Yesterday I began my search for my next fixer-upper. When I look for fixer-uppers to buy, I use all available resources which includes dealing with RE agents who are representing the seller only. Yesterday, a RE agent showed me 2 duplexes that are side by side and the owner wants to sell both duplex houses in a package deal. Each house has a 1 bedroom, 1 bath on each side. Asking price for both houses (package) is $39,800 even though on the MLS, they are priced individually at $19,900. Three of the 4 units are currently rented at $225.00/month. Yesterday, I made a low-ball offer of $20,000 for both houses, in which the RE agent laughed at. (In time, we will see who gets the last laugh here).

In the past, I have only bought SFH. I have looked at duplexes in the past but have never actually made an offer due to all of the questions I have that concern multi-units.

Can someone here who owns and manages SFH and Duplexes in the same Class C neighborhoods, give me some pros and cons of managing SFH and Duplex type tenants.

Side-by-side duplex are fine! Same as SFH or townhouses. Check noise transference, in two places we built a false wall and added insulation and made a HUGE difference. (So one unit lost 5" or so of floor space.)

People stay for years in these units, no different than SFH.

Myob,

No need to knock down walls here. There are plenty of SFH houses to buy if I want to go the SFH route again.

We love duplexes because one roof but two spaces to rent. We also love 1/1 units.

Are utilities separately metered? You do NOT want to be paying ANY utilities....not even water. Why? Let me tell you about the time I got a $600 water bill for one month of a leaky toilet flapper that a tenant "forgot" to report to me.

If you can submeter and bill back, that's one solution. Might be doable on water, but probably not on electric or gas.

If your two sides get along, it works well. If not, they will expect you to fix their problems. I have one duplex right now where Side A swears that Side B smokes inside and the smoke "travel thru the walls and ducts" into their unit and is causing her asthma to flare up. I went inside Unit A to inspect: couldn't smell a whiff of smoke. So I went over to Unit B to inspect: nada, zip, zilch. They are smokers, but they smoke outside. You can easily tell when someone is smoking inside: the place reeks. I didn't smell anything, not even a hint of it. No nicotine stains either. I had to tell Side A there was nothing for me to take action against. Now they are resentful. Probably leaving soon. Won't shed too many tears when they go.

Have to figure out parking so they don't take each others' spots when they have guests over.

Who will mow? I have a guy I hire for $25 per mow. Easier that having tenants fight over who does what and when and them "forgetting" to mow for 4 weeks, then you get a citation from the city.

Trash? Who will provide containers: you or them?

Dog poop in the yard. Who will clean up? "It was the neighbor's dog" is a popular excuse.

Welcome to the exciting world of multifamily! ;-)

Sid,

The RE agent told me that the electricity and water were individually metered. I did notice that each house has one electrical service entrance with 2 meters attached at the bottom of the mast head. This 'should mean' that each side is using 100amps of a 200amp service. There are 'spider wires' going everywhere too. I need to go back today and see if I can locate 4 water meters instead of 2.

1 block from this location, I have a SFH and a garage apartment in the back. Two rents here for the price of one.

Separate utilities are really important,especially with low rent places. Tenants can use up the entire amount of rent in utilities if they put their mind to it.

How old are they? The older they are the more likely the electric and other things are a bit intertwined in terms of service, but not necessarily actual use. i.e a tenant was having internet through the telephone line installed. The wire needed updating from the 1 box outside. It ran across the basement of one side to the unit it was being installed in. So I have a door with a double cylinder lock between the two units in the basement.

Oregon,

Those rents seem very very low.

What is going on?

6x6,

I LOVE my 1/1 duplexes. Absolutely LOVE them. I can rent them all day long. The tenants pay their own utilities, which is the important thing.

I'd be willing to pay a little more, because those will be easy peasy to keep rented. Even on SSI, they should be affordable. Just a matter of making sure you TAKE their rent before they spend it.

My guess is they were built either before WW2 or RIGHT after. Probably 500 sq ft or smaller.

If you can retrofit a washer into them, even the little ones that can be portable but can also be attached, and provide a clothes line or drying rack (like they use in Venice and Istanbul), you can likely up the rent by $50 or $75 per month. You'll make your money back in under a year.

Enjoy!

I have many SFH's and Duplex's. But when I talk about $225 a month in rent and the work involved with a new rental, these figure are too small for me, my time could be spent working on more rewarding properties.

