Are you interested in Real Estate investment? But you say that you have no idea where to start. One option is purchasing a single-family home where the additional units might become a passive income for you. But buying such a big multi-unit family house can be intimidating for a real estate investment beginner. This is why the other option of purchasing a duplex with two property units is the best move for a beginner. In this article, we will resolve all your dilemmas about buying a duplex.
What is a Duplex?
Choosing a duplex for a beginner comes with both advantages and disadvantages. But first, we must understand what a duplex is. A duplex is a building or living structure with separate establishments for different families or groups of individuals. These distinct units can be side by side or on different floors in a two-story building. In essence, a buyer is buying two residences when they buy a duplex. Frequently, a shared front and backyard, as well as a driveway for off-street parking, are present. Because, while being modest, duplexes are designed to house two families, they are the ideal choice for multifamily property investments. When it comes to investing in duplexes, this unusual configuration offers both advantages and disadvantages. To ensure the best conclusion for your investment plan, it is crucial to devote the necessary time to thorough research and analysis of your current circumstances, your ideal investment strategy, and how you want to implement it. Firstly, let us understand the difference between single-storey and two-storey duplexes.
Single Storey Duplex
These are the duplexes that consist of two adjoining units that are both on the ground floor and are divided by a shared wall.
Two Storey Duplexes
In a two-story duplex, the placement of the apartments on various floors makes it possible to house a variety of tenants. Some people would like not to use the stairs and would rather live on the first level for security and privacy concerns.
Following we will be looking at the core of this article, the advantages and disadvantages of buying a duplex to let you understand everything that consists of a duplex.
Pros of buying a duplex
- They are affordable: 2 units in one transaction
It should be noted that duplexes are frequently quite cost-effective in real estate. Finding a duplex might be inexpensive if you want to reside in a particular region but the single-family homes there are too expensive. Duplexes give prospective investors the chance to get accustomed to the real estate market. Your savings will start to increase as you start to make money from the rent you charge.
It is crucial to remember that duplexes are often underwritten similarly to single-family homes. This indicates that you can qualify for FHA or conventional loans because many of the requirements are similar. A duplex may require a down payment of approximately 3.5 percent of the sales price. The best thing is that this down payment might come from your savings account or as a gift from a family member. Due to these provisions, getting a duplex is not too difficult.
2. Easy Financing
If you want to live in half of the duplex, one significant benefit of purchasing one is that you can finance it with a standard mortgage. As opposed to other types of investment property, you won’t need to make a sizable down payment of 20%.
Duplexes are excellent investment options since they offer better mortgage qualifications than other kinds of investment properties.
3. Tenants help with the mortgage payment
Even a partial payment made from rental revenue, which may not initially be enough to cover your entire mortgage payment, can help you pay down your loan. While you live there as well, having a tenant pay you rent regularly gives you the chance to save a sizable sum of money. When you own a duplex, you can put your money to work improving the property rather than throwing it away for rent. You could even be able to let a relative rent out a portion of the duplex. Knowing who is renting from you in the other half of your duplex can be interesting and give you a feeling of security and trust. Usually, family and close friends would look after your home better.
A duplex is often more appealing to many renters when it comes to seeking living spaces. This is so because a duplex often has a lot more space than the majority of apartments do. In contrast to an apartment, where all of the walls are shared, a house often only has one wall or shared space.
4. Get landlord tax deductions
Consider installing a ceiling fan in place of the light fixture your tenants now have. Deduction! Should the porch railing be replaced? Deduction! The majority of repairs and improvements made to your renters’ areas will be tax deductible. The majority of deductions don’t apply to your own living space if your house is owner-occupied, however, repairs done to communal areas can usually be written off at 50%. Write-offs are a fantastic method to receive money back for property improvements, but carefully investigate what the IRS considers to be a deduction.
Landlords are permitted to write off some costs on their federal tax filings by the Internal Revenue Service (IRS). Advertising, depreciation, insurance, mortgage interest, property taxes, running costs, and repairs are all deductible expenses.
A duplex guarantees its tenants maximum comfort with high-end features and open spaces like gardens or patios. You will have lots of privacy to yourself, similar to individuals who reside in a single-family house, thanks to completely separate front and back entrances.
6. Easy to Lease
If you rent out a single-family house and the tenant decides to leave, you can find yourself in a difficult situation. But let’s say a multi-family building has an empty unit. In this case, you can still rely on the income from the other units to offset the vacancy loss.
7. More appropriate for large families
A duplex might give your family the chance to live next to each other if you are a part of a large family or perhaps have elderly parents to care for. To maintain your sanity, you can enjoy the benefits of having a close family member nearby while having a good thick wall running along the middle of the house.
8. Easy to sell with good resale value
A duplex has well-appointed flats that each have its kitchens, bathrooms, and entrances. As a result, the house has a great resale value and is appreciating more quickly. Due to the benefits listed above, duplexes are frequently among the best investments in real estate that are also among the simplest to sell.
Well, now that we have learnt about the pros of buying a duplex, let us understand the cons of buying a duplex.
Cons of Buying a duplex:
- No guaranteed rental income
Finding a replacement tenant after a tenant vacates may take some time, resulting in a loss of rental income. Tenancy gaps might put you financially at risk if you depend on rental revenue to pay your mortgage. Finding the right tenant for your duplex might be a time taking the job.
2. Responsibility for repairs and maintenance
The owner of a duplex often pays for all maintenance, repairs, and other costs. Before renting out the home, you as the landlord must make sure it is suitable. A duplex may not always provide the comfort and financial gain you’re looking for if it’s not properly managed.
You need to think about how much time you have. When first starting, running a duplex might take up a lot of your time—almost as much time as working a part-time job. It can take hours to research the property, determine whether you want to live there while renting out some of it, consider remodeling alternatives, and make plans. Once you have a tenant, you must allow yourself adequate time to take care of upkeep and make the required repairs. You may even consider it a business opportunity with lots of lessons and strategies to pick up along the road.
3. Noise and Disturbance
Compared to an apartment, a duplex provides a good increase in quiet and privacy, but that one common surface won’t completely muffle all noise. A stacked duplex’s downstairs residents will have to put up with a fair amount of stomping. Getting wall insulation might do the trick but you will have to bear the additional costs.
4. Stuck with problematic tenants
Except for the one neighbour who lives on the opposite side of the wall, a duplex is similar to a single-family home. It will get tiring living in a duplex if that neighbour is a nightmare.
5. Might be expensive
You will be responsible for all the costs of upkeep and repairs for both your home and that of your tenant which will add to the additional costs.
So now, we will move on to a bigger question of Duplex Vs Single family home: Which investment is right for you?
To begin with, a vacant single-family home will have a considerably greater impact on your monthly return on investment than a vacant duplex. The likelihood of both units being vacant at the same time is uncommon whether you live on one side of the duplex while renting out the other or rent out both flats. If a single-family home is unoccupied, you are entirely responsible for the mortgage.
However, compared to single-family houses, the cost of property insurance for a duplex is often 15 to 25% greater.
As it was already established in the article above, duplexes typically start more expensive to rent than single-family homes. Selling a duplex may take longer than anticipated because there is greater demand for SFRs than for duplexes. However, over time, duplexes provide more cash flow, which appeals to buy and hold investors.
Duplexes can be the appropriate choice for you if you’re prepared to move beyond single-family homes or if you want to make a big splash when you start investing in real estate. Make sure you have all the information you need to make the best choice by doing your research and getting to know the local real estate investing scene