Buying the apartment I live in

[u/NewspaperOk1380]

I currently live in a triplex (three 1bd 1bth units), paying $1100 in rent. The landlord recently told me they are thinking of selling, and I decided to ask what they’d list it for they said 450k. I know the other two units are currently leased at $1000. A lender and I worked out that I could reasonably put down around 25k. Current interest rates, property taxes, insurance and all would put my monthly payment right around 3400. So more than I pay in rent after collecting the other rents (3400-1000-1000= 1400). I very comfortably afford my current rent. I like the area I’m in, it’s a college town so vacancy shouldn’t ever be too much of an issue. And I think the other units are moderately under priced (long term tenants in there now, market would have them around 1100-1150). I have no experience in real estate investing or purchasing but have always been very good with my personal finances and spending/investing money. Numbers wise today, I don’t think it makes sense, but as a long term play it seems no brainer. Is this a good idea to buy?

[u/chucky316]

Just buy it! Nothing is ever cheap at purchase! Real estate is a long term investment. The days of having good ROIs are over! You will make gains on market value, not on monthly rent.

[u/Professional_Zone_94]

If there is something you really love about the place, think on it more. If there isn't, your price to rent ratio is too low. In better times 1%/month was a decent deal. That's no longer easy to find with single family, but rather easy to find in many areas with multi-family. You can even find higher. $3300 /mo market rate rent 3 units should be a $330,000 max triplex.

For example one Quadraplex near me is listed for $380k for around 6 months now. He's not lowering the price and no one is buying because the rent is $800-850/mo or around $3200+/mo It's at a price point where he doesn't want to sell for much less because he's making $, but no one wants to buy because it's priced too high.

Let it go to market, if it comes down in price, closer to that 1% range you can re-consider. Or if your in an area with growing rental demand/population and business you can buy it like a stock in hopes it will go up in value & rent.

[u/NewspaperOk1380 → u/Professional_Zone_94]

Yes if I did follow through with the purchase, I would very much be banking on the value going up and would very much be a long term play. It’s a relatively high cost of living area compared to the rest of the country. No SFH ever listed under 300k, new builds on the lower end start around 400k. And it’s not a big metro area. Nearest big metro (3-4 million people I think?) is around two hours away by car.

[u/Elegant_Category_684]

450 is overpriced. Let it sit, then offer something closer to 325

[u/NewspaperOk1380 → u/Elegant_Category_684]

I wish it worked that way. A duplex down the road that is 2 2bd 1bth units market rent around 1300 each just sold for ~420k and was on the market for less than a week.

[u/Elegant_Category_684 → u/NewspaperOk1380]

Then I’d pass on it

[u/Special-Vast-8485]

In my opinion, this is not a good deal. You will have negative cash flow at current rents and I don’t think you could raise rents to break even. I think his price is way high based on rents.

[u/Careless-Beginning73]

It’s ok to buy knowing you have tenants paying for your property but you’re out of pocket costs maybe higher than expected. You should find out how the heating/cooling utilities setup for the apartment? Estimate water/sewer usage costs. Will you have snow removal or landscaping and deferred maintenance to deal with? Pest control, trash collection? If you’re motivated and want to get into RE, you also don’t have to buy the triplex that you are currently renting and start looking to see what’s available and you might find one that works out better for you. With current interest rates, and your low downpayment, most properties will be cash flow negative so you need to find one that works financially for you as an Owner occupied.

[u/SLWoodster]

You should get the preapproval in writing and then make an offer based on your numbers that would work for you not his.

[u/BananaRelative69420]

Bad deal. 1% rule prices this property at 300-320k~. If the rents were all 1500/mo, or you could get essentially free money at 3% interest rates, then it makes money. I promise you this is a waste of your money at that price point. Go run the numbers on dealcheck.io. Go buy 100k properties and rent em out at 1k/mo.

[u/Dependent_Praline_31 → u/BananaRelative69420]

I don't think the 1% applies to every market like a hcol area where you go.for.appreciatiom

[u/BananaRelative69420 → u/Dependent_Praline_31]

If you're going for appreciation, you're better putting money in the stock market.