But I love 1+1 units. In a "C" class neighborhood, with 2+1 units, you could rent to a family of 3 that multiples to 5 or more in just a couple of years.

I you were to purchase a four unit building with all 1 bedroom units, you could have one of the units rented to someone who is retired and handy. They could, for a discounted rent, look after the property, freeing up your time.

Roy, I am near malfunction junction where all of the interstates connect.

I have a duplex with two identical 1 bedroom/1 bath units. No issues at all. Everything is separately metered. I put a privacy fence up around it with a divider fence in between them so they each have their own private yards.

They had no washer/dryer hookups. So I added large screened in porches to each with washer drawer hookups. I just had to convert the rear bedroom windows to doors so the bedroom leads out to the screened porches. We even installed a car door for the inherited tenant who had a car so he could put the litter box on the porch.

LisaFL, since the yards are separated then why do you not have the tenants mow the yards?

Roy, I picked up something similar this past October at tax sale. It was originally a 1/1 duplex-- living room, kitchen, bedroom, bathroom. The previous owner had knocked out part of the living room wall to make it into a 2/2 sfh, where each bedroom had a private bath. Additionally, there's a 4/1 ADU in the backyard off the alley.

The former owner's right-of-redemption expires in May, so I'm working on other things until the summertime.

In my town, mfh equates to income-based government housing (100% S8), so there's a bit of a stigma attached to it. People like the low rents, but they hate their neighbors. :) Additionally, government housing generally provides things like all-bills-paid... including free cable, which they use to attract people who might otherwise avoid it because of the bugs and druggies. ;)

Because of that, I've got two options: either limited-income fixed-budget senior citizens, or single working guys who work at the local factory. I'll probably opt for the factory workers, despite the higher turnover, since the seniors on SSI are usually in the $710/month range for their income. If they have a spouse or partner, they can manage... barely.

I'm thinking about retrofitting in a second bathroom and a second kitchen, throwing up a wall, turning a window into an exterior door, and carving up the alley ADU into a duplex as well. Then I'll have four units... and one lot, where I pay about $800/year taxes for everything. (It used to be about $250-$300 for the last several years...) But I expect to rent them each out for, say, $395 per unit per month, with electric/water separately metered. (With my lowest-income units, I try to make them all electric, so that they don't have to struggle with a gas bill.) With 100% occupancy (which never happens, of course), the whole shebang would gross about $19k/year.

I'll probably carry the yard care as well, just because those sorts of tenants aren't the ones with free time who like to putter in the yard. $40 x 15 = $600/year for yard care... so maybe I might rent them out for $410/month/unit, yard care included.

The difficulty is, Covid has had a big affect on our local factory, but it's recovering. We'll see if I need to change my plans again as time goes on.

Deanna,

What is ADU ? Additional Dwelling Unit?

Today I visited these 2 duplexes again but without the RE agent. I had an unexpected conversation with one of the female tenants here. She confirmed the rent amounts and that everyone paid their own utilities, including water. She then told me about her unit being rat-infested and that she was going to report her LL to the building dept. and try to have these 2 duplexes condemned!

Today, I saw no reason to bump my offer up any. I now know why the LL/owner wants to sell. His foul mouth white trash tenants have probably worn him out.

I just sold my 1 duplex. In my neck of the woods 1 duplex = 1 SFH in rent so in my mind the duplex needs lawn maintenance where the SFH does not, there are 2 water heaters instead of 1, there are 2 HVAC units instead of 1, there are 2 tenants to deal with instead of 1.

I think for the price point you are talking 1 water heater or 1 bad stove will kill your profit for a year.

Bonanza,

With every purchase I make, I view things in terms of ROCI (Return On Cash Invested). Lets take just one duplex here to make the math simple. Lets also assume I can buy one duplex at $10,000.

With this cash purchase, I would most likely invest another $10,000 in upgrades which could include a WH, some electrical work, some plumbing work, new roof, or whatever it takes to attract a better class of tenant(s) that can afford to pay higher rents.

So now I have a total of $20,000 in one duplex. I can then bump the rents to $350/month x 2 units = $700 x 12 months = $8,400/year. When I subtract taxes, insurance, maintenance and a vacancy allowance, I end up with approx. $6,400.00. $6,400 divided by $20,000 = 32% ROCI.

Where else in the entire investing world can someone get a 32% return on a consistent yearly basis?

ADU = accessory dwelling unit. So yes, it's a second separate residence on the same property.

