Buying a Duplex: the Definitive Guide

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Many of life’s best things get better when they come in twos: slices of pizza, shots of espresso, and, in some circumstances, real estate. 

Simply put, if you can get your hands on a duplex and have the means to afford it, it’s probably a good idea from an investment perspective. Keep reading to learn everything there is to know about becoming a duplex owner.

What is a duplex?

A duplex is a home or apartment building that contains two separate units in one structure. Duplexes are commonly referred to as two-family homes and typically have separate entrances for each unit.

Duplexes can vary in terms of structure. For example, some units may be stacked on top of each other while other units are next to one another with a shared wall. 

Some real estate investors choose to live in one unit and fill the other with renters. However, most duplex owners choose to rent both units to bring in maximum rent for paying down the mortgage

How to buy a duplex

  1. Determine your needs
  2. Find a location
  3. Find a great real estate agent
  4. Look into financing
  5. Close on a property
  6. Rent the property
  7. Have an exit plan

Whether you’re a first-time homebuyer planning to live in one unit and designate the other as a rental unit or you’re a seasoned real estate investor, here’s what you need to do to purchase your first duplex.

1. Determine your needs

First things first: You need to determine whether your duplex will be your primary residence or whether you’re going to become a multi-unit landlord and rent both apartments out to tenants.

Keep in mind that this decision can impact your financing options, which we’ll discuss in a bit. For example, if you plan on living in one unit of the duplex, you may qualify for financing from the Federal Housing Administration (FHA), which isn’t available to investors planning to rent both units.

2. Find a location

One thing to consider about duplexes is that you may have a hard time finding them. Not all areas have duplexes, so you may face limited options. 

Start by picking a region you’re interested in, and go from there. You may have to expand your search to a broader area. Keep looking, and you’ll eventually find a duplex that matches your specific needs. 

3. Find a great real estate agent 

You could spend months looking for a duplex. If that doesn’t sound like your cup of tea, you could also hire a great real estate agent and task them with finding one for you. 

Put a real estate agent to work so you can move forward with other, more pressing tasks related to your home search (e.g., securing a conventional loan).

Make no mistake about it: The real estate agent you select will make or break this deal. Be selective about who you work with and only partner with an agent who specializes in buying and has a proven track record for finding value properties. 

4. Look into financing 

You may be able to buy a duplex in foreclosure and potentially pay cash for the rental property. However, most duplexes are bought with financing from a mortgage lender. 

Go through the financing process, starting with getting pre-qualified and pre-approved by a lender. Shop around for the lowest possible interest rate on a mortgage loan. 

To get a great loan on a duplex, you have to have a strong credit score—at least 690 or higher. It also requires having a steady employment history and proof of income.

If this is your primary residence in addition to a rental property, it’s worth looking into FHA loans. If you’re a veteran, you should also consider looking into VA loans.

Learn more:

5. Close on a property 

Once you find a place and you’ve secured financing, work with the agent to go through the closing process. 

Be prepared to shell out some serious cash during this process. If you opt for financing, you’re going to have to put down a large down payment and part with heavy closing costs. 

If you don’t want to pay the closing fees, you can most likely roll them into monthly mortgage payments. However, it’s usually better to pay all costs upfront if you have the cash on hand to avoid paying more in interest over time. 

6. Rent the property 

Once you own the property, you’re going to need to find tenants. You can do this on your own or hire a real estate agent to help you.

Keep in mind that the agent you use for renting doesn’t have to be the same one that helped you buy the house.

You may also want to hire a property management company to oversee operations and help with tenant management. 

A rental property management provider may be expensive, but it can save you a lot of time and potentially reduce risk by creating a barrier between you and the tenants. 

Plus, you should be able to write off these expenses on your taxes.

7. Have an exit plan

One aspect of successful real estate investing is having an exit strategy. Bake this into your plan early on so you can maximize your returns. 

You may choose to pay down a duplex over the course of a few decades and then sell the unit when your equity in the house exceeds the amount you collect in rent on an annual basis.

Or, you may opt for a 1031 exchange when your tax depreciation credits expire in 27 ½ years, and trade the property for one of equal value. Doing so can potentially enable you to avoid capital gains taxes on the sale of your property.

The pros and cons of buying a duplex 

Advantages 

Tax benefits 

Owning a duplex can enable broader tax benefits. You can potentially claim benefits for both units, ranging from management and maintenance to rental fees and other expenses. 

Tax advantages are one of the top reasons why people choose to go into real estate investing, and a duplex essentially gives you twice as many benefits. The same holds true when it comes to buying a triplex or fourplex, for that matter.

As always, it pays to have a qualified tax advisor at your side as you navigate which expenses are tax-deductible.

