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Our Suboptimal Duplex Investment


As some readers may know, we sold our rental home and 4plex earlier this year. Of course, I’m addicted to investing so I couldn’t leave well enough alone and invested in a duplex soon after. I’m a bit reluctant to talk about the duplex investment because it’s definitely not the best investment we could have made. First let’s go over why I decided to invest in a duplex, then see the pros and cons, and lastly crunch the numbers.

Why invest in a duplex

So I’ve complained in the past that I’m not cut out to be a landlord. So why would I invest in a duplex? Well, I have my reasons. Mrs. RB40 doesn’t really like it, but she’s going along with it for now. (She’s being a really good sport).

All right, let me tell you a bit about the duplex. It’s an old Victorian home that was converted to a duplex in the 70s. The upper level unit is 580 sq ft with one bedroom and one bathroom. The lower unit is about 900 sq ft with one bedroom, one bath, and a study. The unfinished basement is about 1,000 sq ft. The property is in a great location with many amenities within walking distance (walk score = 97). The public transportation access is also very good. It is also in a good public school district in Portland and that’s important for us because we’re not sending our kid to a private school. Most owners in the area are long term owners and properties rarely go on sale. The last owner had this home for 35 years. We plan to rent this property out for 2-5 years and move into it at some point.

1. We need more room

Currently we live in a 960 sq ft, 2 bed/2 bath condo. It works really well for the 3 of us and our cat. The condo is centrally located and we love it here. Mrs. RB40 absolutely does not want to move. However, my mom is staying with us for 6 to 9 months at a stretch and it’s too small when you add one more person. She is sharing a room with RB40 Jr. right now, but he’ll need his own space when he’s older. My dad is also coming to visit for about 4 weeks starting in October and it will be really tight then.

To me, a small duplex is an ideal solution to our problem. My mom can live in one unit when she’s here. When she’s not, we can rent out the unit to tourists and professionals with short term stays. My dad is 70 so he might also move in with us at some point. Having their own unit would really lower our stress level. I love my dad, but he is a disruptive presence. My parents live in Chiang Mai, Thailand when they’re not in the US.

2. Tax

Rental properties are great, but you’ll have to pay a ton of tax when you sell. I ran the numbers through Turbo Tax to gauge how much tax we’d pay and I was shocked. We’d have to pay about $45,000 in tax just for the rental home alone. That’s long term capital gain plus 25% tax on any depreciation we took. Yeap, the tax write off was great, but you have to pay for it when you sell.

The way to defer paying $45,000 is to do a 1031 exchange. We took all the money generated from the rental home sale and roll it into a replacement property (duplex). This way we’ll put off paying $45,000 to the IRS. If it all works out like I envision, we won’t have to pay part of this tax. We’d have to keep the duplex as a rental for at least 2 years, move into the duplex, and then live there for at least 5 years. At that point, it will be considered a primary residence and we won’t have to pay capital gain tax (up to $500,000.) I think we still need to pay the 25% depreciation recapture when we sell, though.

3. Less management headache

The problem with the old rental home and 4-plex is that they were too far way. Whenever there was an issue, I’d need to drive over 30 minutes to get there. We had a property manager for the 4-plex, but they don’t manage it like an owner would. I like to keep an eye on my properties so I know the condition of the place. For example, when one of our tenants decided to build an unauthorized tree house, we didn’t find out from the management company.  A grouchy neighbor looked up our address and sent us a complaint instead.  The duplex is only a few minutes away and I’m in that neighborhood pretty often, so that’s not a problem anymore. The tenants are also more financially secure because the rent is higher in this location. I envision a lot less management hassle, but we’ll see how it turns out.

So those are the main reasons why I invested in another rental property. Let’s go over the pros and cons list.


