So, you’ve decided you want to invest in real estate? You’ve heard of duplexes as one great option for investors, but you’re still not sure how to go about it?
Duplexes are a suitable way to make a good return on investment.
Does the thought of investing in a duplex house for sale make you shudder? Don’t worry. We’ve compiled this comprehensive guide to break down the process of duplex investing and ensure you avoid some common pitfalls.
First things first…
What Is a Duplex?
A duplex is a type of residential property that consists of two individual units attached to each other. They could be arranged one on top of the other or next to each other. The term “duplex” is used to distinguish them from other types of residential units, such as triplex and quadruplex.
Duplexes can consist of any number of rooms of whichever size. The layouts can also be similar, mirrored, or completely different. As such, it’s common to find one unit that has more bedrooms, bathrooms, or a larger kitchen than the other. However, they both have different entrances.
When it comes to utilities, duplex units may share the same utilities or be differently connected. The units can share the same electric meter and heating unit or have different ones for each. If the units share the utilities, the duplex owner is responsible for the expenses.
In this case, the owner can charge a higher rent to cover these costs. The owner in this situation would want to be careful to set a competitive rate to ensure they don’t undercharge. The amount should be enough to recoup the expenses. Conversely, they don’t want to overcharge since the price should remain attractive to potential tenants.
Duplex Vs Apartments
Many people may confuse duplexes with apartments. However, they’re not synonymous.
The main difference between duplexes and apartments lies in ownership. Duplexes are owned by a single investor. On the other hand, some apartments may be owned by a group or have more than one owner.
Besides, most duplex owners often live in one unit and rent out the other. This strategy is referred to as house hacking, which we’ll talk more about in a while. Apartment owners rent the units outright and have a primary residence elsewhere.
Duplex Vs Townhouse
The main difference between duplexes and townhouses lies in the construction style. Duplexes are basically two distinct units separated by an adjoining wall. On the other hand, townhouses are usually built adjacent to each other in a row. Some of the units are connected by walls on each side.
Why Should I Buy a Duplex?
As we mentioned, owning a duplex is a great way to follow the house hacking strategy. House hacking simply means using one of the units as your primary residence, then renting out the other. The best thing about this strategy is that it helps you offset your mortgage and settle other bills. In simple terms, you’re living cheaply or completely free.
If you’re a beginner in real estate investing, buying a duplex for sale is also a better option as it’s easier to manage, compared to buying a triplex or a fourplex.
It’s also better to buy a duplex instead of a single-family home because of the income. If a single-family home is vacant, then there’s no income for you. With a duplex, it’s highly possible that at least one of the units will be occupied by a tenant. You’ll still be getting income while trying to get a tenant for the vacant one.
Here are the major reasons why you should seriously consider buying a duplex for sale:
Offset Major Living Expenses
As we’ve seen, a duplex offers you a chance to live cheaply or completely free by house hacking. For example, let’s say you’ve taken a mortgage and will be required to make about $700 in monthly payments. You can find a tenant for one unit and lease it for the same amount.
While this can be a great strategy, remember to always consider vacancies. Determine whether your primary source of income can settle your expenses. If you’re fully dependent on the rental income, it may not be the best option since vacancies are a reality.
The best way to tackle this issue is by buying in an area with a high demand for rentals. While researching areas to invest in, check the vacancy rates so that you can understand how to minimize the vacancy. Alternatively, you can save up to 3 or 5 months of rent to protect yourself in case of a vacancy.
As such, don’t forget that high-demand areas will mean you charge a higher rate because home prices may also be higher. Have the numbers right by calculating the net operating income before investing.
Start Building Your Real Estate Portfolio
Investing in a duplex for sale offers you a great opportunity to launch your investment portfolio. It’s better to start with a duplex than larger multifamily property or apartment complexes.
Once you’re ready to expand your portfolio, you can now buy another house, move out and rent out the other unit. Now you have two units in your portfolio generating passive income for you.
You can use the duplex as collateral for a loan or take another mortgage for another property. Getting financing this time will be easier since you already have an income to settle the repayments. Lenders are friendlier when you already have some investment to your name.
This is a smart way to grow your portfolio with time.
Streamlined Property Management
Managing a duplex is way easier compared to when you have to travel to a different location to oversee property maintenance tasks or sort tenant issues. You’re more aware of when maintenance tasks are delayed when you live on the property.
Besides, tenants are more mindful when they live on the same property as the landlord. This means you’re unlikely to experience rent payment delays or noise when they host rowdy guests.
Here is some experience you’ll gain by owning a duplex:
- Advertising your vacant units on listing platforms
- Tenants screening to find suitable neighbors
- Understanding how landlord-tenant laws work
- Drafting lease agreements and other legal paperwork
- Controlling your finances and updating your financial books
- Developing landlord skills
Favorable Mortgage Terms
Mortgage terms for owner-occupied duplexes and single-family homes are almost similar. In these situations, you benefit from lower down payment requirements, lower interest rates, and longer repayment periods, which can be up to 30 years.
