Living in own rental duplex?
April 27, 2012 7:31 AM   Subscribe

My wife and I are in a position to possibly buy the duplex we have rented for many years. Ownership would entail renting the other half of the building to a tenant. That half is currently unoccupied. We have never been homeowners or landlords before. Has anyone ever lived in the same building as their tenant? I can think of both perks and nightmares. Any considerations or advice to the reality of that scenario? You are not our lawyer, etc. Thanks.
posted by anonymous to Work & Money (21 answers total) 6 users marked this as a favorite
I have not been in that situation, but my last house was next-door to that situation. I think it can be hard to raise the rent on people you see every day, especially after you've shared a house for a few years. But raising the rent becomes necessary, because repairs and maintenance keep getting more expensive.
posted by jon1270 at 7:45 AM on April 27, 2012

I have not lived in the same building. I bought a house I was renting, then later moved and rented it to friends. Perks and nightmares; you may not get either, but that’s what you should expect. That’s what I got.

My friends pretty much trashed the place, but they didn’t bug me, and after we remodeled the whole thing we made a big profit on it.

At least you’d be close by, and the chance of them pulling anything crazy is pretty low when you’re right next door.
posted by bongo_x at 7:49 AM on April 27, 2012

I have done this, and I think the perks outweigh the nightmares. The nightmares mainly involve if you have a bad tenant you can't get away from them (until you evict them). But at least you are learning early they are bad and can hopefully replace them all the sooner. It's important to have a good lease and a knowledge of tentants' and landlords' rights in your jurisdiction. Otherwise it's a lot like living next to or under or above anybody else, except you have the leverage of ownership and they have the leverage of paying rent. I found it much easier to shrug off the hammering sound of my tenant's high heels on the floor above because she contributed so much toward my mortgage payment! I imagine they sometimes felt the same way about my baby crying at all hours, but they were getting a lovely apartment in a good location for a fair price. Of course, I lived in a rental market where I could afford to be choosy. Also, be aware of the tax repercussions. Only half your mortgage interest will be deductible. You'll have to file Schedule E for rental income (certain repairs will be deductible), and when you sell, you will have to pay taxes on half the income (for a single family home, up to 500 grand is tax free).
posted by rikschell at 7:51 AM on April 27, 2012 [2 favorites]

I've lived in a duplex with my *landlord*... honestly for us it was pretty much the same as any other landlord-tenant situation, except instead of mailing them our rent check we stuck it under the door. Oh, and sometimes we would get rent checks stuck under *our* door from people renting other properties from our landlord.

Also, we were really careful about notifying them if we were having a party or something, possibly more careful than we would have been if the other people in the house were tenants like ourselves.
posted by mskyle at 7:55 AM on April 27, 2012

That half is currently unoccupied.

How long has it been unoccupied? Why has it been so long? How much effort has been going into getting it occupied? How long can you afford to have the other half unoccupied?

Despite all other advice given, this may be the most important, as it cuts straight to the reality of your first possible struggle right off the bat.

You want that other half to be pure income, not part of paying the mortgage or covering repairs, because if it remains unoccupied, well, you see where this is going...

Maybe that is why the building is for sale in the first place?
posted by TinWhistle at 8:06 AM on April 27, 2012 [3 favorites]

I think it can be hard to raise the rent on people you see every day, especially after you've shared a house for a few years.

Generally, the solution here is just to have regular, small rises in rent, like 2%-4% each year. That way you're prepared when maintenance and repair issues come up, and the regular rent increases are part of the overall renting relationship.
posted by deanc at 8:10 AM on April 27, 2012 [1 favorite]

I've lived in this situation (landlord lived upstairs, three of us grad students rented downstairs). It was a perfectly fine experience. Issues were taken care of promptly, we were friendly with each other (but not FRIENDS, like buddies), and it was convenient to just slide the check under the door or give it to them on the way out the door to work.

Those wonderful landlords moved out, and sold the house to some off-site landlord. It was impossible to track him down. When we finally got him on the phone, he was rude and demanding. We all longed for the days of the nice landlords living upstairs.