  1. Separate living area. My parents can have their own space. Mrs. RB40 is a saint, but she can’t deal with having her in-laws here all the time.
  2. Location is amazing. I lived in that area when I first moved to Portland so I’m familiar with it.
  3. Schools are good.
  4. Cheapest house on the street. According to Zillow, other homes in the immediate vicinity are valued 20-100% more. Of course, they are bigger and more updated so we’ll have to take that with a grain of salt. It’s better to own the least expensive house on the block than the most expensive, right?
  5. Possible expansion. The basement has its own entrance and good headroom. One possibility is to add another unit in the basement at some point.
  6. Lower monthly housing cost. Our monthly housing bill would decrease when we move in. We currently pay $470/month just for the HOA at our condo. It’s great not to deal with exterior maintenance, but that’s a lot of money every single month. The mortgage would be lower as well.
  7. Rent is below market. The current rent is cheaper than usual. We could raise the rent a bit to help with the cash flow.


  1. Need repairs and updating. The kitchens were installed in the 70’s. The electrical and plumbing are not up to code. The roof is at the end of life. There is a little leak in the basement after a heavy pour down. The carpet probably needs to be replaced soon. At least, the hardwood floor still looks good. Basically, there is a long list of items that need to be updated. The previous owner is an architect so he took care of the place pretty well and the materials are good quality. But he also added a few unusual “architectural elements.”
  2. No Parking. The duplex does not have a garage so there is only on-street parking. The parking is really tough in this neighborhood and many people enjoy a car-free lifestyle.
  3. A study is not a bedroom. RB40 Jr. would get his own room – the study. There are no doors so he won’t have that much privacy. We can put up sliding curtains or something.
  4. Only one bathroom on the lower unit. This is going to be a problem. We’ll have to figure something out.
  5. Not the perfect house. It would have been perfect if the lower unit is a 2 bed/2 bath. We should have purchased a multi-unit in this area during the housing market crash. It would have been tough, though. There weren’t many properties on sale and we probably couldn’t get a loan at the time.
  6. The duplex was expensive… See the numbers below.

Crunch the numbers

All right, I warned you at the beginning that the duplex isn’t a great investment. Many of our readers are real estate investor and I’m a bit embarrassed to talk about the details. The numbers don’t make sense from an investment standpoint. The location is great, but the price went up years ago. We could have purchased a home in an up and coming area and that would have a much better investment. However, the schools in the up and coming areas are not very good. That’s a big concern for us so we went with a suboptimal investment. All the numbers are rounded for simplicity.

Our fund

  • 1031 exchange rental home: $260,000
  • Cash from 4-plex: $135,000. Reserve $15,000 for tax so we have about $120,000 to work with.


  • Seller asking $650,000 in February 2014.
  • Reduced to $599,000 in April.
  • We offered $560,000 at the end of June.


  • We rolled $260,000 from the rental home and added $100,000 cash.
  • We got a $200,000 mortgage from our credit union. 30 years FRM at 4.25%.

Monthly Cash flow

Income Expense
Rent upper unit $820
Rent lower unit $1,200
Mortgage $980
Property tax $500
Estimated maintenance? $300
Water and trash $100
HOA $20
Insurance $60
Total $2,020 $1,960

*oops. I forgot to factor in vacancy. It’ll probably be less than 5%.

So you can see why I told you this isn’t a great investment. We put a lot of money into the place and the estimated cash flow is under $100/month. I plan to raise the rent a bit to bring it up over $100. There is actually more headroom, but the tenants are good and I want to keep them.

From a financial standpoint, keeping the old rental home would be better. However, it doesn’t fit in with our long term goals. Another option is to wait for the next housing market crash, but I guess I’m not patient enough to do that. Anyway, our family is a bit unusual so we have to make some sacrifices. Well, what do you think?

Real Estate Crowdfunding

A new way to invest in real estate is through real estate crowdfunding. Investors pool their money to fund a project which is managed by a local company. I just opened an account at out Realty Shares and I plan to invest about $10,000 in 2017. Realty Shares vetted the projects, but you can do your own research and invest in the areas that you like. Each investment is different and the minimum investment is from $2,000 to $25,000. This is a new way to invest in real estate and I want to see if it will be a good passive income stream.

