Is Buying a Duplex A Smart Investment?

The PropertyClub Team
Jul 24th 2020
Buying a duplex can be a great investment as you can live in half of the home while renting out the other. Here are some of the pros and cons of investing in a duplex and how they compare to single-family houses.

What is a duplex?

A duplex is a building or a home with separate entrenches for two different families or groups of individuals. These separate units are on different floors in a two-story building or can be side by side. This unique setup allows for some benefits and drawbacks when it comes to investing in duplexes. It is essential to really take some time to do the research and analyze your current situation, what you envision your investment strategy looking like, and how you plan to execute that strategy to provide for the best possible outcome in your investment plan. Here are some examples of the benefits and drawbacks of investing in duplexes, followed by a comparison of investing in a duplex or investing in a single-family home. 

Benefits of Investing in Duplexes

One of the largest benefits of investing in a duplex is the ability to rent a portion of it out. Usually, the owner will rent out the second half divided by a separating wall or floor. In this situation, the tenant will pay rent. This rent will either pay for a portion of or the entire mortgage that you took on in your investment. This assistant with your mortgage can be a huge financial help. Usually, depending on the area, typical rent is somewhere around what a mortgage may be.

It is important to note that duplexes are typically underwritten in the same way as single-family properties are. This means that many of the guidelines are the same, and you can qualify for FHA or conventional loans. Your down payment on a duplex has the potential to be around 3.5% of the sale price. The best part is that this downpayment can be gifted from a family member or can come out of your savings account. These provisions make securing a duplex fairly simple.

It should be mentioned that duplexes are often very affordable pieces of real estate. If you want to live in a certain area, but the single-family homes located there are too expensive, locating a duplex may be more affordable.

Having a renter pay you rent monthly while you also live there provides the opportunity to save a large chunk of change while you live in the home that you own. Owning a duplex allows you to invest your money into the home instead of wasting the cash on rent. You may even be able to rent out half of the duplex to a family member. This can be fun and provide a certain level of comfort and trust, knowing exactly who is renting from you in the second half of your duplex. Family and close friends will typically take better care of your property. 

Duplexes allow new investors the opportunity to become used to the real estate business. While you are making cash from the rent you charge, your savings will begin to grow.

It should be noted that when it comes to finding renters, a duplex is enticing to many. This is because the space available in a duplex is usually much larger than the space in most apartments. There is also usually only one wall or portion of the home that is shared with the other half, instead of all of the walls in an apartment. 

Investing in duplexes also provides for the opportunity for some tax deductions. Owners of duplexes are able to deduct all maintenance expenses, including cleaning and yard work. 

Drawbacks of Investing in Duplexes

Many risks also come along with investing in real estate. As with any investment, a drawback or risk will always exist. Duplexes come along with their fair share of concerns that can be worrisome. Investing in a duplex will set you out on a great path for a successful career and constant cash flow, but it does get slightly risky when it comes to security and other drawbacks.  

When it comes to duplexes, having a vacancy can be very worrisome. The single biggest risk of investing in duplexes is, without a doubt, vacancies.,When a unit goes unrented, you are stuck paying the mortgage without the additional monthly rental income. If your duplex winds up vacant and unrented for some time, they may wind up costing you additional money, instead of making it like duplexes are intended to. Unlike traditional homes, when a duplex is left unrented, utilizing that wasted space can prove to be difficult because it is separated. It should be noted that income from renting out a duplex is not guaranteed and cannot necessarily be relied upon. 

Another risk involved in investing in duplexes is who you choose to rent to. It may be difficult to ensure that you are renting to the right person or group of people. It is understandable to make filling a vacancy a priority, but a bad tenant can wind up costing you a lot of money if they cause damages to your duplex property. Vetting out your tenant is essential to make investing in duplexes profitable. In some cases, you may be able to screen the tenants prior to renting to them. 

When you live in the duplex and rent out the other half, you wind up living with your tenants. This means your privacy will be somewhat infringed upon. It can be very cumbersome to have your tenant right next door, potentially knocking on your door any time they need help or a repair made. 

Speaking of repairs, as a landlord, you become the go-to person for repairs as you are responsible for your property. Cleaning, fixing, and maintaining the property is up to you. This means that sometimes, you will be burdened with having to replace big-ticket items such as appliances. It is necessary to have an emergency fund in place for emergencies like this. 

Comparing Investing in a Single-family Home with Duplexes

An investor should usually weigh out which investment property will yield the largest profit to meet their goals financially. This means that this investment will not be the same for everyone. For some, a single-family home is a better option, and for others, a duplex is the way to go. But why?

It should be noted that when a single-family home is vacant, this will affect the return on investment for your monthly, much more than investing in a duplex and having that go vacant would. 

Some owners will choose to live on one side of the duplex and rent out the other side, and others will actually rent out both sides. Having said that, typically, the likelihood of both units being simultaneously vacant is not very likely. When you own a single-family home, the owner is held accountable and responsible for all of the mortgage if it is left vacant.

When it comes to duplexes, insurance is anywhere from 15 to 25 percent higher than that of a regular home. 

However, in the beginning, duplexes can wind up costing more than regular house rentals. There seems to be a higher demand for single-family homes than duplexes. Because of this, selling your duplex can take a great deal of time, usually longer than a single-family home.

Do You Have the Time?

You must consider how much time you have available. When first beginning, managing and maintaining a duplex can eat up a lot of your time, almost as much as a part-time job would. From researching the property, deciding if you want to live there while renting some of it out, weighing remodel options, and making plans, this can take hours. Once you get to the point of having a tenant, you must have enough time to make necessary repairs and provide for maintenance. You can even think of it as an entrepreneurial opportunity with many lessons and tactics to learn along the way. 

In Conclusion and Last Thoughts

Deciding whether or not a duplex is the best investment option for you is one that will be tailored strictly to you, your situation, your goals, your available time, and your mindset. 

There are many benefits that come along with owning and renting out a duplex, including extra income, tax write-offs, the ability to qualify for FHA, and the opportunity to be able to live in the investment property. However, negative aspects come along with it as well. These include the maintenance, potential for damages, the risk of who to rent to and those people not taking care of your property, and the risk of vacancy. It is essential to take some time to decide if this venture is for you. You may feel like a landlord at times, and you may feel like you do not have much time for yourself as you become buried in repairs and maintenance, but the rewards will hopefully outweigh the drawbacks.