On another note: I was in the situation that you are in not that long ago. I found a neat house I was considering purchasing - an upstairs-downstairs duplex. I hemmed and hawed about it for months. In the end, my desire NOT to be a landlord won out over my desire to own the house (which wasn't that strong to begin with). I don't want the responsibility, I don't want to be the "bad guy" when it comes time to collect/increase rent, I don't want to deal with the legalities of what to do when a good tenant goes bad. And after all these years of renting, I just don't want to deal with it anymore - either as a landlord or a tenant.
posted by Elly Vortex at 8:20 AM on April 27, 2012

I've done both and not had any problems either way. When I rented from my landlord, it was nice to have him on premises if anything went wrong, which it occasionally did. He took care of things right away, and the place felt well-maintained. Now, we rent the other side of our house, and through four years and three tenants (all female grad students or recent grads) we've never had a problem. The biggest pain, honestly, has been deciding to pay an accountant to do our taxes because we didn't feel like figuring out depreciation on the property and what we can and cannot you can see I have no idea what I'm talking about. So the accountant has helped.
posted by CheeseLouise at 8:28 AM on April 27, 2012

Invest the time in making sure you have a good tenant. Don't just take the first person that shows up with a cheque.

We held an open house and had prospective tenants come by to view the apartment during a 2 hour window on the weekend. I liked this strategy versus having individual appointments because it didn't put me on the spot if someone I didn't really "like" was interested in the apartment. If someone said they were interested, they left me an application and let them know we'd be making our decision after the open house. There were many, very odd prepared.

Do a credit check on the applicant you're most interested and definitely check their references, closely. Don't just accept referernce letters as legit. Make phone calls and follow up on the references even if the potential tenant seems like the nicest person in the world.

We rented out our apartment to a super awesome university student for 5 years. Never raised the rent on him once because he was an awesome tenant.

Good luck!
posted by caroo at 8:34 AM on April 27, 2012

As a renter, and a young professional, I do not rent property where the landlord lives in the same building or next door. Close by in the neighborhood is fine and actually helpful though. I have no intention of trashing a place, but I also value my space and privacy, and don't need to hear nagging reminders from my landlord to keep music down / pick up cigarette butts / concerns over having visitors over or taking up on-street parking. If neighbors have issues, they can raise them with me or the police.

Now, on the flipside, this may be a reason for you to WANT to live close to your tenants! But like I said, nothing I do is costing my landlord money or depreciating her property. I just don't need a naggy mother telling me how to maintain my home, and if you just keep a vigilant eye out while not butting into your tenants lives, you'll probably be fine.

Big +1 on being friendly, but not friends... its a business arrangement. Although I appreciate the fact that my landlord feels bad about upping my rent and is easily talked out of it!
posted by el_yucateco at 8:44 AM on April 27, 2012

I've done this as a landlord. Just add in making some room-mate-type judgment calls when finding a tenant, as they are going to be a bit closer to you than a regular tenant, but more distant than a room mate. For example, if you like quiet nights, make sure you rent to someone who likes the same.

The benefit of this is you get to pick your neighbors, and they are going to be a bit better behaved knowing you are right next door. The downside is that they may come to you more for help since you are right there, but that's never been a big deal for me. My tenants have all been wonderful.
posted by Vaike at 8:45 AM on April 27, 2012

We're about 5 years into duplex ownership. It's usually fine. The only awful tenants we had were the ones for whom we made a bunch of exceptions to the normal rules because we saw a nice young couple that reminded us of ourselves at that age. Aw, we'll cut them a break because they're sweet. Big mistake.

You need to set aside your natural inclination to bend over backward to accomodate people. Everyone likes being nice to strangers, but in this case you're locking yourself in to a long-term relationship without knowing your partner. If you don't treat this like a business transaction, it *will* bite you in the ass, so...