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 52 comments… add one }
  • papadad August 20, 2014, 1:40 am

    well…the maintenance will not likely be $300 month in and month out, so you can expect a bit more positive cash flow in the future. Likewise, rents will continue to rise while your mortgage is fixed. You should be able to more than offset increases in your other expenses (tax, insurance, utilities) by raising rent.

    Overall I think you did OK. Real estate is location-location-location and sounds like you’re in a good part of PDX. Also, these higher priced “feature” homes are desirable, hence the reason people stay for 35+ years and there are few in the neighborhood hitting the market. Schools are good too, and the place fits into your overall long term plan.

    The place is cash flowing and others will build your equity -so while not providing a lot of monthly passive cashflow/income, the equity buildup and appreciation should make this a good long term investment.

    Buyers remorse is common – but I think you did just fine Joe. You converted a couple so-so properties into something much more desirable and manageable.

    Plan B – You can always flip it again in a few years if it doesnt work out – 1031 exchange it again but this time take more time looking for the target “final” piece of property…

    • retirebyforty August 20, 2014, 9:43 am

      Thanks for the positive feedback. I was bracing myself for a bunch of criticisms. 🙂
      It’s practically impossible to find a cash flow property on the west side of Portland. The east side have better deals, but the schools are not good.

      • papadad August 21, 2014, 1:26 am

        It is possible to find a cash flow property if you pay cash 🙂 But your mortgage is not huge and i think you’ll be surprised how, if you get focused, you can get that note paid down fast and then really get the cash flow rolling sans a mortgage and interest payment.

        Stay away from being a slumlord – on paper it looks better but the reality is a nice rental property in a good location attracts high quality renters making your life WAY easier.

        • retirebyforty August 21, 2014, 9:56 am

          We’ll try to get it paid off in 15-20 years. After that any extra income will be gravy. 🙂
          Yeah, I learn my lesson about being a slumlord. I care about the properties too much.

  • Matt August 20, 2014, 2:00 am

    Joe, I assume you are going to manage the duplex? You really think that is less work than the 4-plex with a manager? You should budget for a little vacancy even in a great neighborhood.

    • retirebyforty August 20, 2014, 9:47 am

      I forgot about the vacancy. I’ll put it in now. I’m pretty sure it will be less work than the 4 plex and rental home. Factoring in the commute time, of course. It’s much easier to drop by this duplex. We just need to screen new tenants very carefully.

      • Matt August 20, 2014, 4:02 pm

        Just curious why you think managing this duplex is less work than managing a property manager on the 4 plex? I know there is a little distance, but I still think managing a manager is easier than dealing directly with vendors and tenants.

        • retirebyforty August 21, 2014, 9:48 am

          Mainly because of the tenants. The 4 plex was in a cheap area and the tenants were not very financially secure. I’m hoping with less units and more financially responsible folks, there will be less issues.

          • Matt August 21, 2014, 4:08 pm

            I think quality of tenants is very important as you state. I have 7 units myself and it wouldn’t be fun if I ever had to deal with evictions. I hear about people buying cheap properties, especially in the middle of the country where the numbers look great on paper, but then the tenants turn out to be nightmares and it doesn’t end well.

            How do you feel about managing the renovations and dealing with contractors?

            Anyway good luck. I like real estate as an investment, and even though my units can be a pain here and there, it is still much less stressful and more enjoyable than my job.

  • Blake August 20, 2014, 6:48 am

    Its great that you were able to find a property within the 1031 timeframe. Thats always challenging. I noticed you didn’t account for vacancy in your expenses. Have you factored this in elsewhere?

    • retirebyforty August 20, 2014, 9:48 am

      The 1031 time frame is tough in the current environment and location. We searched for 3 months and only found 2 properties that were promising.