Interest rates for homeowners are around 3.8%, while those for investment properties are 7.5%. Besides, mortgage lenders also check for rental income, meaning you may qualify for more expensive property investments.
There are also many loan options backed by the government for homeowners. Investors purchasing an investment property that is separate from their primary residence may not qualify for such options.
Down payments for such government-backed loan options are usually as low as 3.5% of the total property’s value.
Rent as a Short-Term Rental
Vacation homes and short-term rentals are popular in some cities. If you happen to be located in one, why not use the property as a short-term rental and list it on sites such as Airbnb? This would be great if you’re in a business or vacation location. Also, if you’re in a college town, events such as graduations, alumni events, and reunions make it suitable for short-term rentals.
Listing your duplex as a short-term rental also allows the property to stay free when you don’t want to have tenants in your property.
If you think your duplex would be great as a short-term rental, know that the rental income can build up fast. However, the maintenance costs can also steadily rise over time. Besides, income from short-term rentals isn’t as stable as that from a long-term rental property since you aren’t assured of always having renters.
Make sure you do all the calculations and ensure the idea makes financial sense before you list your vacant unit as a short-term rental.
What Are the Disadvantages of Owning a Duplex?
Investing in a duplex is clearly a great opportunity. However, there are some situations that may make you reconsider buying a duplex for sale. They include:
Lack of Privacy
If you follow the house hacking strategy, you share the same compound with your tenants. This minimizes your privacy. It can even be worse if your tenants are noisy and nosy.
For example, your tenants may monitor when you come home and knock on your door or call frequently even when they don’t have to. Imagine when you want to spend time alone or with your family only to be called for a minor issue that can wait?
If you value your privacy, it may be harder for you to live in a duplex.
Property Management
While the property management tasks that are involved with a duplex are easier compared to those involved with an apartment complex, they’re still not for everyone. Screening and managing tenants, collecting rent payments, scheduling and overseeing property maintenance, and handling contractors may not be everyone’s cup of tea.
If you’re thinking of outsourcing to a property management agency, it might not make financial sense. Remember you’re earning from one unit. Paying agency fees from your rental income will reduce your profit.
Irregular Rental Income
Assuming your duplex is your primary source of income, it may be hard for you when a tenant moves out. That’s why we insist you have a few months’ savings to avoid any surprises due to vacancies. This is extremely important especially when you have a mortgage. You don’t want to land in trouble due to defaulting on repayments.
Vacancies are normal when it comes to rental properties. Plan early to ensure you’re prepared.
Shared Utilities
If the duplex units share utilities, such as heating, water meter, and electric meter, the landlord is required to pay for the expenses. This can bring up a few issues especially with careless tenants who leave the lights and heating on.
While doing your due diligence, scrutinize the real estate market well to ensure the rental rates are enough to cover shared utilities’ costs. You can also contact utility companies to get estimates. They aren’t likely to tell you what the current tenants pay but can provide you with an estimate based on past information.
Illegal Duplexes
While the opportunity to invest in one seems mouthwatering, you may want to confirm whether the duplex is legal before buying it. Why?
Because some duplexes might have been single-family homes or other types of properties before being converted into duplexes. In such a case, the conversion needs to have been approved by the city and adhere to the municipal building codes. Further, it needs to have gotten the necessary building permits.
This is something you need to check. Don’t assume because it passed the regular home inspection. If found illegal, you may be heavily fined and have to get contractors to revert the building back to its original form. This would mean removing the added walls, kitchens, and bathrooms.
Ensure you’re not inheriting someone else’s mistakes.
How Do I Find a Duplex for Sale Near Me?
Establish What You Want
Before putting your hard-earned money into a duplex for sale, or any investment whatsoever, it’s important to first decide what you want. That way, you’ll determine your goals and have a clear plan on how to work towards them.
Ask yourself the following questions:
- What are my investment goals?
- How much am I willing to spend on a duplex for sale near me?
- Which locations are most suitable to invest in?
- Do I want a duplex ready to move in or one I can fix and flip?
Educate Yourself
You want to gain a deeper understanding of how things work. You don’t want to take a trial-and-error approach since you’ll lose your money. Educating yourself is important since you’ll also learn how to carry out real estate market analysis and scrutinize potential deals so that you can get the best out of your investment.
Mashvisor is a solid resource to start you off. In fact, our knowledge center has anything and everything to do with real estate. Here, you’ll find invaluable and timeless insights for any real estate investment strategy.
Get Pre-Approved
Nothing demonstrates to a seller that you’re a serious buyer than a preapproval letter. Besides, you also want to line up your finances before you can go any further.
