Multifamily homes are usually not recommended as a “starter” investment property for beginner real estate investors. But what about a duplex house? Can it be a good real estate investment? Can it be a good real estate investment for beginners?
To answer these questions, we need to look at the major advantages and disadvantages of a duplex house real estate investment.
What Is a Duplex House?
A duplex house is a type of investment property in the real estate market that falls under the category of residential real estate investing. While technically a multifamily home due to the fact that it has two units, it is not big enough to qualify as a commercial real estate property.
The Advantages of Investing in a Duplex House
Qualify for an FHA Investment Property Loan
An FHA investment property loan is one the best ways to buy investment property for practically no money down. The catch is that in order for an investment property to qualify, it has to be owner occupied for at least one year. With a single family home, this would mean losing out on rental income for an entire year before legally being able to vacate the premise and find tenants. Any multifamily home with 4 or more units cannot qualify, owner occupied or not. That leaves the owner occupied duplex house as an option.
If you have ever wondered how to buy a duplex with no money down, an FHA investment property loan is the answer. The down payment can be as little as 3.5% as long as you opt for an owner occupied duplex investment strategy.
Related: Can You Buy a House with No Money Down for Real Estate Investing?
Save Money with an Owner Occupied Duplex House
While moving out after a year will increase your rental income (and has other benefits as we’ll see up next), being an owner occupier can actually save you a lot of money. In fact, investing in an owner occupied duplex house is often stated as a technique of creative real estate investing. Why? First, there’s the fact that you’re investing in real estate with no money down. Then, there’s the fact that you’ll be making money in real estate all the while living rent-free and tenants will be paying your mortgage. That is what creative real estate investing is all about!
Buy More Investment Properties Sooner with an Owner Occupied Duplex Investment Strategy
To fully understand this benefit of duplex real estate investing, consider single family homes. If a real estate investor opts for using a conventional investment property loan for a single family home, a 20% down payment will be required. This will likely cut into the budget for any future real estate investment anyway.
So, let’s say this same real estate investor instead decides to apply for an FHA investment property loan to save money on a down payment. This means living in the single family home for a year. Before being able to qualify for a second loan for an investment property, this real estate investor will have to wait another two years. Mortgage lenders will need to see two years of rental income as well as rental property management experience before allowing for another investment property loan. Not only does this real estate investor miss out on a whole year of rental income, but he/she also has to wait another two years to expand his/her real estate investment portfolio. This is actually a common real estate investing mistake committed by beginners.
The better route? Invest in a duplex house with an FHA loan, live in one unit, and rent out the other. After one year, move out and double your rental income. It will only be another year before you meet the qualifications for a second investment property loan if you use an owner occupied duplex investment strategy.
Looking to buy more investment properties? Then you need to read this: 5 Tips for Buying Multiple Investment Properties
Make More Rental Income
Compared to single family homes, a duplex house will bring in higher rental income once a real estate investor is able to rent out both units. A duplex house can even bring in more rent than other types of multifamily homes, like apartments. Because a duplex house usually has a backyard, driveway, and maybe even a lawn, tenants are willing to pay more in rent. The fact that tenants will pay more for the added privacy in a duplex house (compared to a multifamily apartment building) also contributes to the higher rental income.
Start making money in real estate with a duplex house. Find and analyze duplexes in the real estate market right now. Click here to get started.
Learn About Rental Property Management
A duplex house can be a good real estate investment for beginners. Not only can you buy a duplex house for no money down (essentially), but it’s a great starting point in rental property management for beginners. Living on the property gives you a first-hand education in rental property management. Not only can you avoid the fees of professional rental property management, but you’ll also learn just how it’s done.
Landlords often find that when they live on the investment property (or are frequently present), tenants tend to be on their best behavior. This means there is less risk of property damage and any disturbances. Owner occupier landlords even find that tenants tend to pay rent on time with this investment strategy. The right tenants can even lead to passive income from a duplex house.
The Disadvantages of Investing in a Duplex House
Ending Up with Bad Tenants
Bad tenants are a possibility with any real estate investment. However, because the best duplex investment strategy is being an owner occupier, you’ll be dealing with bad tenants on a daily basis. This could mean anything from dealing with investment property damage through loud noises to invasions of privacy. Of course, as long as a real estate investor takes the time to learn how to find the right tenants (background checks, interviews, references, etc.), this can hopefully be avoided when investing in a duplex house.
Finding a Duplex House Can Be Difficult
Another commonly mentioned disadvantage of a duplex investment strategy is actually finding a duplex house in the right real estate market. It’s more common to find single family homes and larger multifamily homes in many hot real estate markets. That doesn’t mean a duplex house can’t be found; you just need the right tools. Use Mashvisor’s investment property finder to easily find a duplex house anywhere in the real estate market.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Learn More: How to Find an Investment Property Using Analytics
So, Is a Duplex House a Good Real Estate Investment?
Yes, a duplex house is a good real estate investment for any real estate investor at any stage in his/her real estate investing career. Even the disadvantages of an owner occupied duplex investment strategy can be avoided. Just be aware of them beforehand. The final question: Is a duplex house a good real estate investment strategy for you? If want to pay a low down payment, eventually make more rental income, and start investing in multiple investment properties within a few years, then yes! A duplex house is a great real estate investment for you.