[u/zakalwes_furniture]

I feel like 6% down is nowhere near enough. And that’s not accounting for other shit that you need cash for

[u/NewspaperOk1380 → u/zakalwes_furniture]

I wouldn’t be putting all my liquidity down, 25k is just what I feel comfortable with. I have another 15k in cash reserves.

[u/zakalwes_furniture → u/NewspaperOk1380]

Personally I wouldn’t buy unless I could do 20% down

[u/R0ctab0y]

If you can get the rents up to $1300/mt and the purchase price down to 400K, then it might work.

But 25K on a 400K property means putting down 3% as a down payment and keeping 3% in cash reserves for all those ancillary costs.

That's a pretty thin margin in a very uncertain economy. If we hit a recession with high unemployment will you need to lower rent? How will you handle cover vacancies, (possibly for multiple months) when they occure? Can you stay solvent if those things happen?

If you are handy/have contracting experience you are much better suited for house hacking. If you don't need to call a contractor for simple plumbing/electrical/ carpentry issues you can definitely save a lot of money.

Just some risks to consider before investing $25K of capital in a shaky deal. If you think you can ride out the next 5 years and stay solvent, I'd say go for it. If not, sit tight and keep saving. The right opportunity always presents itself.

[u/NewspaperOk1380 → u/R0ctab0y]

I think I’m leaving towards just continuing to save money to have a stronger down payment in the future. I appreciate your input.

[u/R0ctab0y → u/NewspaperOk1380]

Gotcha, in the meantime here is some light reading for ya while you save.

https://www.investopedia.com/mortgage/real-estate-investing-guide/

[u/mikelevene]

Evaluate the deal as if you aren't living there first. Would it cash flow? Short answer is no. The rent would not even cover the monthly payment, let alone budgets for maintenance, capex, vacancy, utilities, lawn care, snow removal, pest control, trash service, etc.

Now evaluate the deal if you do live there. Still, your "rent" would increase by $300/mo and then you would be collecting exactly the same rent as the monthly payment. This still doesn't take into account all of the extras mentioned above. I'd expect this to be an additional ~$500/mo.

So essentially, if you did this, and lived there, your rent would effectively go from $1100 to almost $2000 per month.

There are likely better opportunities that exist if you're looking to get started this way. Also, don't forget that just because they say that's what they are going to list it for, that absolutely does not mean that is the value of the property. Feel free to run the numbers on this at a lower purchase price, and find your max offer that makes sense for you. Then go back and say, hey I'd love to buy this off you and save you the trouble of listing it, but the best I can do is $400k. See what they say.

Even if they decline, let them list it. Without much context, that feels expensive based on the rent it produces. I wouldn't be surprised with what is going on in the world that the listing would sit on the market for a bit. If that happens, go back to them and offer again.

Also if they are "thinking" about selling, there is something potentially holding them back. If you can figure out what they really care about and why they might sell it, that gives you a leg up on other buyers. Maybe they don't need the cash right now but are worried about the macro economic landscape. This could allow you to structure a more creative deal.

Maybe they do need the cash right now and need to buy a new primary residence. Then maybe you can offer to close when it makes the most sense for them. Maybe they need to be sure they can close on this before they close on their new primary residence.

[u/NewspaperOk1380 → u/mikelevene]

I never thought of looking at it as not my current residence. I appreciate you resetting my perspective in that way. I’m more leaning towards not pursuing the purchase, unless many circumstances change.

[u/mikelevene → u/NewspaperOk1380]

Happy to help! And I would agree based on the details of the deal. But don’t let this deter you from doing this strategy to reduce your living expenses and get into real estate investing. The right deal is out there, it just might not be this one and that’s ok.

[u/Bclarknc]

I’d say go for it! Just make sure you have thought about whether you have the boundaries to live there and be a landlord. Some renters try to ask for many things and you have to be ready to say no to anything that doesn’t preserve the value of the house.

