Is a duplex a good investment? We know that real estate is a good investment in the US housing market 2020. The forecast is generally positive and there’s money to be made. But what about buying a duplex?
Are duplexes a good investment this year?
The short answer is yes. Investing in duplexes is generally a timeless real estate investment strategy that can make you money. Let’s take a look at what you stand to gain if you buy a duplex in 2020.
Why Duplexes Are a Good Investment in 2020
1. You Can Make More Money
Single family homes are usually considered the “starter real estate investment.” Most beginners go for this type of investment property and then expand their portfolios with multi family homes down the line.
While investing in single family rentals can be smart, you get one unit and one stream of rental income.
The assumption is that if you try to be savvy and buy a duplex to make more money in real estate, you’ll have to pay twice the amount that you would for a single family home. However, this isn’t always true. Depending on the real estate market where you start your investment property search, you may find duplexes for sale that cost hundreds of thousands of dollars. But you are sure to also find properties that cost much less- less than $100,000 in some cases.
Not only will you have two units to rent out with a duplex investment property, but you can also charge a higher rental rate than if you were renting out an apartment or a condo unit. This is because duplex houses usually have a backyard, a lawn, and a driveway- amenities that quickly raise the rental value of a property.
2. The Risk of Earning $0 Is Low
Keeping with the comparison of single family homes vs multi family homes, duplexes enjoy lower vacancy rates. It’s highly improbable that both units will remain vacant (if you have chosen a good place to invest in real estate). With single family homes, vacancy means no rental income at all. If a tenant moves out of one unit or you have trouble filling it, you’ll only lose half of the rental income with a duplex rental property.
3. Duplexes Are the Affordable Option in the Multi Family Market
The idea of owning a multi unit property is enticing. Buy one investment property and get multiple rental properties rolled into one building. But when you start checking out the price tags of larger multi family homes for sale, you might start to think real estate investing just isn’t in your budget.
Rather than miss out on a great time to invest in real estate, start shopping for duplexes for sale. Because these investment properties are smaller, they are naturally cheaper. But a real estate investor still gets 2 rental units which can generate income and cash flow.
4. You Can Qualify for an FHA Loan with This Investment Property Type
FHA loans and their very low down payment of about 3.5% are reserved for homebuyers. As a real estate investor, you won’t qualify if you buy a house to rent out while you live somewhere else.
But there is a way around this that will allow you to buy a multi family property with no money– well, almost no money. You can qualify for an FHA loan if you buy a small multi family home (2-4 units), live in one unit, and rent out the others. This is called house hacking and the property will be classified as an owner occupied rental property.
The relatively affordable price tag of duplexes for sale and the opportunity to also land a low down payment with lenient loan requirements makes buying a duplex a great way for beginner real estate investors to enter the housing market.
Of course, house hacking isn’t for everyone. If you already own a home or are settled in your apartment, the owner occupied multi family real estate strategy may not be for you.
But if you’re less settled and looking for a way to increase your income and finally make a move that can put you on the path to financial freedom, consider sacrificing a few comforts. Consider buying a duplex and house hacking. Keep in mind, this is not your forever home. FHA loans require you to live on-site for a year or two. Then you can move out and rent out the entire duplex house to take advantage of its full earning potential.
5. Live for Free with an Owner Occupied Duplex
Qualifying for an FHA loan for investment property is not the only perk of house hacking a duplex. If you’re renting out a duplex unit and living in the other, the rental income from your tenants can cover your mortgage payments. This is where the “hacking” part comes into the picture. This strategy allows you to live for free (rent-free and mortgage-free). This means that you can be saving up any extra income from your day job to go towards buying your dream home. Or, better yet, you can put that money towards your next investment property.
With the right duplex real estate investment, you can even generate positive cash flow. This means that you’ll have a rental property that is covering your housing costs and putting money back into your pocket. If you want this to be your reality, however, make sure you’re conducting multi family real estate investment analysis on properties before you buy them. Mashvisor’s Rental Property Calculator gives you a complete analysis when you’re checking out duplexes for sale on the platform.
Find and analyze a duplex for sale that will help you live for free and make money now.
6. You Can Rent Out on Airbnb Without Facing Legal Issues
Real estate investors have had a rough few years when it comes to Airbnb. Airbnb data shows that short-term rental properties are more profitable than long-term rentals in many real estate markets. But many cities across the US have banned non-owner occupied rentals. And while you are still allowed to rent out rooms in your primary residence in many of these locations, this Airbnb rental strategy doesn’t allow you to tap into the full potential of the short-term rental market.