If the money isn't critical or you're not sure about the tenant, don't sign a one year lease. Set it up so that either party can give 60 or 90 days notice. Eventually you're going to have tenants that suck, but maybe not in a way that allows you to evict them. It's good to have an out.

Oh, and eviction? Rarely a quick process, so screen your tenants like a psychopath. Set your rent low enough that you have a lot to choose from. Do a background and a credit check. Call their employers and current landlords. Stalk them online.

The lease is where you set expectations. It's there to protect your sanity and property, as well as the tenant's privacy and sense of "home". Be explicit about your ground rules in the advertisement and the lease. Assume they're going to be awful and over-restrict up front, then make exceptions after they turn out to be nice people.

Examples of the level of detail we're talking about: No loud noise after 9pm. Only one person may live there. No use of the yard. Use of laundry on tuesday and wednesday. No guns. No changing the locks. The landlord will give 3 days notice before entering and only enter with the tenant there, unless it's an emergency. Cat (singular) is the only pet allowed. Stay out of the driveway. No painting without permission. Keep the storm windows on until I take them off. No smoking, space heaters, candles or using the fireplace. No illegal content on the wifi (I keep logs). It needs to be as clean and well kept when you move out as when you moved in. Photograph the heck out of the place and give them copies of the pictures with the lease so there are no questions later.

I include all that in the CL ad. Tenants self-select. We get lots of nice grad students, quiet artsy types and people who want an apartment for when they're in town on business. Exactly the type that fit with us and the quiet neighborhood. Which reminds me: if you're the only duplex on the block, remember this person is representing you to your neighbors. Homeowners tend to view renters as transients that trash the neighborhood. All the more reason to choose tenants carefully.

Finally, understand the tax and regulatory implications. What's it cost to renew a certificate of occupancy? How do you want to handle depreciation of the apartment? Is it currently up to code? Are duplexes conforming uses, or did the city grandfather your second unit in when it started/changed zoning?
posted by pjaust at 9:17 AM on April 27, 2012 [1 favorite]

My parents have done this for years. They live on the first floor, and they rent the top two floors out. They have a friendly relationship with the tenants, but honestly, they don't see them that much.
posted by ablazingsaddle at 9:25 AM on April 27, 2012

The downside is that they may come to you more for help since you are right there, but that's never been a big deal for me. My tenants have all been wonderful.

We have a single family dwelling with a detached garage and a one bedroom apartment behind the garage.

We want the tenants to let us know if something's wrong, because otherwise, cheap repairs turn into very expensive ones!
posted by leahwrenn at 9:25 AM on April 27, 2012 [1 favorite]

I've also been on both sides of this, as a tenant in an owner-occupied building and as the owner of the two-unit house where we've lived for the past year.


For the type of tenants you want to attract, having an owner on-site could be a plus. My best experience as a tenant (stayed four years) was when we lived directly above my 30-something landlord who was very handy and business-like (also friendly but not overly so). We also looked at (and decided not to rent) a poorly-maintained apartment above a 70-something landlord who even when we just went to look at the apartment would not let us out of her conversational clutches for an hour. And if we had still been younger and thrown more loud gatherings, we would never have even looked at landlord-occupied places.

Along the same lines, one of our major reasons for buying a multi-family rather than just buying a condo in a multi-family house (most of the housing stock in our area is 2-3 unit multifamily) was the ability to control who the other people in our building would be (with certain restrictions against discrimination, etc., obviously). And it removed the issue of having to deal with condo fees for a 2-3 unit building, which can get cantankerous very quickly.

A major perk that we're ultimately aiming for is for the rental income to exceed the mortgage, especially if we can pay the mortgage down early. Also rental income in a stable area is pretty inflation-proof, and its nice that rent will continue to go up while the mortgage stays the same (although taxes and insurance will go up I'm sure). The previous owners lived in one of the units until they could afford a downpayment on a bigger house, and then used the rental income for the house to send their kids to college.