  • Wilson August 20, 2014, 7:46 am

    I love the house. I think y’all made a nice long-term decision. Not every decision can be made focused solely on the immediate bottom-line. We’re going to look at a duplex this afternoon that purports to easily convert to a single. We’ll see if that’s true. We might rent it out for a few years and then convert it, and even then occ. rent out the upstairs for short-term stays (although that’s technically illegal here under 30 days and there are big grumblings and potential harsher regulations and/or penalties coming down the pipe). Due to real estate inflation we’d barely scrape by if we did rent the entire home for a few years, but our focus is on getting some additional space for everyone and lodging for the padres when they come to visit.

    • retirebyforty August 20, 2014, 9:50 am

      Good luck with the duplex. We could convert our property back to single too. It’d probably be more valuable in that form. Yeah, it gets complicated when you factor in the parental units.

  • SavvyFinancialLatina August 20, 2014, 8:13 am

    I think it’s the right decision for your family. You will be able to maintain it yourself since it’s close by and it has potential as a property.

    • retirebyforty August 20, 2014, 9:50 am

      Thanks! We’ll see how it pans out in a couple of years. I’m optimistic.

  • Max August 20, 2014, 10:33 am

    Hopefully it’s in a good location as I was under the impression that home prices were lower in Portland. $560k for a duplex of that size seems a bit pricey to me, I paid nearly half that for a similar duplex in SF Bay Area. However, you really can’t put a price on sanity, my duplex is also nearby my old home and it’s really convenient as I’m normally in the area in case anything breaks or needs repairs it’s not too much of a hassle. 30 minutes sounds like a long way to go (each way + gas) so I guess there’s definitely that for you.

    I recently replaced the home’s funky carpets for floating bamboo floors they were pretty easy to install and fairly inexpensive. Only difficult things for it include transportation was a bit tricky – luckily I was able to fit them in my Jeep. Also measuring and cutting them was a bit difficult as I have an older home with some settlement issues and odd corners, but I’m happy with the result. I’d recommend Lumber Liquidators – wait until it goes on sale – if you wanna go cheaper there are always laminates.

    Depending on what the leak is in the basement it might not be too bad, if it’s steady then you want that fixed sooner rather than later as if you don’t it can cause dry rot, but if it’s not leaking anymore than it’s fine.

    Plumbing and electrical work is a bit tricky and can be expensive to hire out for. I haven’t done roof work but I will need to sooner or later for the part overlooking my deck it looks like it was not set up correctly.

    I was lucky I had a friend helping me – but there are a lot of free or low-cost training options at Lowe’s/Home Depot, Tool Lending Libraries, on-line, etc.

    • retirebyforty August 20, 2014, 3:35 pm

      It’s in a very good location. Generally home price is lower in Portland than SF, but it really depends on location. Our old 4plex cost us $300k so there are much cheaper properties if you go out a bit.
      Thanks for the tips. We’ll probably replace the carpets with hardwood flooring in the lower unit eventually.
      As I understand, the leak comes in through the mortar when the ground is saturated. It doesn’t leak with our normal drizzle, only when we really get a huge amount of rainfall. It’s pretty expensive to fix, but we’ll need to do it before we finish the basement.

      • Max August 20, 2014, 10:55 pm

        Hey Joe,

        Oh that’s better than I thought I recently had a scare as I had a big build up of water leak through to the basement. That’s a different issue though, you may want to invest in a sump pump in the meantime – relatively inexpensive and could save you lots in possible decay in basement floor and potentially foundation.

        Yeah, that makes sense. This property will probably appreciate more and faster than the duplex given it’s location.

        In your case a pedestal sump pump would be easier than submersive, they don’t quite do as good a job – do your own research, the actual cost of the pumps are more or less comparable, but submersives will cost more to install or more of a headache if you are doing yourself. I’d HIGHLY recommend you get one though as I’ve heard horror stories from folks who waited or didnt have them set up. You can get a good quality one for about $100, it’ll save a lot of headache in case of heavy rain.

        Best of luck. I’d do it before it starts raining too much.