One of the things that I've found is that rent itself can be used as a screening tool. If I have a marginal property, but I don't want a marginal tenant, I price it more expensively than I normally would just based on square footage or amenities. People who shop at marginal prices will look at it and say, "This much for that place?" and turn their nose up at it, but other people who are less on-the-edge will say, "Oh, it's small, but it's nice." The difference that $25-$30-$40 makes to that class of tenant is enormous and represents eating vs not-eating for a week. I want to rent to someone who doesn't notice a $25-$50 difference to their monthly budget because the impact is negligible.

So-- for example-- I had a little WWII 2/1 cottage. I felt sorry for an elderly couple, and rented it to them for $470. (It would have been $445, but he had a little yippy dog.) They definitely didn't qualify individually, and they were only marginal together, but I felt bad for them, and it was a slow time of year. They'd had a five-year history of living together, had broken up, and were getting back together. I figured they would last another five years because they'd discovered they couldn't get on without each other. Both were stroke victims, with the speech and mental issues that went along with it.

But... I was wrong. His alcoholism got in the way, and her violence didn't help. The police were out there frequently for domestic disturbances. They asked me if they could borrow money so they could eat for the week before their checks hit. They asked me if I could delay the rent. (Yay, ClearNow.) They went off and bought a candy-apple red shiny new vehicle. She was in and out of jail for beating him. He was in and out of jail for beating her. They hated the house. They thought it was beneath them. They were upset that they were paying so much money for such a crummy house. It was highway robbery. The utilities were too expensive and it was making them sick--- never mind that they're running around dressed for 120* when there's snow on the ground because "they don't like wearing long sleeves". And I expected them to (gasp) buy a can of wasp spray when they noticed wasps. (I dropped off a few cans for them when it was obvious they didn't have the $5 to spare.) It was awful. Finally, after one big fight, they both abandoned my place without notice and the autodraft was rejected. I took possession, cleaned it up, and rerented to a nice young guy looking for his first house-- also for $470/month. (No pets, or it would have been $495.) He's been happy as a clam since August.

Same house, no real difference between November, 2018 vs August, 2020. But worlds apart in the tenants. One group thought they were getting robbed at $470/month (and only took it because they were desperate). The other thought that $470 was pretty darn reasonable for a cute little place. One group thought it was small and crummy. The other thought that it was perfectly fine for their needs.

Deanna,

How does a couple who are living on the edge of starvation afford to buy a new candy apple red vehicle? Are the dealers giving these cars away for no money down?

Deanna,

6x6 to answer your question:

I had another duplex (sold last year) which was essentially the same set up just two bedroom units v the one bedroom duplex I still have.

The only reason I cover the monthly mowing cost is because when I bought the place it came with a tenant I wanted to keep and the previous owner included lawn care in the lease. I renovated the empty side and asked the tenant I was keeping if he wanted to mow his side for a reduction in rent. He did not. Had he said yes, I would have rented the other side without lawn care. So I’ve just kept it.

This is Florida. Nobody is going to come on a monthly basis for less than $75-$80 minimum. I pay $80 which I’d pay whether they did the whole duplex or just half of it.

The perk is I hired the same service the previous owner used. He has now become my personal residence lawn service. He takes care of me when I have a need between tenants that I don’t want to do myself. Several of my tenants now use him for their properties. He gives me reduced rates because I use him for three properties now (the duplex, my large two double lot property, and now the extra double lot I bought next to my house where I just demo’d the house that was there because it was an eyesore and I didn’t want anyone thinking they could renovate it and then rent it to desperate unsuspecting tenants- so I bought it, got rid of the house and have another large lot to mow).

Roy, that was one of my questions... "If you're struggling to make ends meet, how did you get such an awesome vehicle?" I never asked it out loud, though, and their biggest concern was that I suddenly build them a carport so it wouldn't get hailed on.

Deanna and others,

My primary road block to buying these 2 duplexes is the fact there is RE agent that separates me from the seller. That what agents do best is separate the seller from the buyers so that buyers/sellers do not piss each other off with low ball offers.

In this situation, I know who the seller is and if I could talk to him face to face, it is quite possible that we could work something out. Then becomes the issue of who pays the listing agent who did nothing more than unlock the front door of one vacant unit. This is the reason I hate dealing with agents when I on the 'buying end' of a RE transaction.

Roy,

I often reach out to sellers without going through the agent. It never hurts to try and there is so much info to gain.