Things to watch out for:

Unless you are handy or willing to learn to be handy, the rental income could be significantly less than you expect. This becomes more of a problem if the apartment hasn't been well-maintained, as that just means a lot of ordinary maintenance things will come up at the same time. To some extent, this is just a general homeowner thing, but magnified when you are responsible for multiple units.

You should try to have a cash reserve, for repairs and in case your tenant bails and you have a vacancy you can't fill right away.

It took me a long time to become comfortable with the legal side of things, but that may be because I am a lawyer (but not your lawyer!) and overanalyze everything. You might look to see if there is a small landlord association you could join and use as a resource, or a publication that you could get. I bought an excellent guide through my local real estate board. (Massachusetts Landlord Survival Guide just in case you're also in Mass.). I spent a lot of time on the lease to make sure I had something to point to in case of disagreements. Watch out for restrictions on what you can and cannot put in the lease.

Good luck! For what it's worth, we've so far been really pleased with our decision, but we also know we have to a certain extent gotten lucky with great tenants.
posted by ReBoMa at 9:49 AM on April 27, 2012 [1 favorite]

I'm a landlord, and I would never do this. It would depend entirely on the tenants you get, but even without living next door the right kind of tenant can make your life very difficult. On the opposite end, some tenants can be really timid toward the landlord and having personal contact with them might make them feel even more discouraged about telling you about problems that you really need to know about.

If you're already financially stable enough that the rent fromt he other unit is just a perk, though, then you can afford to be picky about choosing a tenant. In that case, I'd consider it.
posted by cmoj at 11:36 AM on April 27, 2012

We want the tenants to let us know if something's wrong, because otherwise, cheap repairs turn into very expensive ones!

Yes. I told my friends that I didn’t want to be a landlord, so don’t bug me about little stuff. They didn’t. They took it to heart and didn’t tell me the whole place was falling apart and we had to rebuild it when they moved out. Lesson learned.
posted by bongo_x at 3:03 PM on April 27, 2012

You are more likely to get good tenants if you live on the premises. A bad tenant who is noisy or often damages property is less likely to rent under your watchful eye. A good tenant who will report little problems before they become large problems is more likely to prefer the convenience and access of having you there.

You will have less privacy and more annoyance than if you live somewhere else in a single family home, but you will not have to make regular trips to the property to see that something is going wrong, and you will not need to rely on the tenants to let you know something important has happened, such as a sprinkler running non-stop for three days or a light out in the common area.

For a new landlord, I would personally consider living on the premises to be better than not doing so, provided your unit meets your needs.
posted by daveowenville at 4:09 PM on April 27, 2012

You can always hire a property management company to handle it for you. Your next-door neighbors don't even have to know that you own the place, especially if you create an LLC and transfer it over once you purchase the property.

I have been a landlord and that's the strategy I would use. I hate dealing with needy tenants!
posted by Ostara at 6:17 PM on April 27, 2012

We bought a duplex to move there and have tenants above us. It has been three years. I can safely say this has been a really good financial decision. Our worst tenants were those who were already there when we bought the duplex (lots of screaming and crying at night, a couple visits from cops, yes, at that point if it was not that they were literally paying 3/4 of our monthly mortgage I would have thought about moving...).

Once they were gone, we became really zealous about interviewing our new tenants (credit check, calling employers and previous landlords, etc). I learned a lot about how to maintain and repair every aspect of the house. It has allowed us to make a comfortable first home purchase, and when we'll move with the two rents we'll be able to re-finance the house to get a cash down and the duplex will still pay itself. However, we put a bit more than mortgage+taxes every month for emergency repairs (we already had a couple of big ones--think roof, well pump, that kind of really important stuff that can't wait!) and in case we can't find tenants or they stop paying us (in our province tenants can get away with not paying for a long time before you have the right to kick them out...).
posted by ddaavviidd at 7:59 PM on April 27, 2012

Go to Mr. Landlord (horrible interface but useful info) and BiggerPockets and read about all the stuff that can happen when you rent out property.

Also see if there's a local landlord association, they are usually very helpful.
posted by Melsky at 5:27 AM on April 29, 2012

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