Anyone have Rental Income Property - Duplex/Triplex

[Tidybuoy]

I'm thinking of purchasing a duplex for rental income purpose but I have a few questions that I need to figure out.

1) Is insurance more expensive for non owner occupied homes?

2) If the duplex does not have individual electric/gas meters, how do you charge the tenants. The duplex that I am currently considering (haven't seen with seller yet) has a single meter box but underneath are two square boxes that appear to be supplying electric to each unit however, there is only one visible meter unless these boxes are digitally metering?

3) Do you provide pest control as part of routine maintenance?

4) Do tenants typically have separate garbage cans or shared, do tenants share the responsibility of putting out cans?

5) Is it safe to assume 10% of gross rent as an annual maintenance cost estimate for a fairly good condition property? This would be for non-specific maintenance as I will itemize things like gardener, pool service if applicable, pest control.

6) Most rental calculators want a down payment %. I am using zero down payment and assuming a 100% mortgage. Even though I am paying cash now and will refi later. I think this is the most conservative approach as there is a cost of money regardless of where it comes from. Does this logic sound right?

Any other advice would be greatly appreciated as this will be my first rental and I want to make sure I account for everything in my analysis.

[pwd72s]

Another Babe enters the woods. Yes, been there-done that with residential rental. Some have the mental makeup to tolerate it. I didn't. Maybe some that do will weigh in.

[Oracle]

manage rentals? never again.. (no matter how much financial analysis, if you get bad tenants you will suffer)

anyway, good luck

[mrbeverlyhills]

I'm thinking of purchasing a duplex for rental income purpose but I have a few questions that I need to figure out.

1) Is insurance more expensive for non owner occupied homes? Probably not, call your agent.

2) If the duplex does not have individual electric/gas meters, how do you charge the tenants. The duplex that I am currently considering (haven't seen with seller yet) has a single meter box but underneath are two square boxes that appear to be supplying electric to each unit however, there is only one visible meter unless these boxes are digitally metering? Call the utility, if not, make the seller install at his expense prior to close.

3) Do you provide pest control as part of routine maintenance? Yes, unless you want you place overrun with rats and cockroaches-see great advice above re bad tenants

4) Do tenants typically have separate garbage cans or shared, do tenants share the responsibility of putting out cans? Most cities provide cans for less than 3 units, tenants should take them to the curb (they often don't) but you should plan on having your weekly inspection on those days.

5) Is it safe to assume 10% of gross rent as an annual maintenance cost estimate for a fairly good condition property? This would be for non-specific maintenance as I will itemize things like gardener, pool service if applicable, pest control. If your duplex has a pool, you are buying the wrong duplex. %10 if nothing goes wrong is generous.

6) Most rental calculators want a down payment %. I am using zero down payment and assuming a 100% mortgage. Even though I am paying cash now and will refi later. I think this is the most conservative approach as there is a cost of money regardless of where it comes from. Does this logic sound right? How can you be zero down AND paying cash? If you are assuming the seller's mortgage, make sure assumption is granted by the lender prior to close.

As has been said before, you really want to think this through, maybe watch Pacific Heights on Netflix first.

[Tidybuoy]

Originally Posted by mrbeverlyhills

6) Most rental calculators want a down payment %. I am using zero down payment and assuming a 100% mortgage. Even though I am paying cash now and will refi later. I think this is the most conservative approach as there is a cost of money regardless of where it comes from. Does this logic sound right? How can you be zero down AND paying cash? If you are assuming the seller's mortgage, make sure assumption is granted by the lender prior to close.

I'm paying cash to purchase the property. Rental calculators factor in your mortgage interest when evaluating the cash flow of the property and when paying cash, everything looks great (from a cash flow perspective).

However, my cash is coming from my accounts that are currently earning and so I don't want to analyze the purchase as if the cash was free - it's not. So, to be conservative, I'm plugging in an "assumed" mortgage. I was just wondering how others do their due diligence.

Also, I'm not buying a duplex with a pool but I stated that any known routine, fixed, maintenance would be kept separate from "estimated" maintenance. Really wanted to know if 10% was a decent figure for estimated Maintenance. I'm only looking at decent properties and no slums.

[mrbeverlyhills]

It is hard to compare apples to oranges but if you evaluate your building then subtract the ROI you were getting on the cash would be the easiest.

[LWJ]

Many 2,3 and 4 answers are local law/code dependent.

Insurance is about the same.