        If you decide to go bamboo for hardwood – I found it to be the cheapest option. We used floating floor that clicks in which makes installation easier. It gets a little tricky by the doors, but if you have a dremel saw and miter we did a 200 sq ft room in 2 weekends including removing carpets to new hardwood floors and I had never done it before. For durability with tenants I’d also recommend they have a new kind of bamboo called carbonized, woven or strand where they weave it together and it becomes harder than red oak. At my parents house they have regular bamboo and it’s awesome, but you have to be careful with it because it knicks easily – the strand is much sturdier and comes with 30 year warranty some floors come with lifetime guarantee.

        • Sam August 21, 2014, 7:33 am

          What are your thoughts on oak vs bamboo? How much is bamboo on a price per square foot basis you got?

          The price you got for your place sounds very cheap. You can’t even get a studio in a nice SF location for $500,000. Where did you buy?

          • Max August 21, 2014, 9:17 am

            Oakland near Lake Merritt, yeah I couldn’t really afford SF unless I wanted to get a BMR condo and I’m not really interested in one of those for now.

            When I was looking bamboo was far cheaper than oak. Bamboo was like $2.50-3/ft while oak started around $5. They both were advertised as less but it would always be out of stock when we went to get it…

        • retirebyforty August 21, 2014, 9:54 am

          Okay, I will investigate a sump pump. There is already a drain to the sewer in the floor so I don’t know if we really need a sump pump. Where would the water go?
          I like bamboo too. I’ll check out the carbonized. I haven’t heard about them. Our current bamboo flooring is pretty nice and doesn’t nick easily. We had it for about 5 years already so I don’t know if it’s carbonized.

          • C. August 21, 2014, 12:07 pm

            Joe, Congratulations. I think you made a good decision.
            Many leaks can be mitigated by simple outside solutions. Obviously you need good leaders/gutters, also make sure the ground outside slopes away from house. You could put a concrete skirt around area water gets in or add a patio which would give you more value & also take care of the water.
            Dry lock mortar could possibly be used outside to repair cracks or joints. Also I painted dry lock on my concrete walls and floor to reduce dampness. I would recommend using that before finishing the basement as well. One house we bought for less than asking price had water in basement when we viewed it. The outside gutters looked like terrariums and once they were cleaned I never had water again! We made a small basement apartment for my parents which worked out well.
            In New Jersey we need to watch for radon. Sump pumps can let radon into a house so check that info out as well. You could also install an outside drainage pipe in the ground leading water away from foundation. It is actually quite affordable. It is always preferable to fix water issues from outside. Do yourself a big favor and fix any water issues ASAP.
            Best wishes on your new home!

          • retirebyforty August 22, 2014, 12:07 am

            Unfortunately, there are no room for a patio. I think the ground is sloping correctly, but I’d need to check.
            The previous owner used drylock on the inside and it is helping. We’d probably need to do something more permanent before finishing the basement.

          • Max August 21, 2014, 3:04 pm

            I didn’t realize you already had a drain to sewer, then you’re probably fine as long as the water can get there and isn’t too heavy.


  • Financial Samurai August 20, 2014, 10:54 am


    Congrats on finding another property so quickly! I like Victorians and old homes w/ character. They just cost a lot to remodel. I’m remodeling my current house now and the permits fees and hassle is disheartening. But, everything will be OK with just time and money.

    I’m impressed you rolled $260,000 + $100,000 in cash into the new place. What was the reason for the extra $100K? How long was the $100k sitting in cash, or what were you doing with it?

    Is the idea to basically rent it out for two years, keep or rent out your existing house, and then have the inlaws stay upstairs and you 3 stay downstairs?

    Are you guys going to be OK living in a 1bedroom + study, 900 sqft when Jr. is a teenager? Seems a little cramped no? Hopefully you can make the 1,000sqft basement a nice living space. I’d bank on at least $250/sqft to build/reno, so $250,000 more.