If you are investing in a duplex and decide to hack your housing, then you should have no trouble renting out the other unit on Airbnb. You can enjoy rental income from an entire house without having to face any Airbnb legal issues. Just be sure to check and understand local regulations before making a purchase with this strategy in mind.
And be sure to choose the right duplex for house hacking with Airbnb. Start your search now with Mashvisor and find a profitable Airbnb investment property.
7. Duplexes Will Help You Build Your Real Estate Portfolio Faster
Duplexes will fast-track your ability to buy multiple rental properties. How? Well, for one, you will be spending less money on a down payment if you use an FHA loan. The typical 20% down payment you’d have to put on a single family home or larger multi family home will eat up your budget, leaving little left over to buy a second rental property any time soon.
Even if you were to buy a single family home with an FHA loan to save some money, you’d have to live in it for a year. You’d be missing out on a year’s worth of rental income that could have been put towards another down payment on investment property. And don’t forget- mortgage lenders usually like to see at least 2 years of rental property management experience and rental income earnings before they give you a mortgage for a second investment property. This means moving out of the single family home and waiting another 2 years before you can get financing to grow your real estate portfolio.
A duplex house allows you to start earning rental income right away while saving money on the side for a new property. You can move out after one year and only have to wait another year to build up your experience and rent roll to meet loan requirements.
While some of the benefits listed above revolve around buying duplexes and living in one unit, it should be noted that even if you don’t implement the owner occupied real estate investment strategy, duplexes are a good investment. It’s enough that they are affordable, low risk, and can bring in two streams of rental income.
A Few Things to Know Before Buying a Duplex
Are duplexes a good investment? Yes. Does that mean this type of investment property doesn’t come with any drawbacks or risks? Of course not. So before you start wondering how to buy a duplex, you should be aware of them. There are two major issues you may face when investing in duplexes:
1. Duplexes Can Be Hard to Find
Finding a duplex isn’t always an easy feat. These investment properties are not as common as single family homes and larger multi family homes in some areas. Still, if you’re using the right investment property search tools, like Mashvisor, you should be able to find profitable ones quickly and easily.
Finding a duplex becomes a little more complicated when you plan on house hacking. If you cannot move to cities where duplexes are more common, it may put this strategy out of reach. If that’s the case, consider saving up for a down payment and investing in a duplex out of state to enjoy the other benefits of this type of rental property.
2. You May End Up Living Next to Nightmare Tenants
One general drawback of investing in real estate and becoming a landlord is dealing with bad tenants. But typically, they aren’t also your neighbors and you don’t share a wall with them. Buying a duplex and living in one unit could mean having to deal with loud, disruptive tenants. Or you could end up with the type of tenant that thinks it’s okay to knock on your door at 3 a.m. to let you know the faucet is dripping- news that could have waited until the morning.
You could also have the best tenants who are well-behaved, knowing that the landlord lives right next door. This all comes down to your ability to screen tenants for a rental property. Make sure to run background checks, talk to previous landlords and employers, and check employment and credit history as well.
The Best Places to Buy a Duplex to Rent Out in 2020
Investing in duplexes makes sense and can generate a high return on investment if you buy them in the right place. The following are some of the best places to buy a duplex in the US housing market. All rental data is provided by Mashvisor:
1. Chattanooga, Tennessee
- Median Property Price: $164,147
- Price per Square Foot: $86
- Price to Rent Ratio: 12
- Average Rental Income: $1,141
- Average Cap Rate: 2.9%
2. Jacksonville, Florida
- Median Property Price: $180,818
- Price per Square Foot: $100
- Price to Rent Ratio: 14
- Average Rental Income: $1,114
- Average Cap Rate: 2.9%
3. Fort Myers, Florida
- Median Property Price: $184,479
- Price per Square Foot: N/A
- Price to Rent Ratio: 13
- Average Rental Income: $1,173
- Average Cap Rate: 2.4%
4. Atlanta, Georgia
- Median Property Price: $306,829
- Price per Square Foot: $140
- Price to Rent Ratio: 18
- Average Rental Income: $1,442
- Average Cap Rate: 2.3%
5. Columbus, Ohio
- Median Property Price: $223,950
- Price per Square Foot: $89
- Price to Rent Ratio: 16
- Average Rental Income: $1,196
- Average Cap Rate: 2.1%
Start Investing in Duplexes Today
Duplexes are a good real estate investment– some of the best in the market, actually. You have different options for rental strategies and can get access to low down payment investment property loans.