My duplex purchase! Money details + Q&A (2024)

That all out of the way, here all all the details and pretty much everything I know so far:

How did you get to the point where you can buy a house by yourself?

In case you didn’t know, I’m a 32-year old woman who makes around $50k a year from my main job (a communications coordinator at Texas A&M University, and $10-20k a year from my small business (Budget Girl).

I have no debt (anymore), I have a boyfriend (and two dogs) but no kids yet, have saved a big emergency fund and currently save/ invest about 40% of my income by living frugally and budgeting every dollar to help me be very intentional with my money.

I consider myself extremely blessed and have worked hard to create this life for myself. When I started Budget Girl six years ago, I was $33k in debt and made $25k a year before taxes.

See my beginnings here:

Since becoming debt free, I’ve jumped head first into learning more about investing and building wealth. I’ve done tons of research, read financial books, met amazing people in the space and decided that I wanted to make a new big honking money goal. (Because I’m ambitious as heck and why the heck not?)

Investing is great, and I’ve learned a ton, but it doesn’t get me excited. I buy and hold primarily index funds and contribute a steady amount regardless of what the market is doing. I have some money I invest in single stocks “for fun” but I don’t really care. (sorry stock market lover friends!)

In my research, I learned that most successful people have their hands in a lot of different pots… one of which is real estate investing.

Why real estate investing?

Some people might think that most people who own and make money from rentals have huge salaries, deep pockets or something similar. I had never really thought about it – I’ve been a renter my whole adult life and have never been in a place until now where I could even conceive of buying a home being a financially responsible thing (aka having the means to handle any household replacements, fixes, emergencies, etc. on top of the basic costs of owning a home).

So how can a normal person, with a middle class salary make money in real estate?

Well one way is house hacking. Which is buying a property (or properties) and renting out a portion of it to contribute to or cover the mortgage. Some people do this by renting out a room in their home, or by buying a multifamily property instead of a single family home and living in one of the units while renters in the others pay the mortgage.

Now being in a good financial space, the obvious next step for me is to buy a home and let my money that is currently going to renting go into something that I’ll have equity in. But I also realized that I don’t need my “dream home” right now.I am cool with living pretty much anywhere, and with that comes options…

What is your Master Plan?

So that decision let me think like an investor when shopping for my next digs. I decided to buy a 2, 3 or 4-plex, live in one unit and rent the others out. I’ll take the money I’m saving on housing costs to pay down the mortgage to a point I’m comfortable at and then save up for my next place. Then I can rent out all the units in the first home and net a monthly profit off of the place while having the mortgage and expenses paid in full. (We’ll get into incidentals later).

How long have you been looking?

I’ve been saving up and shopping for multi-family properties for the better part of the last year. I’ve seen about a dozen properties including duplexes, triplexes and some quads in the Bryan-College Station market, mostly to see what I could get for my ideal budget of around $200k.

Check out this video to see some of the places I’ve looked at and the general market including prices and area info.

In February, Jacob and I received notice from our landlord that rent would be going up over $300 per month after our lease ends in June. We were paying lower than market rate due to an issue from a few years ago (see video below) and that rate was expiring.

I’m not mad about the rent increase and understand as a future landlord the need to get as much money from a property as possible. I looked at my savings and decided that it would be possible and possibly a good financial move to buy sooner rather than later if I could find the right place.

I had seen one place that was a good option, but I wanted to find a place that was had as many of my wants as I could get.

Wants:

• Multifamily
• Good/ safe neighborhood
• Growth area
• Proximity to university/ college/ hospital
• Ideally at least 2 bed and 2 bath
• As new as possible (many of the homes I was visiting were from the 70’s and 80’s, with one from the 40’s.)
• renovated or easy enough to cosmetically renovate
• newer roof
• no foundation issues
• Enclosed yard
• Parking
• Well insulated

Remember I’m thinking as a real estate investor here, not as a person looking for their dream home. So the ability to rent the units out at a good price and profit over the next few decades supersedes any personal preferences or cosmetic “likes.”

For instance, I LOVE lots of giant windows. That was not on the list as it doesn’t really affect the ability to rent out/ profit off the place.

How did you find the place?

In early March I stumbled upon a listing I hadn’t seen before – despite having all the Zillow alerts set and being on multiple MLS listing services.

It was in a growth area within a decent distance to the university, nice neighborhood (though a few streets over was a tad sketchy), the price had recently been lowered (which may be why I hadn’t seen it before).

How much is the house?

Purchasing price: $230,000

The house was on market for $240,000. I put in an offer at $215,000 hoping the owners were motivated to sell. After negotiation , we landed on $230,000.

Are you buying the home by yourself?

Jacob (my boyfriend of 3 years) is great, but he’s got his own financial priorities (student loan debt), that he’s working on right now. I’ll be buying this home completely by myself and be the sole landowner and landlord.

How big/ old is it?