Here are some factors most mortgage providers consider before approving you for financing:
- Credit score
- Credit history
- Debt to income ratio
- Income
- Employment history
- Assets and liabilities
Find a Real Estate Agent
There are many benefits of working with an experienced real estate agent. You can leverage their networks and connections to find a duplex for sale even before anyone gets to know about it. An agent will also help you follow due process when undertaking any real estate transaction.
This is the common way to buy properties. If you’re a new investor, don’t stress too much through this process. Typically, the seller settles the agent commission.
You can use the Mashvisor real estate agent directory is a great platform if you don’t know where to start. This platform is a database that helps you find top-ranking agents in any market in the US.
Here are some questions you may ask yourself when looking for a real estate agent:
- Are they experienced working with first-time real estate investors?
- Do they understand the market you want to buy in?
- Do they understand the ins and outs of duplexes?
- Are they efficient in communication and reply promptly?
- Are they genuinely interested in helping you?
- Are they tech-savvy?
- Are they patient with you as a beginner?
Once you’ve found one, let them know the goals you set in the first step. Let them know you want a duplex for sale in a certain location and how much you’re willing to spend. A good agent will let you know whether your expectations are realistic or just a fantasy. They will also let you know what your ideal property might look like and introduce you to other professionals, such as contractors and property managers.
Start Your Property Search
Here comes the fun part. How do you actually find a duplex for sale?
You can decide to play it old school and drive around suitable neighborhoods looking for “For sale” signs. If you want to fix and flip, you can look for properties that are not entirely in good conditions or distressed sales.
You can also look for properties on the multiple listing service (MLS). Here, you’ll need to have a good real estate agent so that they can help you know which are the best locations to invest in.
The Mashvisor Property Finder is a valuable resource when looking for a duplex for sale. The tool helps you find your ideal property fast and more easily. Once you search for property on the platform, the most profitable deals appear at the top of the results. With this tool, you can see properties for sale in various housing markets simultaneously.
Do Your Due Diligence
Once you’ve identified a few potential duplexes you could invest in, do some due diligence to be sure. You want to ensure the property has everything or most of what you expect.
Here are some pointers to do your due diligence:
- Carry out a rental property analysis
- Conduct a neighborhood analysis
- Get a professional home inspector to conduct a property inspection
- Do a title search
- Confirm the zoning laws
- Check whether you’re eligible for insurance
These are some of the steps that will let you know whether to go on with the deal or move on to another. However, you don’t always have to reject the property. In some cases, the seller may be willing to compromise and reduce the selling price or settle the repair costs. Don’t underestimate the power of negotiation.
This is also the time to finalize your loan documents.
Make an Offer
If everything is in order and you’re contented, it’s now time to make an offer on the duplex for sale. At this point, your real estate agent will do most of the hard work and take care of the paperwork for you. If you decide to swing it by yourself, you’ll have to obtain all the documents needed and handle the paperwork. Some of the documents come at a fee.
Your offer can either be accepted, rejected or countered. If it’s countered, it’s up to you and your real estate agent to bring your A-game at the negotiating table until you land a suitable deal or choose to walk away. Have it in mind that negotiating may have you pay more than you were initially willing to offer.
Close the Deal
If you and the seller have come to a mutual agreement on the duplex for sale, it’s now time to close the deal. You can do this at the title company or an attorney’s office depending on the state you live in. Your agent will be instrumental in helping you navigate this process.
Now you have a duplex to call your own.
The Best Places to Buy and Rent Out Duplexes
Buying a duplex in the right location makes financial sense and is the first step towards generating a high return on investment. Here are some of the best markets to buy and rent out a duplex for sale in the US. All the rental data below is provided by Mashvisor.
#1. Parkville, MD
- Median Property Price: $280,563
- Price per Square Foot: $187
- Price to Rent Ratio: 13
- Monthly Traditional Rental Income: $1,760
- Traditional Cash on Cash Return: 4.62%
- Monthly Airbnb Rental Income: $2,166
- Airbnb Cash on Cash Return: 4%
#2. Longmeadow, MA
- Median Property Price: $437,964
- Price per Square Foot: $191
- Price to Rent Ratio: 15
- Monthly Traditional Rental Income: $2,436
- Traditional Cash on Cash Return: 3.36%
- Monthly Airbnb Rental Income: $3,187
- Airbnb Cash on Cash Return: 4.07%
#3. Bloomingdale, IL
- Median Property Price: $337,133
- Price per Square Foot: $185
- Price to Rent Ratio: 14
- Monthly Traditional Rental Income: $2,000
- Traditional Cash on Cash Return: 2.62%
- Monthly Airbnb Rental Income: $2,769
- Airbnb Cash on Cash Return: 4.47%
Key Takeaways
Investing in a duplex apartment for sale is the way to go. It’s not as complicated as some people may think. You only have to follow the right steps to set yourself up for a great income opportunity. Use Mashvisor real estate investment tools to find duplex and triplex for sale to back your investment decision with data.
To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.