you can renovate landscape architecture, paint, windows, new floors, new countertops, new lamps etc. You can also make money to move walls or rip out the entire kitchen or bathroom, but much more can go wrong too.

Curelop: To add the most value and produce the greatest net value, you want to buy a fixer-upper. However, there will be more work, more time and more upward costs. If you are looking for something a little less risky, I would get something that is ready to live in. If you get an owner-occupied loan, you must be ready to stay there 60 days after closing.

Finding a place that needs some cosmetic updates – maybe fixing cabinets or adding new lamps or floors – is a great way to increase the value of your house while you can rent it quickly.

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If you choose a fixer-upper, when should you do it yourself? bring professional?

Carson: You need to know your own skills and abilities before doing a DIY project. Everyone thinks they can paint, so people often choose to "save some money" by painting a house themselves. But true professionals are professional for a reason. It is not always easy to do good jobs.

I would almost always hire electricians, heating and air, pipe and carpentry professionals. Then choose one or two skills that you can get good at and rent the rest. For example, my friends taught Carl and Mindy at 1500days.com how to insert tiles early in their career to flip houses. Then with each subsequent project they would add another skill to make themselves, such as painting, carpentry, etc. Everything else they would rent out.

How can you create a budget for this project?

Carson: A good real estate investment ultimately comes down to the numbers. The first key figure is to estimate how much rent the property should produce. You can use websites like Zillow® and Rentometer © to look for similar rental properties. But I also recommend getting other experts' opinion on the spot, as a real estate manager or a more experienced investor. Even if you have to pay for this advice, it's probably worth the money.

Once you have a picture of the rent, you can analyze how much you can pay and make it a good deal. A quick analysis is something called One Percent Rule. In principle, this rule of thumb says that for a property in a decent location, the rent must be at least 1 percent of the total purchase price (including any repair costs). For example, if the rent is $ 2,000 per month, you don't want to pay more than $ 200,000 for the property to get a decent cash flow.

I know that people in priced markets will groan when they see them numbers because it probably seems impossible in their location. If so, you may have to choose another financial target that yields less income or just choose to invest in another market.

You should always do a more thorough analysis than One Percent Rule, but it's a good place to start. And you should also find out how much of a prepayment is required with your funding so you can know if you have enough money to pay for everything up.

Curelop: The budgets are so different for all different people in each market. It's not really a magic number, like "you should spend $ X". That's what you feel comfortable with. BiggerPockets has lots of content and calculators to educate people and help them make those decisions.

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How do you find good tenants?

Curelop: We like to think of it as a funnel. You want to get as many potential tenants as possible in your neighborhood. You do it through Craigslist, you do it through Facebook Marketplace, you send ads to your gym or in the local grocery store or at Zillow and Trulia. Mark your property so everyone knows about it.

Then you get people to apply, which gets them in your funnel. When someone is interested, you make a quick phone screen. Talk to them for 5-10 minutes, see if they are cool, see if they are someone you might want to live with. Make sure they have good credit, find out if they have pets or not, find out if they smoke, if they have declared bankruptcy, all the good things.

If they pass that test, send them an application – and then verify everything on that application. Get a couple of pay stumps, make sure their pay is right. Maybe you call former landlords for references. Maybe you call their employer to make sure they are actually employed there. There are many things you can do to make sure that they have not lied to their application, and if you put them in a lie, you do your due diligence.

Because the funnel narrows and narrows and you start to trick people out, you are left with some tenants that you might want to live with, and then you get to choose.

Nicole Dieker is a full-time freelance writer. Her work is regularly shown on Bankrate, Lifehacker, The Write Life and many other sites. She is the author of Frugal and The Beast: And Other Financial Fairies. This article is sponsored by the Haven Life Insurance Agency. The opinions are her own.

The Port Life Insurance Agency offers this only as pedagogical and the information provided is not written or intended as special legal advice. The Haven Life Insurance Agency does not provide legal advice.

BiggerPockets is a copyright of BiggerPockets, LLC.

Airbnb is a copyright of Airbnb, Inc. ]

Zillow is a registered trademark of Zillow, Inc.

Rentometer is a copyright by Rentometer, Inc.

Haven Term is a Term Life Insurance Policy (ICC17DTC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111 and offered exclusively by the Haven Life Insurance Agency, LLC. The number and features of policies and riders may vary by state and may not be available in all states. In New York, Haven Term DTC-NY is 1017. Our license number in California is OK71922 and in Arkansas, 100139527.


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