Maintenance is more a function of age and current condition. I don’t spend 10%. Ever.

Financing you can do conventional but you will need 25% down in almost every place I have seen.

My wisdom? 1) hire a manager. 2) buy for cash flow. I really want to see 10% cash back from my investment. Hard to get!

Good luck. What area? Example - I don’t like Portland currently. Over priced and oppressive city council.

I have self managed and hired managers. Never self manage again. Never.

[KFC911]

To each their own....I accidently became a LL years ago....modest SFHs. Still am...but it's not for everyone...especially me .

[Tidybuoy]

Originally Posted by LWJ

Many 2,3 and 4 answers are local law/code dependent.

Insurance is about the same.

Maintenance is more a function of age and current condition. I don’t spend 10%. Ever. Good to hear. I hope I don't have to spend that much too and I plan on rehabbing up front to reduce ongoing maintenance

Financing you can do conventional but you will need 25% down in almost every place I have seen. I expect to do conventional financing but I will initially pay cash, rehab, get tenants, and then re-finance a complete property with actual income being produced. If I can find any good deals via foreclosure auction, I believe you have to pay cash at the auction.

My wisdom? 1) hire a manager. 2) buy for cash flow. I really want to see 10% cash back from my investment. Hard to get! I plan on hiring a manager and definitely accounting for the cost whether or not it's managed by me or a company.

Good luck. What area? Example - I don’t like Portland currently. Over priced and oppressive city council. I'm starting off looking in surrounding communities (I live in Fresno, CA).

I have self managed and hired managers. Never self manage again. Never.

I'm looking for houses and small multi-family units in my own town and surrounding areas.

[scottmandue]

Being a landlord is like driving a Hyundai, nobody likes it but sometimes it is what you have to do.

We share garbage cans, I have had good luck with renters, I usually haul them down to the curb and they bring them back (not required by me just something they do to help out).
We pay utilities, just figure it into rent. However in your case you may want look into separate meters.

Huge, huge, huge is filtering you applications... credit check, proof of employment, etc. I think someone here said if you get a chance walk them to their car if you can and check out the interior. If it looks like a pig sty you know your rent is going to look like that.

I do my own pest control but our biggest problem is ants, I'm handy and try to do light repairs but I'm lucky to have a neighbor that is a construction worker and does some of the heavy lifting when he is not busy. He just did kitchen counter tops/sink/painting for us. Our renter just moved out, nice little old lady that played balalaika in a Russian fold band (no, I'm not kidding) and we have a VP of a software company lined up to rent the place.

[jhynesrockmtn]

I have been in and out of single family rentals for years and currently own and manage a 6-unit apartment building in a very nice neighborhood in our town.

I have only owned stuff I would live in myself in good neighborhoods. Being a landlord in the bottom third of the rental pool is a nightmare.

Insurance is more, you need a business policy with good liability coverage.

Maintenance is all about keeping up on stuff and what condition it is in to begin with. My current building has required more investment to take care of some deferred maintenance but I would expect 10% or less should cover going forward. The really big stuff I hire out, but for example I replace the wall heater in one of my units last night. Doing some of the maintenance on a regular basis keeps me in touch with the tenants and gets my eyes on the property.

I would investigate current financing options out there now by getting to know a good banker at a community Bank in your town. Don't discount the power of current low interest rates. Owner-occupied versus investment property financing are two very different animals.

Shared utilities, billing for electrical, garbage, Pest Services Etc are all a function of the size of the building and how you set it up. For example, all of my units have separate meters but I carry the garbage service because it has to be commercial due to the size of the building.

Get educated on landlord tenant law in your area. I started doing this in Seattle back in the 80s and would not own a rental property there now. Not that I can afford to make it work in that market anyway :-)

Being a lanlord is not for the faint of heart but I have made a good return doing this on and off for the last 30-plus years.

[Tidybuoy]

I just spoke with the realtor for the property I was considering and it's a no-go for me. A) price is way too high, b) it's not a duplex. Not sure why it has two front porches and front doors.

Doesn't matter, I will move on and find the right place. Meanwhile, I am educating myself on how to analyze and calculate ROI.

Good point Scott on walking prospective tenants to their car. Gotta weed out the slobs. Regarding garbage cans, I don't plan on living there and will not be going over to take out the cans - I will have to train the tenants for that.

[Tidybuoy]

To me, this looks like a duplex but realtor says it's a single family. With the current rent, the price is way too high to make it work for me.

