Buying a duplex is a great way of getting your foot through the door in the real estate investing world. While owning a duplex can be profitable, it also sets up a series of challenges not only as a homeowner but as a landlord and a new business owner, too.
A duplex is seen by many as a great investment for real estate beginners since you can live in one half of the property and rent out the other for profit. It’s even better when you can live elsewhere, and make your duplex into two separate revenue streams.
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What is a duplex?
Often referred to as a two-family or multifamily home, a duplex is essentially two homes in one. You have two distinct units, with their own entrances and amenities, connected together, and separated by a connected wall.
How these two living spaces are occupied is entirely up to you. You can live in one and rent out the other or rent both. If you do rent both units, you have two potential revenue streams, insulating you against having one money-draining vacancy—provided you have somewhere else to live, of course.
Some duplexes are two separate properties in one. You can split them and sell them individually. Though many people looking to buy a duplex will want both units, as they’ll likely want to rent one or both of them out.
Should I buy a duplex?
Owning a duplex is perfect for someone looking to both buy their starter home and get their start as a real estate investor at the same time. If you already own a home, buying a duplex is even better for a real estate investment beginner since you’ll have two units worth renting out to potential tenants.
Having said that, owning a duplex is definitely not a turn-key business opportunity. You have a legal and ethical responsibility to ensure the property remains habitable. That doesn’t just mean mowing the lawn and doing minor DIY projects around the house, either.
Electrical, plumbing, and HVAC issues can get expensive quickly and without warning. While you might be qualified to handle one of those things, very few people are genuinely qualified to take on problems in multiple categories. That means you need to hire professionals—and that can get pricey.
You’ll need to be financially prepared for whatever duplex ownership throws at you. It’s just like any other small business, really. You need to have cash on hand at all times in case of an emergency.
Key Takeaway: If you’re considering buying a duplex, be sure to recognize that it is an investment of both time and money before taking the plunge.
The pros and cons of owning a duplex
Let’s break down the pros and cons of owning a duplex, both as someone planning on living in one unit and as someone renting out both units.
Living in one unit and renting out the other
Planning on renting out one unit while you and your family occupy the other? Here are some benefits of that:
- Have a residence for yourself while maintaining a revenue stream
- Being on the property means you can respond to tenant issues more quickly
- Tenants are less likely to throw wild parties and trash your property when they know you live right next door
- Get to know your neighbors! Your tenants living next door means you can be more accessible and attentive as a landlord
But there are downsides to this arrangement, too:
- Sudden vacancies mean your property isn’t generating any revenue at all
- Some tenants are needier than others, which can get frustrating when they’re just a doorbell away
- This also means you have less privacy and need to remain on your best behavior at all times, too. Tenants aren’t going to be happy about you blasting loud music or taking up all of the parking spaces with frequent house guests. That respect has to go both ways.
Renting out both units
What if you live elsewhere and rent out both units in your duplex? Here are some pros:
- Double the units mean double the income
- If you have a vacancy, you still have one revenue stream still active
- As we mentioned earlier, not living right next door has its perks
And there are of course some cons:
- Double the units mean double the upkeep
- You’re on the hook for the costs of property ownership, not only for your own home but for a second property as well
- Living elsewhere means you need to travel to and from your duplex
- Tenants won’t have those same reservations about noise and respecting property as they would if you were living on said property
General pros and cons of duplex ownership
Whether you’re renting out one unit or both, these are some of the other perks of owning a duplex:
- Lenders will factor your potential rent income into mortgages and loans, which can be beneficial in securing more funding
- Rent prices tend to increase over time, while a fixed mortgage rate will stay the same. That means you’re gradually earning more profit
- There are tax benefits to owning a duplex, too. Your duplex isn’t just a residence, but a small business as well. You’ll want to speak with a tax professional to see what you can write off and what programs you should capitalize on
- Duplexes typically hold their value well, so the future resale potential is quite strong
And where there are pros, there are always some cons:
- Payments aren’t going to always be on time, and you can’t count on them ever coming at all. You may even need to evict someone if they aren’t paying the rent!
- Local and state laws can be a real headache, especially in some areas. As a landlord, you’ll need to learn these laws and ordinances and how they apply to you. The real estate industry involves a lot of homework!
- Vacancies can be a lot of work. You’ll need to clean out empty units, repair them, and maintain them while also listing, marketing, and showing them to prospective tenants
How to buy a duplex
Your first step in creating any new small business is to write a business plan. This will be useful in acquiring mortgages and loans, and it provides a strong outline of how you’ll run your business. In crafting your business plan, you’ll do a lot of helpful research, be better prepared for potential costs, and have a stronger business strategy overall.
The Small Business Administrationoffers a wealth of helpful resources to guide you not just in writing your business plan, but in operating your business in general. Your local
Small Business Development Center(SBDC) is incredibly useful as well, and it can provide you with an advisor who will guide you through the entire process of starting your business, all free of charge.
Renting your duplex
Once you own your duplex, you’ll need to go about thoroughly cleaning the units, repairing and upgrading as necessary, and making it presentable for potential tenants.
If you did a good job writing your business plan and followed professional advice along the way, you’ll have researched local, county, and state laws. Additionally, you’ll have researched rental prices in your area and have reasonable, competitive rates planned out, too.
Being a landlord is always a financial balancing act. You’re going to face operating costs, including small, recurring ones—gas for mowers, rock salt for sidewalks, etc.—and big ones like repairs. You can’t always depend on tenants to pay their rent on time, either.
You’ll want to make sure you’re investing in plenty of
insurance, too. A duplex means you’ll need homeowner’s insurance, but also business insurance and landlord’s insurance. You’ll probably want your tenants to invest in property and liability insurance and to provide you with proof of that insurance.
Key Takeaway: Renting out a duplex requires a concise business plan, recognition of extra costs, and the right insurance policy.
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Buying a duplex is a very appealing method of getting into the real estate game. But owning a duplex is also a serious investment. You’ll need to manage your money carefully as you proceed. Not just your business funds, but your personal money as well.
Jerry will find you quotes from top insurance providers in your area, so you’re sure to see the best rates available. And Jerry is a registered broker, so you won’t need to worry about losing an afternoon to phone calls and paperwork. You’ll make much better use of that time working on your business plan. Let Jerry do it for you instead!
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How much does buying a duplex cost?
Property values vary wildly all across the country, so it’s really going to boil down to how your local housing market is currently. In a lot of areas, a duplex will typically sell for around the same costs as a large home. That said, duplexes do hold their value quite well, and they’re sought after by real estate investors. Those factors can drive up the prices a bit.
Is buying a duplex a good investment?
Again, there are a lot of factors to consider here. The cost of the property, the money you’re putting into upkeep and repairs, and the gross profit earned from tenants will all affect the overall profitability of your duplex. But buying a duplex can be a good investment in the right conditions.
Can I buy a duplex if I have bad credit?
A minimal credit score of 580 to 620 is required to qualify for an FHA loan from the Federal Housing Administration. You might also look into finding potential investors who will share the profits, though this will require a more airtight business plan.
But remember, you might go quite some time without seeing any profit at all from your duplex. If you can’t carry that financially, maybe put this idea off until you can.