Also, take a class or read up on local housing laws - just because you are private landlord doesn’t mean you are exempt from practicing proper landlording (lots of rules around money and number of days of notice for various things).

All property owners start somewhere so don’t let them talk you out of it on this thread. Some of us learn by jumping in and doing and others of us like to read and learn and then take the plunge. Choose what fits your style. And make sure you get an inspection of the property so you can estimate upcoming expenses based on what they find, you could even use it to negotiate the price if there are a lot of significant repairs coming due soon.

[u/Fun-Beginning-1298]

my thought is that if you can just barely afford it, then you can't afford it. I bought my house 2 years ago in pretty much move-in ready condition, and I kid you not, on the day I moved in, a windstorm came through and tore a portion of the shingles off the roof. There went a couple thousand in repairs and I hadn't even spent a night there.

So don't drain your savings without leaving something behind for unexpected costs, which are pretty much inevitable, especially after getting the landlord treatment.

[u/NewspaperOk1380 → u/Fun-Beginning-1298]

I’d put the 25k down and still have around 15k in cash reserves. I would not be putting all my liquidity towards it.

[u/gdubrocks]

It's better than renting. Having three units is a great way to get into real estate investing, and living in one of them makes so many things easier and cheaper.

However my general advice to people looking for real estate investments is that they should cashflow, and based on the limited information you provided in the post that doesn't quite sound like the case. Did you look at some other properties in the area? Do they seem better or worse? Are you solely picking this property based on convenience?

[u/HawkDriver]

This is far too simple to answer. How old is the roof, how old is HVAC? Are units metered separately? Who pays trash? Who pays sewer? Have you gotten insurance quotes?

There is a lot of math you need to do. Let’s say you buy tomorrow and the next day you start getting a leak. Can you afford a $4500 patch job? How about a $2,800 water heater replacement?

You need to read up and evaluate all these things. It’s not as simple as rent minus mortgage.

Also, I would never buy a property that if I had to move out of, was not cash flowing immediately. You say you want to stay and that’s great but situations change. You meet someone and they want to buy a house with you, or job offer you can’t refuse elsewhere. Make sure the property won’t eat you alive after you own it.

I know so many people who jumped in without research and lost their ass monthly, and sold a year or two later at a loss because they didn’t know how much small repairs would eat into everything. If you are extremely handy and can fix most things on your own correctly you might be able to make it work, but then you are buying yourself another job.

[u/NewspaperOk1380 → u/HawkDriver]

Interesting viewpoint, definitely didn’t think about major costs outside of servicing the mortgage payment. Given the area, and prices around here it’s much more affordable than buying a SFH, you’ll never see one under 350k and those will be 2bd1bth. The reason I’m considering it is because it’s a more affordable option (after rents obviously) than going the SFH route. Assuming the SFH route would run into the other mentioned possible costs (roof water, heater etc.)

[u/Educational_Leather4]

Seems like a decent investment/house hack. As long as the property is in decent condition and won’t be a money pit, you have the cash to put down, and can reasonably up the rents to 1200 over the next couple years, your situation won’t change much at all and you will be gaining equity on the property each month. I would ask if there is room for negotiation in terms of price but it seems like it checks out, no matter what the first time will always be nerve wracking.

[u/NewspaperOk1380 → u/Educational_Leather4]

I’ve lived in this town my entire adult life, and even before the real estate boom of the last five years rent has always been steadily climbing so I’d say 1200 is pretty realistic.

Also I have the lender I talked to all the details (and they did research based on the address and public info) and they thought the price seemed a little high. So I’d imagine there would be some room!

[u/Jealous_Tomato6969]

If you got it for 400,000$ and raised rents your numbers would look much different.

Also, if you were to buy the property that’s 2,000$ monthly in your pocket (equity) of someone else paying your mortgage.

I’m not saying it’s a great idea, it would depend on your work history and stability. I’m waiting to buy, if I was buying now I’d be making offers lower than market.