Resident/Landlord

[JMD2929]

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As a current 3rd year, my (non-medical) fiancee and I have begun to think about buying a home after graduating from med school. We've been toying with the idea of purchasing a 2-family home - living in one unit and renting out the other. I will be an intern, and my wife will be working a full-time job. My concern is that, while potentially a wise financial move, we may be in a bit over our heads by adding the responsibilities of being a landlord on top of the strain of residency plus a full-time job. Are there any current residents who have tried this type of arrangement. Did it work? Do you have any regrets? Any experiences and/or opinions would be much appreciated... thanks a lot!

JMD

 

[Coach]

As a current 3rd year, my (non-medical) fiancee and I have begun to think about buying a home after graduating from med school. We've been toying with the idea of purchasing a 2-family home - living in one unit and renting out the other. I will be an intern, and my wife will be working a full-time job. My concern is that, while potentially a wise financial move, we may be in a bit over our heads by adding the responsibilities of being a landlord on top of the strain of residency plus a full-time job. Are there any current residents who have tried this type of arrangement. Did it work? Do you have any regrets? Any experiences and/or opinions would be much appreciated... thanks a lot!

JMD

We've considered this too, but came to the conclusion that one way or another I would end up pissed off and despising my tenants. Can you imagine what you would feel like if they didn't pay rent on time? Muchless if they did something that screwed up the place? There are too many stupid people out there. Of course if they are some young college girls....

 

[CoffeeFreak]

I am pre-med and I spend all my time as a professional real estate investor. You need to pull your credit report to get your score, get the middle score, should be about 720 to get a really good interest rate. Then check out www.realtor.com to find a 2,3, or 4 plex in the area you are considering. You will need to put down at least 10%...you might be able to put only 5% plus closing costs. Check out the newspaper for rental rates in the area. Determine if the deal will "debt service"...yes if you do it right, it can be a good gig. You get appreciation of the home, pay down the mortgage and the fat tax deduction. They are some other details here but in the end, if you do it right than it can be a swift move....IM for the details and stay away from those corny purple books at B&N..they suck. Try you local banks and NOT A MORTGAGE BROKER as most of them are con-artists.

 

[shorrin]

ing direct has great rates. what location are you thinking of moving to? Believe it or not you can get tax breaks depending on your particular location... There's so many ways you can make it work out well for yourselves.

As for tenants, get a couple of pre-meds, they should be anal/studious enough to not cause a big fuss 😉 jk..

 

[ockhamsRzr]

ALso a premed, but at 35, a non-trad who had a career and real estate investments along the way. My wife and I owned a a two-family house that was a pure income rental and another two-family in which we lived upstairs and rented down. Both houses are in Boston and here's what we learned over two-three years as landlords/resident landlords.

It can be way, WAY more work than you think it will be, want it to be, or makes it worthwhile to your bottom line. Our pure rental when it was good was paying for itself and paying us $800/mo. However, one month without a tenant downstairs, emergency plumbing and electrical, and the high price of oil last winter had us operating in the red for most of the winter. Two units of tenants almost always guaranteed that some issue would come up every month. The house was older so it was sometimes a fuse at exactly the wrong time (10pm on a friday after being exhausted) or some other issues that demanded our time when we least wanted to give it. To make a long story short, we sold that house this past spring. I would say we made about $50k over two years on that house but it was a frequent frustration.

Our primary house is a very different story. We have a single, middle-aged lawyer who is very quiet when he's home and frequently is gone. He pays more than half our mortgage and we've never heard a peep from him. Our kids play in our yard as if no one else lived there and when we see each other we smile and chat. It is a very nice arrangement. However, with two little kids we were VERY selective in our choice of tenant. We didn't want a couple or pets, or two students, etc. We found exactly what we wanted and it has worked very well.

So, I would recommend doing it because it means you really can afford more house that if you had to swing it all on your own (and you can always convert back to a 1-fam when you are more liquid, and then rent again if you move/retire). As long as you are really, really diligent wilth your tenent selection you can have a nice setup. One thing we have done before though is to make yourself anonymous. That is, hire an agent to rent your place and act as if you are NOT the owner just another tenent. In this way, if your tenant finds out that you are a doctor and own the house, a nice deliberate trip on a rock while walking up your front walk might equal a liability suit because they know you have (or will have) deep pockets. Liability is at least the one thing you will have as soon as you rent a place to someone else.

On the bright side, if condos ever get hot in your area, a two family becomes two condos very easily and your return on investment can be huge. All in all, I would counsel people to go for it, but with eyes open. It is not easy and we made a lot of mistakes before getting a the placid situation we have now.

Good luck,

ockhamsRzr

 

[JMD2929]

Great feedback, guys...very helpful. We'll (hopefully) be looking at the Boston area as well. A couple of follow-up questions, if you'll excuse my ignorance...

CoffeeFreak, what do you mean by "debt service"?

Without getting into too much detail, how do the tax breaks referred to work?

ockhamsrzr, how did you go about "selecting" your tenant? I'd love to be able to handpick my tenant, but I fear being on the wrong end of a discrimination accusation. Also, would you say the key in minimizing potential frustration is a good tenant, lower maintenance home, or some other factor?

Thanks again!

JMD

 

[ockhamsRzr]

ockhamsrzr, how did you go about "selecting" your tenant? I'd love to be able to handpick my tenant, but I fear being on the wrong end of a discrimination accusation. Also, would you say the key in minimizing potential frustration is a good tenant, lower maintenance home, or some other factor?

Hey JMD,

We found there were two ways to select tenants: personally and via an agent. We were also leary of a discrimination suit, though if you are an owner-occupant you can essentially turn down anyone for any reason (a big plus for living in your investment). On the personal side we took out an ad in the Boston Globe and just interviewed folks. From the rental aaplication we ran an online check that looked at credit report and criminal report--we payed like $29 for the service and it's completely legal. Assuming an applicant passed that criteria we would then consider what kind of vibe we got from them (usually easier than you think). Some people are very up-front about being a great tenant and brought references etc from prvious landlords. We also ask about their jobs (stability), friends (parties), hobbies (are they away often) and travel.

Working with an agent is also nice because they are working for you. A good agent will basically want to know everything you want and everything you hate, and they will work really hard to deliver candidates that will work for you. A good agent can save you a ton of time and hassle, and that is what we do now after going the "personal" route first.

Minimizing potential frustration is handled best by the two examples you mention: good tenant (personal issues) and a house in good shape (financial / personal issues). A good tenant can turn bad if his/her heat is broken, a burst pipe ruins their belongings, or ants rule the kitchen. Also, renovations with a tenant can cause ire because noise, dirt, and contruction workers (all normal for new home-owners) were not part of the lease they signed. So, assuming your house is tight and you've selected a tenant that you can live with, I think the two-family is basically the single best investment you can make.

Finally, because my wife and I were both renters before we became landlords, we feel very strongly about staying out of our tenants lives and space. We always let our tenants know in advance if we need to get into their apartment, why we need to do so, and when we'll be out. We always shovel the snow, clear their walks, take the trash out, and sign for UPS/Fedex stuff. We've learned that those things go a long way toward making the relationship a happy one.

Good luck and if you have more Boston-proper questions, please ask--we're in Jamaica Plain, and I work in the Longwood area.

Ockham