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My wife and I are mulling over the idea of buying a triplex (or duplex) and living in one unit while renting out the other. We don't have any experience as landlords or property knowledge. At present our savings are sitting doing nothing with interest rates low, so this makes us consider taking advantage of low property prices and living/renting out. Another area we considered was Cleveland, Tennesse, because apart from safety we could stretch to buying a four unit property.
So what I'm wondering is .... does it sound like a plan? Is being a live-in landlord a good idea or a pathway to hell? Once maintenance and taxes are paid, does the rental income justify the effort? I'd be working full time most likely and possibly using a property management company... but I'm not sure about that. If the time required was minimal I'd try to manage it all myself no doubt (along with my wife).
Financially we'd like to spend well under $200K on a multi-unit property. Chicago would allow this, although the winter and dangerous areas make me hesitate. My wife comes from Chicago, and that's why it's high on the list. We currently live in Phoenix, but my wife isn't keen on it. Moderate weather and affordability are key to us I think.
So any advice on this venture is welcome, and any ideas on other places this plan could work is also welcome. Thanks.
My wife and I are mulling over the idea of buying a triplex (or duplex)
and living in one unit while renting out the other.
We don't have any experience as landlords or property knowledge.
It's about the cleanest way to get started.
Two basic warnings: buy right and LEARN the law.
As a former landlord I can state that the expectations of MOST renters are very different than that of MOST traditonal homeowners. Renters expect stuff to be fixed "magically" when it breaks while homeowners understand that it takes time and money to repair anything. Thus most homeowners take good care of most of the things in their home to avoid spending money on needless repairs while few renters are as careful. There are other basic differences too and for this reason I never wanted to live too near my income properties -- I think it takes a really special kind of landlord to live in the same building as their tenants...
For some folks the benefits of having tenants to defray some of their housing costs works out OK but I would not recommend this to someone completely unfamilar with the area as is the case with someone relocating from out of state -- though I like Berwyn and think it represents a fairly good value the fact is even its most ardent suppporters acknowledge that the population base is shifting from quiet older eastern Europeans to younger folks many with roots in Latin America. If you are unfamilar with this dynamic, that presents additional challenges.
Trying to find a completely legal multi-family home that is suitable for owner occupancy is not as easy as it sounds -- you need to be able to spot potential issues with the structure, location, and even size -- too big a unit may attract unruly tenants, too small will be hard to find any tenants. Playing "Goldie Locks" trying to find the building that is "just right" is very time consuming / frustrating.
Plus side: you can get FHA financing for a four-unit building that you'll live in and underwrite the rental income with your financing. If you're living there, using property management doesn't really make sense. Buddy up with a local real estate agent to list the units if you don't want to do it yourself and befriend a local contractor to fix 99% of the problems that will arise.
Bad side: I personally want some degree of separation with my tenants.
Assume the typical lifespan of a rental is ~10 years before items need to be replaced, particularly if you have tenant turnover.
We'd almost certainly buy a property with tenants already there. The downside is we'd not be picking and choosing who they are (to begin with). I take the comments about living too near tenants on board. I did wonder about that aspect of things, but assuming the tenants are reasonable people it should be ok. I'd prefer to live in a detached home of course, but this is all about creating an income and saving money. So sacrifices will be made.
We'd pay cash for the property so no financing necessary. Though I'm not sure how much cash we should have on standby encase repairs are necessary or we have problems with a tenant not paying etc.
My wife is familiar with Berwyn, but that was around 5 years ago now. She mentioned it has a high hispanic population and I'm guessing that may gradually increase. Really this is fine with us, providing we're not dealing with wannabe thugs. I also know Berwyn is right next to the notorious west side of Chicago, which gives me more cause for concern actually. We're visiting next month and I'm curious to find out the real score.
I don't understand the fear of living next to your tenants. As far as I'm concern, if they are people you don't want to be near then you shouldn't rent to them in the first place.
I did that and it was a good experience - the tenants are more behaved, less likely to move in their cousins/aunts when I'm around; and things get fixed/maintained better when I'm around. So it works out for both sides.
When it comes to landlording, definitely do your homework. Landlording is a people business, the #1 thing that can make or break you is the quality of your tenants. So before you jump in, you need to have a very good idea what kind of tenants you'll get in that neighborhood and I don't mean their race.
It is not a "fear" issue so much as "range of expectations" -- many tenants are just not as careful with things as home owners. Fridges that are not cleaned regularly / opened and closed constantly wear out quicker, floors that go unmopped for weeks tend to show age more quickly, plumbing takes a beating, etc. When something does need to be repaired good tenants will tell you at a reasonable time and then work with you to schedule the repair. Less considerate tenants may hide the fact that something is busted until it becomes a bigger problems OR notify you at the most inconvenient time AND expect immeadiate repairs. I have heard from folks that have lived in the same building as their tenants that it often becomes hard not to find yourself listening to every dripping faucet or basketball playing toddler and think "these are the worst tenants ever"...
Honestly if you have enough cash to consider buying a place with no financing I can think of dozens of ways to get better return on your money than owner occupied rental building -- the folks that preach from the "no debt is worth the cost gospel of lunacy" are like 'reformed' alcoholics marching in front of tavern! The absolutely best thing about real estate is the degree to which you can get cheap long term financing to leverage a tiny payment that secures a very valuable asset. If you have the hundreds of thousands of dollars needed to pay cash for a multi-family building in any town you would be much better off getting a no hassle return with other kinds of investments. Really there is no promise that real estate in Berwyn or anywhere else will appreciate much over the long or short term -- when interest rates rise real estate values are likely to suffer! The demographic trends for Illinois are not promising, if you do not need to live in a town like Berwyn there are many other places that almost certainly will offer a better value in single family housing vs multi-family rental.
Honestly it really seems like the OP is getting some odd ideas about the relative value of many things -- I personally have made more from appreciation than from the income stream of rental properties. Among other investors they generally report the same things unless they have acces to a "captive" group of tenants, such as college students or similar constant demand driven market. If you have a generic rental unit and there is no compelling reason for folks to choose it over others you may find that it sits vacant a great deal of time OR you have to play games with cutting your asking rent. When a bad tenant stuffs you for months of rent and ditches out on utilities leaving the place a mess it can wipe out any hope of profit. Finding a property that holds appeal for the kind of low hassle tenant is not all science, there is a tremendous amount of luck -- when even good tenants can lose their job or have a legitimate emergency that wipes out their finances / forces them to leave you can spend money with lawyers and probably not recapture much of the lost income or just chalk it up to the untold reality of landlord woes...
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Once maintenance and taxes are paid, does the rental income justify the effort? I'd be working full time most likely and possibly using a property management company... but I'm not sure about that. If the time required was minimal I'd try to manage it all myself no doubt (along with my wife).