Stronger cash flow 

Another top benefit to owning a duplex is you can increase your cash flow. Instead of generating cash from one apartment, you can pull in money from two different units for twice the rental income. 

This can enable you to pay down a mortgage much faster while also making it easier to cover costs and pay taxes.

Potential for Airbnb

Another great reason to buy a duplex is that you may be able to rent one side on Airbnb for premium rates. 

You can potentially benefit from having one side bring in stable monthly rental income while leaving the other side open to charge higher rates and take advantage of surge pricing during the busiest times of the year. This can potentially generate higher gains. 

Learn more:

Disadvantages 

Limited market 

One of the downsides to finding a duplex is that they’re harder to come by. You may have to work with a real estate agent to find a duplex in a certain area. 

At the same time, you may be able to flip a duplex down the line for a strong profit because duplexes are scarce. Buying the right one could potentially lead to a strong net gain.

Higher potential for vacancy

Vacancy is a landlord’s worst nightmare. A vacant property stops bringing in cash, but it doesn’t put your tax and mortgage obligations on hold. It also risks the property falling into disrepair. 

Duplexes carry a higher risk for vacancy because there are two properties to rent. As such, it’s a good idea to work with a real estate agent who can help fill space and keep the cash rolling in.

Problem tenants 

By now, you should be noticing a pattern. With a duplex, everything is doubled, including risk. This also applies to tenants.

Managing one tenant and keeping them happy can be hard enough. When you own a duplex, you’ll have a second person or family to look after.

Some tenants can be notoriously difficult to work with. What’s more, some states have very strict laws governing tenant rights that limit what landlords can and can’t do. 

Any seasoned landlord will tell you there’s nothing better than tenants who don’t cause any problems and pay the rent on time. Unfortunately, many tenants are not reliable.

With that said, it’s not a bad idea to have an attorney you can call on in case you run into any tricky situations with your tenants.

More maintenance 

A duplex also requires more maintenance. You’re going to have to deal with more repairs, more unexpected late-night problems, more broken pipes, broken windows, kitchen fires, and clogged toilets.

Tips for managing a duplex

Hire a property management company 

Unless you plan to be a hands-on landlord and deal with every issue that comes up, it’s probably worth hiring a management company to oversee daily operations. They can take care of your property so you can focus on other important endeavors.

Work with a tax advisor

If you own a duplex, you’re going to have to be savvy about taxes. If you’re not, you’ll be wasting money, or you could run into trouble with the IRS. 

To avoid that fate, find someone to advise you who knows the ins and outs of real estate taxes.

Treat a duplex like gold

Make no mistake about it: A duplex can be an absolute cash cow. 

So, if you have the cash to fund a duplex investment and you come across a great real estate opportunity, you should strongly consider pursuing the opportunity. 

Furthermore, good duplex deals don’t come around every day. When they do, they usually move quickly.

Of course, every duplex—and investor—is different. Use your best judgment before buying a duplex and rely on the advice of a trusted real estate advisor to help you make the right decision.

Frequently Asked Questions

Is a duplex a good investment?

A duplex can be an awesome investment if you find a decent property in an in-demand area. 

At the same time, a duplex can also be a major money pit. As such, it’s essential to do your due diligence and make sure you’re prepared to handle the burden of taking on two properties before you commit. 

How much does it cost to buy a duplex?

It largely depends on the property and its location. Most lenders require a down payment of at least 20% or more for multifamily units. You may be able to put less money down if you plan to be an owner-occupant, which is definitely something you’ll want to discuss with your lender if that’s your plan.

As for your mortgage payments, since you own both units under the same roof, you’ll be able to get one mortgage instead of two. That also means one business insurance policy, too.

The one thing you’ll have to watch out for is maintenance. When things start going wrong—and at some point, they most likely will—it can get expensive. You’ll be dealing with twice as many appliances, pipes, windows, and so on. 

That being the case, it helps to have healthy cash reserves on hand to cover maintenance costs. The good news is that most repairs and upgrades are tax-deductible.

Is a duplex better than a single-family rental?

From an investment standpoint, a multifamily home on a multifamily property is almost always better than a single-family house. 

If you rent out both units, you can produce twice the cash flow. Alternatively, you can live in one unit and rent out the other. When this happens, your tenants are effectively subsidizing your living expenses (which some people call house hacking).

The Bottom Line

If you have the chance to buy a duplex as an investment property, you should give it serious consideration. Over time, you could earn solid gains and put yourself on a path to early retirement.

Just keep in mind that duplex units can require a ton of upkeep. To make your life easier, consider hiring people to handle your leasing agreements, taxes, and day-to-day maintenance.

Buying a duplex can be one of the smartest decisions you ever make, launching you into a career as a real estate investor and bringing you that much closer to achieving your goal of financial freedom. 

Here’s to finding your duplex gold mine!

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