It’s a 3 bed, two bath on each side of the duplex, with 2,400 square feet total, small private enclosed yards and 6 private parking spaces. It is less than 25 years old with a nearly new roof…. (most of the other units I’d looked at were 40+ years old. )

Some renovations were done to update the living rooms and kitchens on both sides and one of the bathrooms on one side. Some renovations weren’t done quite properly and need to be fixed, but these are minor cosmetic issues.

How do you deal with current leases when buying rental property?

A huge pro to this house is that it is owner-occupied, which means I didn’t have to “time” my buy to when the leases end. I skipped looking at many other options because the leases on both sides had recently been re-upped for another year, meaning I could not move in and therefore couldn’t get a loan on the place. (You have to move in within 60 days or it’s considered an investment buy, which necessitates a different type of loan, much more money down and higher rates.)

The other duplex unit has a tenant with a lease that won’t expire until 2021. I’ll inherit that tenant and have to respect the lease they signed.

What if they don’t pay?

I’ve run test budgets (big surprise, I know 🙂 for a variety of different circ*mstances including if the renter’s don’t pay, if Jacob doesn’t pay (yes he’ll be paying me rent to live in my house), and other scenarios.

The great news is that I can afford the full mortgage completely by myself only on my day job income. It would be around 40% of my day job income (aka not including Budget Girl or other side hustle income, or a paying renter). This is slightly above the recommended 30% max many experts recommend for home costs, but once again. this is a worst case scenario calculation. In the scenario where everyone pays, the total mortgage would be around 25% of my total income.

Currently I pay 18% of income on rent and utilities (much of that is electric as my home is not well insulated), and save/ invest 40% (once again before Budget Girl income). Were a renter to squat or there be a reason I couldn’t rent the place for an extended period, I can simply bump down what I’m saving/ investing and could pay the full mortgage by myself indefinitely.

This is not including my option to dip into my personal emergency fund or my soon-to-exist home emergency fund, which I plan to start funding immediately upon moving in for the case of repairs, maintenance issues or non-payment.

I chose a home that was well within what I felt comfortable with (essentially less than 5 years’ income) specifically so I could pay the full amount of the mortgage if I needed to.

What type of loan are you getting?

I’m getting an FHA loan. Why? Because while my credit and financial situation easily qualifies me for a conventional loan, there are downpayment requirements (15% for duplexes, 20% for 3 doors+) for conventional loans on multifamily properties.

What rate are you getting?

3.65% I locked in just before the rates went back up and I’m glad I did. I did miss out on the high twos-low threes that happened right as the stock market crashed in mid-March, but I had not gotten inspections done on the property yet and was having two lenders compete against each other for my business.

I’m still super happy with 3.65 % and can easily afford that interest. (My student loan interest was 7.7% by the way.. ugh.)

Are you doing a 15 or 30 year loan?

30. (I will respond to all Dave Ramsey related questions below, Keep reading!)

How much are you putting down?

3.5-5% Everything isn’t finalized. This may seem like a small amount to put down. FHA requires only 3.5% and with the state of the world right now, having more in the way of cash reserves seems like a good idea. The difference in payment between 3.5-5% by the way is about $20 a month.

I still have the option to pay off the loan early with no penalties, pay extra to the mortgage, etc. I’m mainly being conservative because of the current pandemic and world affairs.

I thought you were a Dave Ramsey fan. Why aren’t you putting 20% down?

Math and opportunity. I’ve saved just under $20,000 for a downpayment, moving and closing costs… without having to touch my emergency fund. 20% of $230k is $46k. I just don’t have that yet. And it would take me at least two years to save it.

The main reason Dave says to put 20% down is to avoid paying something called Primary Mortgage Insurance or PMI. PMI is a type of insurance your lender will requires to “insure” that they will get their money owed. For this loan it will cost $155 per month.

As of July, if I stayed a renter to save up the full amount I “should” have according to the Dave plan, I would have to pay an additional $300+ per month or move to a smaller, but still more expensive apartment.

Essentially, I could either pay $1000 a month to rent (split with Jacob) for the next two years, or be putting that money at a home that I own, have renters paying a large portion of, and am building equity in.

In my ideal scenario, which I have every reason to believe will happen (having verified my renter’s payment ability) I’ll actually be paying only $150 per month to the mortgage out of my pocket, and an additional $500 to my house emergency fund (which will be redirected as an extra principal payment after saving a comfortable house savings). (At least for a while, more on that later).

On Dave Ramsey…

I’m a big fan of Dave Ramsey and credit him with a lot for me being able to pay off my student loan debt and get started into personal finance.

He offers a (no offense intended) stupid-simple plan for getting your finances under control. Which is exactly what I needed when I was scared, unemployed and in huge student loan debt when I was 25. It worked for me to prioritize debts via the snowball method. It cost me a little in interest but it helped me feel a big win paying off a smaller debt first.

Dave is huge on simplicity. I think it’s because a lot of people try to mental-math and hack themselves out of bad financial decisions. If you’re trying to track points on 5 different credit cards, that makes it harder to prioritize simply paying off debt, budgeting and the other basics that are key to mastering before you get more complicated.

