Pros and cons of renting unit in 2 family
We used e-renter.com for a basic lease and a background check on our current and only tenant. It was reasonably inexpensive and helpful. We added a few riders specific to our needs as well, mainly no AirBnB.
For costs, heating is a wash because you’ll be heating the entire house anyway. And our total gas bill (hot water and cooking) was $72 last month–no idea how that breaks down. The apartment is on its own electric meter.
The big thing is time. Our tenant can’t separate her recycling to save her life, so I’m digging through her garbage each week. I’ve actually added this rider to the lease, clearly labeled the cans and spoken to her about it in person. But bless her heart, she just doesn’t get it. And, she uses some hair product that clogs the pipes about every six months, so I went and bought a snake instead of paying a plumber. Even if these aren’t the specific issues you’ll be dealing with, you’ll almost certainly have something, even with the best tenant
Also, remember that rental income is taxable. You’ll need to plan for that
DouglasAlan
in General Discussion 8 years and 5 months ago
17
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17 replies
af | 8 years and 5 months ago
Hi, I’m weighing the costs of renting a top floor unit or simply using a 2 family house as a 1 family house. I’ve seen some breakdowns of costs in old threads, but wonder if anyone has current advice re additional costs for (1) added costs of utilities (2) risk of months without renters (3) insurance (4) credit and background checks and (5) timely repairs. The rental unit would be about 600 sq ft so I’d hope to rent it for roughly $2000/m, give or take, which seems (in the abstract) reasonable in the area (Gowanus, Park Slope side), though I definitely value the idea of a great tenant over higher rent. Of course, if there’s anything I’ve missed that I should consider, please don’t hesitate. Thank you!
slopefarm | 8 years and 5 months ago
Be conservative and plan on 9-10 months of rent per year. In practice, we have rarely had more than a month in between tenants, and the typical tenant has stayed about 2 years. I am not sure there is a difference in insurance. You can require tenants to carry renters’ insurance. chances are, they will be on your heat. If it is a one-zone system, there should be little or no difference except you might heat the house warmer and you would not drop the heat way down when you go away. The more noticeable change will be in the water bill, but that is not huge to begin with. If the house is wired as a 2 fam, tenants would pay their own electrical (and gas for the stove but that is negligible). Also, if you are doing extensive renovations, talk to your accountant about how to offset those costs and depreciate some expenditures against rental income to reduce the tax burden on the income.
nick521 | 8 years and 5 months ago
I agree with Slopefarm, plan for 9-10 months of rent, you maybe without tenants for 1-3 months in between renters. There is no difference in insurance, do require your tenant(s) to have renters insurance. I rent out my garden level, one gas and electric meter, so I pay the utilities but did make an allowance for electricity and cooking gas into their rent, I pay heat and water. My water bill is not that high and they have washer/dryer and DW.
If top rental, make sure that you’ll have no issues with people living above you.
af | 8 years and 5 months ago
Thank you both for your very helpful insights.
BobMarvin | 8 years and 5 months ago
Of course, if you don’t NEED the rental income, there’s a lot to be said for not being a landlord. My wife and I rented in 2-family brownstones before buying our 1-family house. I’d like to think we were good tenants but. even though it made us feel bad, bothered the owner when there were problems.
My goal was to buy a house where we didn’t need to rent. Luckily it was LONG ago when house prices were a lot lower and, although incomes were also lower, the ratio was far better.
slopefarm | 8 years and 5 months ago
Go ahead, rub it in, bob. Wish I’d had the foresight and the money to buy a brownstone when I was a sophomore in college.
BobMarvin | 8 years and 5 months ago
Hey slopefarm; if I’d been 5 years older I could have bought a brownstone on a name street park block in Park Slope; 10 years older Cobble Hill, or the Upper West Side; 20 years older Turtle Bay (but then I’d probably be dead by now).
sew536 | 8 years and 5 months ago
If you have a renovated building I see no reason for losing rent between tenants i dont. I ask for 2 months security. I keep my tenants/ customers happy with a great apt at slightly below the rent i might get, I do this to be able to rent quickly pick tenants carefully and not have a resentful tenant. I could probably get 2500 mac i ask 2100. When i know a apt is going to be available i will put the word out its will be broker free for a short time, once im down to a month i call the broker they usually have several people a day look at it for a week and many want it so i kep track of who had complete approved apps in first. As a renter and native NYer I have never used a broker or paid more than 1000 mth but the reality is brokers are really the way to go they run credit and legal suit and criminal histories, insist on 40-50 times the rent as income, they get references from landlords employers and personal their fees are 8-15% from the tenant. The reality is brokers will get the wealthier tenants and do all the paperwork i should always use them but feel a little b ad about those fees they charge.
