Consumption and Real Estate
I’m buying a duplex and the seller is VERY motivated – thoughts?
Question : I’m buying a duplex and the seller is VERY motivated – thoughts?
Hello, this is my first question and I’ve been doing tremendous amount of research on my first purchase of a FULL duplex. I’ve never owned but in my job field, I manage accounts and people with various problems for a corporate IT company for the past 5 years. I’ve heard the common thread with duplexes which are tenants. I’m aware of the ups and downs but wanted to know the thoughts on this specific offer on the table. Note, this would be my first property investment. Everything is set, it’s a question if I want to pull the trigger. At the moment, I see myself staying here for 1 year to live on half and make SMART updates for a rentable unit. No granite, no stainless etc – I will save that for my future home. I don’t have any kids not married so I feel I can invest time towards this 1 year project (maybe 1.5 years) The interesting thing is half of the duplex is already rented out to a older lady with her mom. They have been there for the past 5 months paying $ 900 a month. My mortgage would be approximately $ 1100.
The seller had two duplexes in a DECENT neighborhood. The seller happened to own two duplexes side by side, one has been foreclosed, the other is the one I am considering to purchase and he is motivated. Due to the fact of this specific information, the seller wants to drastically sell the house The house is estimated to be worth 150k and he is dropped it down to 120k. I am only putting 1K down so I can use it to fix the place up. This is my 1 year plan – thoughts?
Here are the specs of the duplex -
1. 1500 SF each side
2. 2 Bedrooms
3. 2 bathrooms
4. W/D connections
5. Fireplace
6. 1 car garage
7. each has own backyard (land is big in tx)
Essentially I am purchasing 4 bed 4 bath 2 car garage for $ 120k 
Maybe lower – I don’t want to lowball the seller but I want my moneys worth as a first time home buyer.
The seller has been proposed my criteria below – per the loan officer this is probable.
1. Pay all closing costs
2. Pending inspection, fix repairs (such as electirc, plumbing)
3. Provide a 1 year home warranty
I am also considering the $ 7500 first time home buyer tax credit. Which would save me $ 300 per month but eventually I would have to pay back. Any thoughts on that as well?
As you can see I’ve been thinking hard about this duplex! Thoughts!
Thanks in advance
Mark
one year home warranty
Best answer:
Answer by ♣PerSepHonE♣
The thing that worries me is the rent the tenant is paying and your mortgage. Your other numbers seem fine. You can easily fix up the duplex, increase value, raise the rent and refi. But this would mean an increased mortgage with tenants only paying $ 900. You would have a negative cash flow if you take this investment property with the tenants still living there. Not to mention if you have to pay utilities. Then comes insurance and taxes.
I would wait until their lease is up to buy. I would fix it up and re-rent it with higher rent. Higher rent means a higher appraisal value as well if you are looking to refinance. Plus if you are only paying $ 120 on a $ 150K home, you have $ 30,000 in equity already.
Since the owner is eager to sell, just buy it if you want the negative cash flow for the next couple of months. At the end of the ladies lease, raise the rent. If they dont want to pay the extra rent, let them go and find someone else. Because of the current market, people arent buying. They are renting.
There are several funky things here. Do you have a JOB that you can support the full cost of the mortgage? The worst thing here is that the renter moves out leaving you holding a classic ‘flip this house’ scheme. On the other hand you will only be paying 200 a month for ‘rent’ to own this. I am troubled by the next door duplex being in foreclosure also. What happens to you if the new owner decides to rent for 450 and your tenant moves next door? The next thing is if the property is truly worth the money you will be paying for it. Not to low ball the prior owner is commendable but just maybe he paid far too much. You do not want to be the one to be in foreclosure next. A check of comparable properties or an appraisal is necessary as well as a visit to area landlords to see where rents are is in order. Never assume that just because one person is paying rent like this that you can get it again. Nor that the value of a property is what other people have paid before. Otherwise the plan to live in one side is great while having a renter. Just make sure that you have enough income to cover the mortgage without the renter and that you have a reserve to fix the things that are going to go wrong. Like the water heater or the furnace. Good luck. edit: Be careful with the first time buyer credit. You may not be eligible with it being a rental property. another edit: It sounded like you were assuming his mortgage? Don’t do that without careful inspection of his current mortgage. If you are starting anew with a mortgage you probably will not qualify for any worthwhile mortgage with that low a down payment.