    • retirebyforty August 20, 2014, 3:42 pm

      Thanks! It’s mostly remodeled already and just need a little updating. I’d like to put in a nice counter and cabinets at some point. Other than that, it’s pretty good.
      The 100k was in the bank for about a month. We just don’t want to borrow much. We plan to pay the place off in 15 years. That way we’ll have plenty of cash flow when we’re fully retired.

      Yeah, rent it out for 2 years. Not sure if we’re going to sell or rent out our existing home. Depends on the price in 2 years. Yeah it will be a bit tight. I think the problem is really the 1 bathroom. We can always go upstairs to use the other bathroom. 🙂 Wow, $250/sqft? I thought it’d be closer to $150-$200. We’ll see…
      I’m thinking about turning 600 sq ft into a unit and keep the rest as laundry/storage/work space.

      • Dave August 20, 2014, 6:19 pm

        I’m not sure I would have kicked in the $100K. That was yours, free and clear, to invest in any idea you had. Over the years, I’ve tied up windfalls in Roth IRAs and mortgage principal reductions, then had to scramble to meet unexpected expenses. Here, you’ve locked in your return on that $100K, at the avoided interest expense of 4.25%. I don’t know if the bank would have lent you that extra amount. But if yes, you could have applied $4,250 per year of your $100K toward the interest expense, and maybe found a more profitable investment for the balance. Best of luck with your new house!

        • Sam August 21, 2014, 7:35 am

          But maybe Joe has another $100k somewhere liquid.
          He never said.

        • retirebyforty August 21, 2014, 9:51 am

          It was just simpler for me. I’m reluctant to invest $100k in the market right now. The 200k mortgage is about the right size for us. The monthly payment is reasonable.

  • Justin August 20, 2014, 10:57 am

    Not a great investment, but it makes sense for you and your family long term. And if you can (legally) cheat the tax man a little, you’ll probably come out ahead on an after tax basis.

    We have certainly considered similar arrangements where owning or renting a place didn’t make sense financially (ie there are more optimal investments out there) but it made sense for personal reasons. Can’t say we actually pulled the trigger on anything (yet!).

    • retirebyforty August 20, 2014, 3:43 pm

      Your area is so much more affordable. Portland is getting quite expensive.

  • Tawcan August 20, 2014, 11:17 am

    OOhhhhh that’s a nice looking house. I love Victorian style houses. While it doesn’t look like a great investment from number point of view, I think it makes perfect sense for you and your family in the long run. The fact there’s an unfinished basement does give a lot of potentials to this property. I think you’ll be very happy with this purchase. Having a yard will certainly be a welcome feature for RB40 Jr.

    • retirebyforty August 20, 2014, 3:44 pm

      Thanks! The backyard is actually quite spacious for the area. It’s shared between 4 houses and the kid should enjoy it. Maybe we can even build a treehouse… 🙂

  • nicoleandmaggie August 20, 2014, 1:21 pm

    It sounds like it makes sense if you stick with it not being an investment, but a place you’ll be moving into with your parents visiting on occasion. Sounds like you’ll be essentially running a B&B when your parents aren’t there! In about 2 years… I guess with the tax situation it makes sense to do it now rather than to wait a couple of years. Hopefully the school zones won’t change on you.

    • retirebyforty August 20, 2014, 3:45 pm

      We are pretty close to the high school so I don’t think it will change unless they build a new high school. I hope not, though. School zone is such a hot topic.

  • Tommy August 20, 2014, 1:44 pm

    Congrats on the purchase and I must say that was a very smart move buying a rental property that you would consider converting to your personal residence after the minimum rental time period the IRS outlines. You will save a lot of money in the end. I believe you have to live in it as your primary residence 5 years if I remember correctly to be free of the rental depreciation recapture. As far as yearly taxes go when taking your depreciation this will be a net-loss so you can count on reduced income taxes against your other income. That said, you are getting a little more than the difference you detail in the post. I think looking at this long term that it is great move.

