buying a single family home and renting out top and bottom?

[chet everett]

It is not a "game". It is a serious financial commitment that can have major negative consequences. I have made money by owning, renting out, and selling income properties. It is appealing because the structure of residential mortgage allows significant leverage and potentially substantial gains. The relative upside is generally more achievable than in other kinds of investments BUT the pitfalls are not as widely talked about -- dealing with tenants directly can be very risky, the costs associated with keeping a property in good condition can quickly make returns go negative, legal issues can turn even a potential lucrative situation into a time consuming nightmare...

There are several good resources to help you decide if it makes sense to try to generate profits from rental properties. If you check out the books from a library it forces you to get the information from them in a shorter time frame; if you decide that you want to keep the books as reference go shopping for them after you read the borrowed books...

Track down a copy of this for your state (most are similar, but each state has there own laws, California and New York are among the most restrictive) -- https://www.amazon.com/exec/obidos/ASIN/1572480785

This is a very old book but most of the advice still applies -- https://www.amazon.com/exec/obidos/ASIN/0671248294

This is probably still among the best and most balanced books ever written about how to rent out homes successfully even though it is more than 30 years old -- https://www.amazon.com/exec/obidos/ASIN/0910019215

Here is a very brief yet realistic article that should make anyone think about what it really means to have extra cashflow along with the responsibilities of being a landlord -- https://www.forbes.com/sites/moneybu.../#3e5179667c1e

Even if you think the properties you are buying are mostly in good shape and/or you rely on professional inspectors it is smart to have some basis to evaluate what is might cost to rehab a property. This book is a nice balance between the technical aspects and the practical issues that landlords and flippers need to be aware of -- https://www.amazon.com/Book-Estimati.../dp/0988973715

Similarly this article starts with "the happy ending" but then details the sorts of expenses that eat up EVERY SPARE CENT that makes many landlords just give up -- What I Wish I Knew Before Buying Rental Property - The Simple Dollar

I will add one book, but very reluctantly. The author is well known as somebody that makes a whole more money with his seminars (often partnering with the "pump up motivational speakers") and he does not lay out all the hows and ways to avoid the mistakes in the book (I suppose so you sign up for his seminars, where you may be expected to pay tens of thousands of dollars for 'services' that most sane landlords would get for a fraction of that cost...) but the stories are still very illustrative of why folks very often get financially crushed even in deals that seem like sure things -- https://www.amazon.com/Real-Estate-I.../dp/1523269030

For MOST people who already are NOT putting aside enough in savings (pretty much all financial advisors have studies that show only a tiny fraction of even well paid workers save anything, the target of 20% savings is achieved by fewer still...) it will be a disaster to have a property get damaged by anything from bad tenants, to a storm, to just some careless kid breaking a window.

If the OP or anyone else is not the kind of person that has the discipline to max out a 401k at work I would strongly doubt that they have the necessary savings to deal with what happens in even the best case scenario of rentals.

[RanchTK]

Someone I know did something similar. I can share some insight.

First of all you are going to see this type of thing a lot more in the future. I have very close friends in Canada for example and, according to them, nearly every single home has a separate kitchen and entry. If you own a home there, its almost automatic that there's a suite being rented out.

Where I live, there's a housing shortage and all kinds of laws have been changed to allow mini-houses in your back yard, etc. In the grand scheme of things, city officials just don't prioritize going around making it more difficult on those who discretely add housing units to existing property. Look at Airbnb as well. So you can listen to the old fogies who tell you not to do anything until you march yourself down to the local bureaucracy, or not.

In this case, a person bought gorgeous home that was already setup fairly well to split. It had a separate rear stairway to the basement area, and had already been used by the previous owner's son as a type of separate living space. All he had to do was lock a door at the top of a stairway, put in a wall at the base of the stairway, then did a super nice remodel of the lower level kitchen.

Metering the power was a pain but he used "CT" (see EKM Metering) that allowed a really accurate read of use for everything but the hot water tank (which is shared). Upgraded the electrical service as well. Spent good money making this a nice lower unit. You should do the same.

Initially moved in one tenant to the top level. Took good care of the landscaping. Made it a nice place! It had been neglected before. Next he got a tenant into the lower level a few months later. It's been occupied in a dual setup like that for several years.

As far as tenants go. What he did initially was read those meters every month and bill the tenants. He paid the electrical myself and deducted like $50 automatically, just to avoid any ill feelings. Then sent the bills to each tenant and said, like "The bill was $280. Subtract $50. Your share of the $230 is 63%." And sent them the meter readings. Total pain in the butt.

He cut teeth on some bad tenants for sure. Eventually got "Gary and Joanna" to move into the top unit, and they are so good he never raises rent. They pay the power bill entirely, and just subtract whatever they want for the lower level person. The lower level person is a single guy with a good job and he pays like $40 per month for electric which is fine by me. He actually charges a fairly high rent for the lower level. It's all good.

He went into this deal thinking if the lower level tenant situation turns ugly due to the really unlikely case of a local city official knocking on the door to discover if there are two tenants living yada yada yada. He'd just politely proceed to get the lower level tenant to move out (always month-to-month down there anyway). Take a loss on the rent and plan his next move. He was never really stretched tight to pay the mortgage. It's not a game for those who can BARELY make it.

I'd be really careful about safety of your tenants. You should make sure there are smoke alarms. Fire extinguishers. Exit plans. That kind of thing. Get a master electrician to check over how much each area is drawing in terms of power. You don't want three tenants drawing too much power without appropriate wiring. This is VERY serious in my opinion. His place is totally and 100% perfect for electrical.

He had one family move in years ago and setup a type of hair salon for friends and whoever. You don't want that. The water bill could be in your name then you are offering free water included in rent. Some people can use tons of water. Just watch out for that.

Good luck.

[Izzie1213]

My parents live in middle income area. The neighborhood is all zoned single family homes. There have been misc. homes that have been rented out, one family in upper floor, one in the walk out basement. One next to my parents got away with it for a couple of years they flew under the radar until the basement was rented to a family of six with large dogs(one bedroom downstairs no kitchen, used hotplate) Neighbors had complained before regarding this situation but new tenants put them over the edge. The city finally did something and everyone was out in a few weeks. The house was later sold at a deep discount to a rehabber.
You can buy a house and rent out the whole thing to roommates but making it a two family dwelling is a no-no in areas zoned as single family dwelling.

They were a few more in the area that "investors", a term I use loosely for them. Purchased homes that could use some work but all they did was divide up what was a single family home to rent as "duplex or triplex". It always ended up badly for the owners because of neighborhood revolt and city zoning laws.

Generally speaking single family homes neighborhoods don't want what could be flop houses coming into their neighborhood.

My parents city officials were not being very proactive about this until some people organized, got some petitions and demanded the city strictly enforce zoning law and inspections.

[Stephen Michael]

If you rent out illegally and a tenant becomes injured in your property, your insurance will not cover you because you committed fraud. Your insurance policy insured your home as a single family and not as a rental. The insurance company will not pay and you will be on the hook. Can you afford that?

Also, in some cases, if the tenant gets seriously hurt or dies in an accident in your illegal apartment because the tenant could not escape from an illegal basement apartment in the event of a fire,you could be looking at jail time. Don't rent illegal apartments! Buy a legal 2,3 or 4 family; if you can't afford to do it legally, find a way. The easy way is usually the wrong way. Good Luck!