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Ask Dave

Don't Take This Deal

Roman's landlord proposed the idea of buying the duplex he and his wife live in. Roman would manage it for two years. In return, his rent would go toward a down payment. Dave doesn't like this plan.

QUESTION: Roman in Alaska and his wife live in half of a duplex. They pay $900 a month in rent plus $300 for utilities and services. His landlord proposed the idea of buying the duplex. As part of the deal, Roman would take on responsibility for managing it as well for two years. In return, his rent would go toward a down payment. Dave doesn’t like this plan.

ANSWER: To my knowledge, the two-year requirement of experience as a property manager is not there to borrow money for investment property. You can get an FHA loan for a duplex without any experience as a landlord whatsoever. He just wants somebody to manage it for him. It’s not a bad idea for you to manage it for him, but basically you’re managing it for free if you don’t purchase it. I don’t think I want to do that. I think I’ll pass.

I would save up money and probably buy a single-family home, honestly. I would not suggest—except in rare circumstances—that you buy a duplex as your first home. Here’s why. I like duplexes. I’m not mad at them, but the problem with a duplex as your first home—and as your first rental property for that matter—is that your tenant is next door. That’s bad news because every time a light bulb goes out, you’re going to hear from them. You’re going to deal with every little thing you ever thought about dealing with all right up in your face, and it’s your next-door neighbor. It’s very difficult. It’s like your first employee should not be your brother if you open a business. It’s okay maybe to hire your brother later, maybe in some situations, but he shouldn’t be your first employee that you learn to manage on. I wouldn’t want my next-door neighbor to be my first tenant. I’ve got a bunch of rental property. I’ve owned rental property most of my adult life. I like it, but I wouldn’t do that.

If I were in your shoes, what I would do is pay the rent and save my money and go buy a single-family home to live in and get your life started that way as far as your real estate ownership goes. Then someday when you get some wealth built, start saving toward an investment property. I wouldn’t make my first investment property or my first home be a duplex with my renters next door. And I don’t think this deal is a good deal anyway.