    • retirebyforty August 20, 2014, 3:46 pm

      Thanks for the encouragement. I’ll check with a tax accountant on the depreciation recapture. I thought you have to pay it back no matter what.

      • Tommy August 20, 2014, 8:44 pm

        After making my comment I became curious and it looks like the after personal use conversion taxes get a little more complicated than I remember them once you sell the house. There were some changes to the tax code in 2009, etc. and ultimately there is a tax for depreciation recapture and impacts to the married $500K max sale of personal residence capital gain exclusion. So yes, you are right. You really never escape paying the tax man. I apologize for my earlier comment error. This kind of stuff is the reason for having tax professionals.

  • Pretired Nick August 20, 2014, 1:48 pm

    Don’t be so defensive! You’re not really investing in a cash flow endeavor, you’re pre-buying your future home. That’s super smart! It might feel like you own another rental in the short run, but in reality you are setting yourself up very well for later years. If you have to board an aging parent, having a separate unit is a great way to go. That alone could be a good blog topic. I bet quite a few readers have put off their pretirements because they had another family member to take care of.

    • retirebyforty August 20, 2014, 3:47 pm

      Hey, thanks for the comment. Yeah, hosting parents and in-laws are tough. Our other families can visit more as well if we have the space for them.

  • Ravi August 20, 2014, 6:29 pm

    Very smart to pre-purchase your future home and get a year or two of rent to help pay down the mortgage a little and provide a little cash to make some small maintenance/upgrades.

    If tenants can go 2 years without many problems, chances are as a primary residence it will be just fine.

    Hopefully the kitchen remodel some day won’t be too painful. I know those can get expensive! I was looking into remodeling my condo (used to live there, now a rental) and new cabinets and granite counters would run in the high single thousands to do a decent job with it. I already replaced the refrigerator when I bought it, and looks like the dishwasher will be going soon as well.

    Stinks to see your monthly cash flow go down when repairs come up. 🙁

    • retirebyforty August 21, 2014, 9:52 am

      I’m sure the kitchen remodel would be pretty expensive. We’ll just put it off for now.

  • James August 21, 2014, 9:25 am

    Congratulations on the house. Was getting a mortgage easy or tough? Since you have your wife’s regular income combined with a small mortgage amount relative to the purchase price, I figure it would’ve been straightforward even though you’re self employed.

    • retirebyforty August 21, 2014, 9:58 am

      Surprisingly, it wasn’t that difficult. They don’t seem to mind self employment. I’m not sure if we could have qualified for more. It might be getting close to our limit.

  • Jay August 21, 2014, 10:49 am

    Joe, if you’re planning on living in it in the future, then I would say that this compromised the entire deal. Remember, your own home is not an investment. Add to that, your local area seems really unfriendly toward REI. ( I know the feeling, my local area is just as bad)

    I think the mistake a lot of people make is “mixing ideas” when it comes to REI. The classic example is the vacation rental: It sounds great at first (it’s an investment AND a holiday all rolled into one!) but generally people are unhappy with them because they function poorly in both areas they try to cover.

    Instead, if you’re going to invest, make it count; remove the emotion, look at the numbers, and buy only when and where it makes sense.

    As a comparison, the duplex I purchased end of last year in Texas was nearly half the price and the gross rent was almost a thousand dollars more. Plus it was brand-new. Granted, property taxes are higher, but as a whole, it’s going to be a well-performing asset for a long while.

    • retirebyforty August 22, 2014, 12:04 am

      Thanks for your input. If we don’t need a bigger place, then I’d probably just invest the money in dividend stock. I agree that removing the emotion is the way to go, but that’s harder for me with real estate than stock for some reason. I thought real estates in Texas is quite reasonably priced. In Portland we try to limit growth much more than other locations.

      • Jason August 22, 2014, 11:53 am

        Yes, I think many people have trouble viewing real estate as an investment and, even more so, dealing with tenants with a less emotional demeanor. For this reason, it’s definitely not for everyone.

