Investing in a duplex rental property is one of the best ways to make a good return on investment in the real estate business. Though it might appear intimidating to beginner real estate investors, investing in duplexes is not as complex as many imagine.
So, What Is a Duplex House?
A duplex house is a building that is made up of two separate living units attached to each other. They could be above each other like apartments, or next to each other like townhouses. However, the term ‘duplex’ should be distinguished from other terms such as ‘triplex’ (three-unit building) and fourplex (four-unit building).
What Is the Difference Between a Duplex and an Apartment?
The main difference between duplex real estate and an apartment is ownership. While duplexes are owned by one person, apartments usually have multiple owners. In addition, owners of duplexes often live in one unit and rent out the other. On the other hand, owners of apartments usually rent out their units and live elsewhere.
What Is the Difference Between a Townhouse and a Duplex?
The difference between duplexes and townhouses lies in their construction. A duplex has two separate living units with one adjoining wall. Townhouses are usually built side by side in a row, with some units being connected by walls on both sides.
Besides ‘What is a duplex?’, the other common question is ‘Is a duplex a good investment?’ To answer this question, you need to carefully weigh the advantages and downsides of a duplex investment strategy.
The Pros and Cons of Buying a Duplex
Pro #1: Affordability
Buying a duplex means acquiring two attached units in one transaction. This is usually cheaper than buying two separate single family homes. Duplexes are also affordable because they are often located in less expensive neighborhoods.
Pro #2: Ability to live cheaply or for free
One of the best things about having a duplex investment is the ability to live cheaply or for free. Living in one unit and renting out the other can help cover your mortgage payments every month. This is known as house hacking. By renting out a duplex unit, you will be able to pay off your loan and start generating passive income.
Pro #3: Easy financing
When buying duplexes, it is relatively easy to get financing. Some of the most common ways of financing a duplex include 203k loans, VA loans, FHA loans, conventional loans, and cash loans.
Pro #4: Easy leasing
Finding tenants for duplexes is much easier due to several reasons. First, duplexes are often larger and offer renters more privacy compared to apartments. In addition, if you live in the other unit, some tenants would be happy to have you nearby in case of any urgent issues.
Pro #5: Rental property tax deductions
Although you may be living in it, owning a duplex for rent makes you a landlord. This means you can enjoy tax deductions that a primary residence cannot offer. Some of the deductible items include interest on your mortgage, depreciation of rental property, repairs and maintenance costs, property management expenses, and legal service fees.
Pro #6: Real estate appreciation
Do duplexes appreciate? Just like any other real estate investment property, duplexes tend to increase in value over time. This means that you can increase your rents, or even sell the investment property after a few years and make a great return on investment.
Con #1: Responsibility for repairs and maintenance
In general, becoming a landlord means taking responsibility for repairs and maintenance in your rental unit. This means incurring unexpected expenses which can lower your return on investment.
Con #2: Lack of privacy
Some tenants can be very noisy and nosy, thus making your stay in a duplex a nightmare. This is why you need to choose your tenants carefully if you house hack.
Con #3: Rent is not guaranteed
Owning a duplex does not automatically guarantee tenants. A high vacancy rate means that you will have to make more mortgage payments from your pocket.
How to Buy a Duplex
1. Decide what you want
Before you put your money into a duplex, you should first decide exactly what you want. Ask yourself the following questions:
- How much am I willing to spend?
- Which neighborhoods or towns would I want to invest in?
- Do I prefer a move-in ready rental property or a fixer-upper?
2. Get preapproved for a loan
Having a mortgage preapproval letter shows the duplex seller that you are serious about buying their property. This is why it is very important to get preapproved for a mortgage first before you look for investment property. Here are some of the factors mortgage lenders consider when deciding whether or not to approve you for a loan:
- Debt-to-income ratio
- Credit score
- Your credit history
- Employment history
- Assets and liabilities
3. Start your investment property search
How to find a duplex for sale? You can locate duplexes for sale by simply driving around the neighborhood and looking for ‘for sale by owner’ (FSBO) signs. If you are interested in fixer-uppers, you might just identify distressed property that owners are selling. You can also search for income properties on real estate investor sites such as Mashvisor.
Start looking for and analyzing the best duplex investment properties in your city and neighborhood of choice.
If you are planning to buy investment property listed on the multiple listing service (MLS), you will need to work with a qualified real estate agent. Besides helping you find income properties, a local agent can also advise you on the best neighborhoods to invest in, as well as introduce you to other real estate professionals such as contractors and property managers. Be sure to choose an agent that has experience in buying duplexes or any other multi family homes for sale.
4. Do your due diligence
- Conducting an investment property analysis
- Conducting a neighborhood analysis
- Conducting a home inspection
- Performing a title examination
- Checking zoning laws
- Getting a home appraisal
- Checking eligibility for insurance
5. Make an offer
If you don’t have experience in buying rental property, a good real estate agent can come in very handy when making an offer. Do your math and decide the maximum amount you are willing to pay. If you cannot come to an agreement with the seller after negotiation, simply walk away. However, if you agree on a mutually beneficial price, close the deal quickly and acquire the duplex.
Investing in a duplex is not very difficult if you go about it the right way. Once you buy the property, you can then begin enjoying the benefits of being a landlord.
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