If you have a run down old house that constantly in need of repair i suppose if you can afford it do without tenants. They are much less intrusive than you might think
sew536 | 8 years and 5 months ago
If you have a renovated building I see no reason for losing rent between tenants i dont. I ask for 2 months security. I keep my tenants/ customers happy with a great apt at slightly below the rent i might get, I do this to be able to rent quickly pick tenants carefully and not have a resentful tenant. I could probably get 2500 mac i ask 2100. When i know a apt is going to be available i will put the word out its will be broker free for a short time, once im down to a month i call the broker they usually have several people a day look at it for a week and many want it so i kep track of who had complete approved apps in first. As a renter and native NYer I have never used a broker or paid more than 1000 mth but the reality is brokers are really the way to go they run credit and legal suit and criminal histories, insist on 40-50 times the rent as income, they get references from landlords employers and personal their fees are 8-15% from the tenant. The reality is brokers will get the wealthier tenants and do all the paperwork i should always use them but feel a little b ad about those fees they charge.
If you have a run down old house that constantly in need of repair i suppose if you can afford it do without tenants. They are much less intrusive than you might think
daveinbedstuy | 8 years and 5 months ago
So you never use a broker but you do? Your post is also a sad commentary on the school system as a “native NYer”
BobMarvin | 8 years and 5 months ago
Pater,
Perhaps you’re not aware that there are some areas, like mine where no one can legally have a tenant.
resident2 | 8 years and 5 months ago
You get vertically tax free income by way of the income tax deduction of depreciation; proportionate share of interest, insurance, maintenance expenses etc. deducted from your “business income”. That majorly off sets your home expense.
If you go away, there will be someone around in case of an emergency.
The downside is a slight intrusion on peace & quiet; but you are in an urban area, so you are going to have that anyway from neighbors next door etc. Just screen your tenants well coming in. In an owner occupied house, I think it best to let potential tenants know how you like to live in your house and what the expectations are. If they cannot live like that, then do not rent to them and sane ones will not want to live with you if you have some very unusual requirements: ie a tenant once told me that a previous landlord of an apartment they were interested in, had told them that they would have to walk the landlords dog when he was away and water the garden, that the tenant could not use!
vlack3bos | 8 years and 5 months ago
I concur with all statements above. @resident2 is correct about the tax free income due to depreciation, as well as deductions for repairs/supplies attributed to the rental. (At least that’s what my tax guy told me!)
Would also just like to add, from my experience, that the most stressful thing about being a landlord is making sure you get good tenants, since this is your home. I don’t use brokers, I prefer to meet them myself and I trust my judgement of character. Not that different from interviewing roommates via craigslist back in my bachelor days. Doing a credit check is a piece of cake on experian.com And do get work/income verification. BUT, once you have great tenants that are happy (because you aren’t gouging them with rent and you keep a well maintained home) then being a landlord is just about the easiest job there is. Knock on wood…
fluffins | 8 years and 5 months ago
my husband and I rent the top floor of our two family and it has been such a huge financial relief. The unit was cleanly renovated when we bought it 5 years. We have had two tenants with no lag in between. Financially, it not only makes owning a home possible for us, but it also provides additional tax write offs for any repairs and maintenance. We are fortunate to have separate boilers and water heaters so the tenants pay their own utilities.
Rick | 8 years and 5 months ago
Here’s one that has what you are looking for in your price range. In Sunset Park. http://streeteasy.com/building/526-47-street-brooklyn/2?featured=1
NeoGrec | 8 years and 5 months ago
In 16 years, we had three sets of tenants all of whom were wonderful and stayed 5-6 years each. Last year we used a broker for the first time and our current tenant (who is entirely financially qualified) is a hot mess with entitlement problems. So we’ll never use a broker again!
slopefarm | 8 years and 5 months ago
The depreciation is not quite tax free. It helps you avoid paying income tax on the rent. But when you sell, it will have reduced your base price for capital gains purposes.