Here’s how I see things, if you follow DR’s plan to the letter, you will be successful. It is no-fail.

But it is not the ONLY way to be successful.

After I got out of debt, I started using credit cards RESPONSIBLY. AKA paying them off in full each and every month. (i’ve never paid a cent in interest) to keep my credit high for the day I’d need to buy a house.

Yes manual underwriting exists, but as explained to me by multiple lenders, this forces lenders to calculate a credit score for you for them to work off of. That faux credit score can’t include factors important to the score like length of credit. Essentially, you won’t get as good a rate. Sorry.

I also started reading other info on building wealth and researching other methods. FIRE (Financial Independence Retire Early), BRRR (Buy, Renovate, Rent Resell). And looking to other experts for options that might be better for me considering my age, stage of life, interests, etc.

Dave also doesn’t talk about multifamily properties. His advice is catered toward normal purchases of single family homes and more traditional financial journeys.

Essentially, I’m not following the Dave plan anymore. I have huge respect for the man and have nothing negative to say about him or his formula. I just reserve the right to keep learning, growing and deciding how to manage my personal finances based on my goals, priorities and situation.

Buying a home in the middle of a crisis is wrong/stupid

That’s not a question… but I wrote this blog post so I’m partially responsible for that 🙂 This is a statement I’ve received since talking about this online.

Let me be frank. I’m not benefitting from this crisis as far as my home purchase goes. The home price was negotiated before the U.S. started taking this seriously, and the inspections and repair negotiations were done before shelter in place was ordered.

I missed out on the mortgage rates bottoms because I wasn’t ready to sign at that time. (Inspections hadn’t been done yet.) I got a decent rate, but it’s around what I was estimated to get anyway given my financial situation.

I’m also helping the local economy and businesses by buying right now. That’s money contributing to the local real estate agent, lenders, bonding company, inspectors, apprisers, etc. Everyone is still working in those sectors, because they can’t get paid if they don’t. They’re using technology and proper safety to get things done right.

You shouldn’t buy now, a recession is coming and houses will be half-off/ you’re doomed.

Yes, the world is having a rough time right now. It’s unprecedented and no one can be sure what exactly is going to happen after all this. The economy is absolutely going to be and is already affected.

But here’s my thinking. People have always and will always need places to live. There is a chance that the worth of my home could go down. That is what happened during the last recession in 2008.

But that recession was caused in part by a housing bubble built on giving home loans to people who could not afford to pay them. That isn’t the case here… and also, I can afford to pay my loan (in full if necessary with no renter income). I’m not buying more home than I can afford.

My reasoning…

There is also no reason to assume that housing prices will drop due to this crisis. March statistics for California came back with housing increasing in value by 1% recently,. This is often the case when loan rates drop… housing prices rise.

There is also the fact that you only lose money on housing prices going down if you sell then. I’ll have just bought this home if we go straight into a depression. My loan will be locked. if the appraisal value of the house goes down for a couple of years, I’m not really worried about it.

I plan to own this duplex for decades. The market will rebound, recessions end. In the meantime I’ll be living in affordable housing and building equity… while also having the asset of a rental unit that I’ll control the pricing on. It’s not a bad place to be.

How long will you live in the duplex?

Right now the plan is to live in the duplex for at least a few years. But I’m not opposed to longer.

The fact is, while I’m living in it, I’ll be benefiting from reduced housing cost. But when I move out, I’ll start making a profit off the place monthly. Renting out both units at or around market value would net me $500-$700 per month over the total costs of the mortgage, insurance and taxes. This doesn’t factor in how much local rental rates will increase in the coming years.

A $500-700 monthly profit would cover any incidentals, repairs, etc on the property and be a great additional income source. I can use that to pay down the mortgage quickly or fund other property.

Will you pay it off sooner/ refinance?

Possibly! I’ll definitely refinance once I’m at 20% equity on the property to get rid of PMI and lower my overall costs. It will also increase my profit margins.

So I plan to pay down the duplex to that point, then focus on building up funds for my next place.

This is why a 30 year mortgage and PMI doesn’t bother me. I’ll still be making profits off the unit, which will only increase as I get more equity. A 15-year would ramp up the amount of payments. I’d own it sooner, but I’d be losing out on opportunities to purchase more homes during those earlier decades.

I don’t plan to over-leverage myself by buying up a bunch of homes and getting my notes called as Dave did once. I plan to slowing and carefully increase my doors and build a small portfolio of properties.

This may sound crazy to you. Possibly because you think I’m taking a ton of risk and debt . Or because you think I’m not being aggressive enough. This is fine. I’m not telling anyone else to do this unless they have similar goals and dreams. I’m planning on sharing the wins and fails along the way and doing what is right for me. I’d love it if you followed along.

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Discuss

Let’s talk in the comments below: How have your financial goals changed across the years?

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