[Craig T]

Ugh. Been there done that. A year of one bad renter put me off being a landlord for life.

[drkshdw]

Originally Posted by Tidybuoy

To me, this looks like a duplex but realtor says it's a single family. With the current rent, the price is way too high to make it work for me.

Are you sure the listing is for both halves? There are tons of 'duplexes' here but you commonly only buy one half of it. I'm not sure why they list them as single family when it clearly is not but it's funny to go through neighborhoods full of them because inevitably one side is nice and the other is trashed. Even down to one side taking care of their lawn and the other side with weeds to your knees. Complete with two colors of shingles on each half of the house.

[OldSpool87]

Don’t forget your downside analysis of your rents. I’d also drive around looking for pending new supply delivery (for rent or sale). In the top of a cycle it’s not uncommon to get shadow rental inventory competing with yours. Understand what if any bias your local court system has in the landlord/tenant relationship. You also need liquidity for the rainy day. Boilers never fail in July. It’s a law of nature.

[scottmandue]

Originally Posted by Tidybuoy

Good point Scott on walking prospective tenants to their car. Gotta weed out the slobs. Regarding garbage cans, I don't plan on living there and will not be going over to take out the cans - I will have to train the tenants for that.

I know you are talking about duplex but the apartments on my block have a locked dumpster and the tenants have a key. Once a week a truck shows up and empties it.

FWIW I would walk away from being a landlord in a minute but it is difficult to walk away from the income.
My brother bought the property some 30 years ago when it was zoned for multiple units, before he could build they down zoned the neighborhood, he was not too happy. He decided to quit the family business, sell his house and 'go find himself'. So dad bough the place and rented for about ten years until he got sick of tenants* and started lobbing me to buy the property, it is in a super nice neighborhood so I kept tell him I couldn't afford it... That went on for a few years until he 'made me an offer I couldn't refuse'.
So you could say I'm part of the family curse.

***Read this first!***

Dad never sold his commercial rentals, matter of fact they are part of the living trust he setup that we are still collecting on today. They are both generic cinder-block rentals but coincidentally both ended up body shops. If I had a chance I would go commercial over residential rental in a heart beat.
YMMV

Vern,

I have a slightly different perspective. My company did, among other things, mold remediation. I got a great look at the battles that can occur between landlords and tenants. It's perhaps a step nastier than divorce court.

Since everyone freaks out about mold, tenants sometimes use the "m" word to try to get out of their leases, get a rent abatement, or just be a pain in the ass. We'd get called in to do an inspection, and land right in the middle of a hot LZ, with crossfire between the landlord and the tenant. My inspectors would call things as they saw them, which meant that one or the other would be pissed at us. Or the landlord would tell us to go in and do an inspection, but not talk to the tenant. Sure--that's easy when you have a pregnant mom thinking her kid is gonna be born with six toes because she found mold in the corner of her closet. Or we'd have the tenant recording everything we said, following us around taking pictures, planning their lawsuit. Washington is a tenant-friendly state, as I'm sure CA is. A bad tenant can tie things in knots forever.

Anyway--I heartily second the advice of those here who have said to get a professional property manager. They are worth their weight in gold. Get a thorough mold inspection for visible mold growth, before you close, by a certified pro--not Chuck in the Truck. And, if visible mold is found, get it remediated properly. Too many landlords try to cheap their way out by painting over with Killz or some such non-product, which never works. If a tenant gets sick, and there's a trace of visible mold, they might end up owning you.

Finally--make sure you keep the place up. I think everyone intends to do this, but I've been to too any rentals that were hell holes. And I don't mean 914s.

[Tidybuoy]

Originally Posted by drkshdw

Are you sure the listing is for both halves?

Yes. Spoke to the realtor directly who personally owns the property. It looks like a duplex but it is one 4-bedroom / 2-bath property with one kitchen. The second porch was added on when the former owners used as an office.

I just saw this as I was driving home and inquired with the realtor. When I did my calculations (based on Zillow rents postings), I assumed 2 x $1295 per mth rent and I was hoping to get this for around $160,000 based on the fact that it last sold in 2012 for $126k. However, they are asking $299k. That won't work for me and I will move on.

[cairns]

We rode it up through the 80s and made a lot of money. But I would never do it again. Some people are literally disgusting. And I had to clean it up. But to answer one of your questions insurance on a rental is much higher than on your own house. I don't think you could make the money today as houses aren't appreciating nearly as much. Good luck whatever you decide.