Buying a Duplex 101: How to Buy a Duplex and the Pros/ Cons | GetJerry.com (2024)

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.

MORE: The 16 perils of home insurance

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.

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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 Administration

offers 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.

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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.

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FAQs

Buying a Duplex 101: How to Buy a Duplex and the Pros/ Cons | GetJerry.com (2024)

FAQs

How do you know if a duplex is a good buy? ›

What to Consider When Buying a Duplex Property
  1. Make Sure the Duplex is City-Zoned for Multi-Family Use. ...
  2. Confirm Utilities Setup. ...
  3. Research Rental Rates for Comparable Units in Your Area. ...
  4. Will the Unit Attract the Type of Tenant You Want as a Neighbor? ...
  5. Noise Transfer Between Units. ...
  6. Parking. ...
  7. Laundry.
Jan 21, 2019

How profitable is buying a duplex? ›

Is it profitable to own a duplex? Because a duplex usually does not come with HOA fees and consists of two rentable units, it can be profitable. A duplex also might be more appealing to renters than apartments are. And maintaining a duplex costs less than managing two individual rental units.

Can I use an FHA loan to buy a duplex? ›

To get approved with FHA financing, you'll need to be the owner-occupant in one of the units. This holds true for duplexes, triplexes, and multi-family properties up to four units. Note: If you're looking to buy a multi-family property with five units or more, it's considered commercial property.

What is a disadvantage of living in a duplex? ›

Duplexes often share a common wall or a common floor, which can lead to noise and privacy issues, especially if the tenants have different lifestyles and schedules. Noise can be transmitted through the walls and it can cause disturbance to the residents.

Is it cheaper to build or buy a duplex? ›

In general, buying a duplex will cost less than a stand-alone single-family home in the same area. And it might be cheaper to buy a duplex than build one, although you can customize new construction. Then there are people who convert a single-family home into a duplex. That could cost $80,000 on average.

What is the 4 3 2 1 rule in real estate? ›

Analyzing the 4-3-2-1 Rule in Real Estate

This rule outlines the ideal financial outcomes for a rental property. It suggests that for every rental property, investors should aim for a minimum of 4 properties to achieve financial stability, 3 of those properties should be debt-free, generating consistent income.

How to evaluate a duplex deal? ›

A duplex can be evaluated in the same way that investors value apartment buildings. The rental income and expenses for both rental units should be combined to determine the Net Operating Income (NOI). Investors can then apply an appropriate cap rate to the NOI to arrive at a valuation.

How to make money off a duplex? ›

Improving Your Duplex's Cash Flow
  1. 1- Consider Airbnb. Airbnb isn't for everyone, but in the right neighborhood, it could lead to an increased profit margin. ...
  2. 2 - Provide Amenities. Another strategic way to earn more from your duplex is by providing amenities. ...
  3. 3 - Get Paid for Upkeep. ...
  4. 4 - Make Use of Empty Space.

How much can a duplex cash flow? ›

If a unit provides 100$-200$ monthly as a profit, that is considered good cash flow. However, the rate will increase with the type of housing.. If the house is a duplex or triplex, it is better to consider 400$ as the minimum cash flow. The total invested amount is an essential aspect for consideration.

How much does it cost to build a duplex in Texas? ›

The average cost to build a duplex is $150 to $280 per square foot or $300,000 to $580,000 for 2,000 total square feet. The final cost to build a duplex home depends on the location, size, material quality, and structure type. Side-by-side duplexes are the most common type but cost more than unit-over-unit duplexes.

Why is location such an important aspect when you are purchasing a home? ›

The location of your home determines many things which will affect and influence a home's value. These items include the overall quality of life, school choices, commute times, and social opportunities. Even if you find your dream home, you should never sacrifice location.

What credit score do I need to buy a duplex? ›

Get Your Credit in Shape Before You Buy

Your lender may deny your application if your credit score falls below their minimum score requirement, which varies by lender. You may be approved for a conventional loan with a score as low as 620, but you're more likely to qualify with a score of 660 or better.

What is the FHA rule 75 for duplexes? ›

Gross rental income is the total monthly rent generated by all the units, including the one you will live in, before subtracting any expenses. Net rental income is 75% of the gross rental income.

What credit score do I need for an FHA loan? ›

To qualify for an FHA-insured loan, you need a minimum credit score of 580 for a loan with a 3.5% down payment, and a minimum score of 500 with 10% down. However, many FHA lenders require credit scores of at least 620.

Is a duplex a better investment than a house? ›

Investing in duplexes may not earn the returns that townhomes and condo complexes earn, but they do present greater opportunities than single-family properties. Often, buying a duplex costs the same as a single-family dwelling, but you have two units to rent out instead of just one.

Is duplex good or bad? ›

Both the units of a duplex are usually well-equipped with separate entrances, washrooms, balconies, and kitchens. Therefore, such properties are known to have an excellent resale value which also includes a faster appreciation rate.

Do duplexes appreciate in value? ›

Long-term investment potential: Real estate properties, including duplexes, typically appreciate in value over time. So, not only do you have the opportunity to potentially generate rental income in the short-term, but you may also benefit from long-term property appreciation.

Why would someone want to live in a duplex? ›

Duplexes are more versatile than most other residential buildings. With a duplex, you can either rent or own your side of the duplex, or own the entire building. Sharing a building with another family means that many expenses, like utilities, landscaping, and overall building repairs, are also shared.

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