I did exactly that with this duplex I mentioned. The asking price was too high. He lived out of state and had a “property manager” who he also gave the listing to. It was on the market for awhile and likely would have been even longer were it not for me.

I made him an offer and explained why it was what it was. He simply had no idea of the current state of his duplex. He was horrified to find he had paid for repairs multiple time which were not fixed. He had no idea one unit would have to be completely gutted (it was the most horrific property with the most disgusting tenants I had ever seen, animal feces everywhere, roach infested, no working AC or toilet/other fixtures— all he knew is that he’d always received rent).

I explained I could deal with the clean up but not with his tenants, one of whom was mentally ill and violent. I agreed to purchase on the condition he removed them prior to closing. I was kind and understanding and complimented him where I could. I don’t know or care what the realtor thought or felt about our communication because I created a win-win situation for everyone.

I know there was at least one time when we were looking at buying a house early on. It was kind of a niche-y house; it had been heavily customized to be wheelchair-friendly inside. We made a lowball offer of $x. The guy wanted to be rid of it, and take us up on $x, but the realtor didn't like the commission that came with $x. So a cousin of his suddenly came up with a counter-bid of $y... which is, like, unethical and probably illegal.

LisaFL,

I understand what you are talking about but if I were to make an attempt to 'negotiate & to close a deal' behind the listing agent's back, that will PO the listing agent and could possibly create a lawsuit. My best bet here should be to wait it out and if 2 duplexes go back to seller unsold, then I can approach the seller directly at that time. I am in no rush here. The seller here is an investor with about 40 rental properties scattered all over town. Plus, there are plenty of other duplexes that I can look at in the meantime. There is no shortage of duplexes here.

Deanna and Lisa,

There is a dirty little secret in my town about realty agents and that is: they all have their own stable of rental properties and some of these agents have been known to buy their own listings,...which I think is unethical due to agent/client fiduciary issues.

Roy, I didn’t mean to imply the agent got cut out of anything. They were still paid, just got them out of the way. The seller was under contract with them so they still got paid.

Over the years, I have had 3 single family houses. Two 2 bedroom houses on a 105 acre farm that we bought for my late fiance to have a place to hunt. I told him we would need to get a place that we can get rent money from and not spend a fortune for just a vacant piece of land for him to hunt. I wanted INCOME too.

Finally found the farm. It was much bigger at one time, but a couple vacant 35 acre parcels had been bought by others for hunting only. No one wanted the houses. We bought for $72k in 1995 and sold to a doctor in 2006 for $255k, after my fiance started losing his interest in hunting. Sadly he passed away of a heart attack, between the time we accepted the offer and the closing, My attorney and real estate agent still pushed it through for me, but it was a really sad time.

The other house was a huge old house in a small town. Hard to get tenants. No one liked the town it was in.

I would never buy a single family home again. Expenses were just too high. If a property need a large expense, like new roof, new furnace, etc, I would rather get rents from several properties to help cover it than one house. Single family homes do not rent for that much around here. Rents have to be so high to cover expenses in them.

I got lucky a year ago, with my duplex. Had a great couple upstairs with their young son. They had gone through a foreclosure as the payment jumped up on a variable loan and they could no longer afford it. I was leary but they have been one of the best tenants I have had. Never an issue and rent early. When my lower tenants moved out late in 2019, they moved to my 3 bedroom from my 2 bedroom upstairs. I lucked out even more when their adult daughter rented a place elsewhere and the owner had some scary tenants who yelled and partied all night. She was terrified. Downstairs tenants asked about it for their daughter who turned out to be very responsible. She has her own place in the 2 bedroom apt but is able to relax and not be terrorized by neighboring tenants in her own place. Mom and dad were thrilled that she would be just above them. She was thrilled because she felt safe again and also her grandparents lived close by as well.

I loved the way it turned out and with the daughter's experience elsewhere, I can't imagine her wanted to move out again anytime soon. Parents are happy with the situation and so am I. I always get both rents early and on the same day.

Roy - Well done with the price you offered and the conversation you had with the Realtor.

If I may, how did you come up with the 20K offer?

Deanna - So that's one of my big rules--- never rent a place to someone who doesn't appreciate it.

Could not agree more. When I am doing a walk-thru with a prospect I am always looking for the positive comments.

PG said,

"If I may, how did you come up with the 20K offer?"

Great question PG and I will give you an answer but not here on this post. I want you to make a new Post asking me that same question,...my answer revolves around a school of thought based on years of experience in making offers on fixer-uppers.