  • Vince August 21, 2014, 11:12 am

    Honestly RB40, this is a good analysis, but a great decision. After living with my Mother-in-law for over ten years, you made the right choices.
    Hey, and if you want to read about those ten years, I even wrote a book. Here’s the shameless pitch: http://amzn.to/14GY5C9
    Thanks for all the great posts.

  • jim August 21, 2014, 1:41 pm

    Its a nice looking property. Sounds like it fits your specific needs well. I woulnd’t buy it as a pure rental investment but if you plan to move into it then that makes your situation quite different. Portland appreciation has been great (one of the best markets in the US long term). Rental vacancy rate is also quite low in Portland, I believe as low as 2%.

    • retirebyforty August 22, 2014, 12:08 am

      2% is pretty low. I haven’t had any problem filling our previous rentals. It’s a bit pricey, but it should retain its value.

  • Margo August 22, 2014, 10:51 am

    First of all, let me say I love the house and the yard and am sure I’d love the neighborhood. But for that kind of money I would have bought a small farm south of Portland. I love Portland, but am not used to the prices of homes in favored areas (or the rent!)

    However, your wife really is a saint for letting you think that your plan to live there in 5 years is really going to work out. She knows (and you know too, deep down) that living with just the 3 of you in the lower unit with only one bathroom is deal-killer #1. #2 is listening to someone above you, which may or may not be a problem, but if their only entrance is a shared front door, you’ll hear them on the stairs, their friends on the stairs, and see their stuff in your hallway. #3 is no place for your car(s); your wife works and I’m not familiar with her transportation (just started your blog) but if she needs a car, it is a huge inconvenience not knowing if she can find a parking space each day when she comes home or leaves to do an errand (and remembering where she left it the night before.) #4 and #5 are things that are not definite, but likely: you picture your parents living upstairs at some point; again, there is the noise factor, the fact that the upstairs does not have a separate entrance that I could see, so hanging out downstairs all the time or popping in anytime is likely. That may not be a problem at all for your family, which is fine. The other thing is you mentioned age: while I expect to be able to bound up and down stairs till I’m past 100, some folks I know are having problems with that before they are 60. I assume your condo building has an elevator; do you know if both your parents would willingly live somewhere they had to climb stairs? Do you know if they are having problems with that already? The last one is about your son not having a private room and private bathroom; the older he gets, the more important it becomes.

    You did mention the potential of the basement, so I suppose you can solve many of these issues ahead of time, and the others may not be issues at all. And I believe you said you only had to live there a limited amount of time to avoid the capital gains tax.

    I like your blog and was curious about the tax issues with rental properties, so I learned a lot. I suspect I’m a bit like you as far as buying real estate if I can (even if I shouldn’t) and I too know I’m not cut out to be a landlord, so am suffering through it trying to figure out how to get out of it even though it seems to be to my advantage financially.

    • retirebyforty August 22, 2014, 1:04 pm

      We’re city people so I don’t think we can deal with a small farm. The idea is attractive, but I don’t think we can make the change.
      1. One bathroom is my biggest concern too. But why do these old houses have 3 bedrooms and 1 bathroom if it didn’t work? Most of the old Victorian houses we looked at were like that. I’m sure we can work it out, but it would be a pain.
      2. I’m not sure if noise will be a big problem. We’ll see.
      3. My wife takes public transportation to work so it’s not a huge deal. We’re thinking about turning the front yard into a spot. Not sure if the city will permit it, though.
      4. Sure, they’ll probably be downstairs a lot of time, but it’s got to be better than a regular house. Then, they’re sure to be in the same living space all the time.
      5. I thought about age too. They can live downstairs with Jr. when they start to have problem with the steps. 🙂
      6. Kid’s privacy. He’d have to suck it up. I didn’t have my own room until my senior year in high school.

      Finishing the basement would solve a lot of stuff. It’ll be expensive, though, so we’d better start saving now. You should sell if you don’t like being a landlord. It’s a great seller market.

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