Are duplexes a good investment? Duplexes are an excellent investment for real estate investors who prefer to manage smaller properties. As rental properties, they can also be incredibly versatile and provide great monthly cash flow potential.
However, on the downside, finding good tenants can be a real challenge, and you are responsible for all the repairs and maintenance. So, is investing in duplexes a good idea in 2022? What are the drawbacks of investing in duplexes? Learn more in this article.
What Is a Duplex?
A duplex is a residential property or building that can be separated into two dwelling units. These separate dwelling units can be on opposite sides of the building or different floors of the same building. Depending on your perspective, investing in this unique setup has its benefits and drawbacks.
When investing in real estate, doing your homework and analyzing your current situation before making any big decision is very important. What are your investment strategies? How do you intend to implement that plan to get the best return on your investment? These are important questions to ask yourself before making any big move in the real estate market.
Types of Duplex
Duplexes have different designs, but the most common are:
A standard duplex is simply a two-story house with an internal staircase connecting both units. The bedrooms are usually on the upper story, while the main living area, including the kitchen, is on the lower. Also, a wall usually divides the units in the middle of the structure.
Ground duplexes and standard duplexes are designed similarly in terms of layout, but their plumbing and electrical systems are entirely different. The upper story of a ground duplex is designed as a living area and kitchen, while the bedrooms are located on the lower story with access to the backyard.
A low-rise duplex is designed with a lofted attic over the second story, making it taller. Lower-rise duplexes typically have a smaller footprint, and their balconies tend to be on the second story.
Benefits of Investing in a Duplex
When done right, purchasing a duplex can be a lucrative investment that pays off handsomely every month. You can rent out a single unit while you live in the other unit, or you can simply rent out both units. Here are some of the benefits of investing in a duplex:
Affordable Investment Property
It’s worth noting that duplexes are usually very affordable pieces of rental property. Investing in duplexes is simply buying two units in one transaction. Duplexes may be a more practical and affordable option for those who want to move to a desirable neighborhood but cannot afford the single-family homes there. Investing in duplexes is a great way for new investors to become used to the real estate industry.
Plus, duplex investing allows you to build wealth through rental income and grow your savings. On the other hand, it’s worth noting that duplexes and single-family houses are underwritten in much the same way. This means that investing in duplexes qualifies you for a conventional or FHA loan, as the requirement for both properties is the same.
Financing Duplex Rental Properties is Easy
Another benefit of duplex real estate investing is financing the investment with a conventional mortgage. However, note that you must live in one unit to qualify for this offer. Duplexes are an attractive investment because an investor can put down as little as 3.5% of the purchase price as a down payment. Unlike other real estate properties, you won’t need a large down payment of 20% to buy a duplex.
The best part is that you can use either a gift from loved ones or money from your savings to cover this down payment. Thanks to these provisions, securing a duplex investment is fairly simple. Also, buying a duplex property is a great investment opportunity because it is easier to acquire a mortgage on duplex properties than on other real estate properties.
One Investment Provides Two Rental Incomes
One of the many benefits of buying a duplex is that one transaction generates two rental incomes instead of just one. Although investing in a duplex may not be as profitable as investing in a condo complex and townhomes, they do provide more income opportunities than buying a single-family home.
Most times, buying a single-family house and a duplex costs the same. However, buying a duplex is a better investment because it allows you to earn from multiple units instead of just one. This means that a multi-family property has the potential to generate more monthly income than a single-family home. Plus, even if you don’t rent out one unit for a while, the other half will still provide you with monthly income.
Duplexes Are Versatile
Buying a duplex is a good investment because of the versatility of two or more property units. The good news is that you can rent out one unit long-term and the other units on a short-term basis. Buying a duplex can be very lucrative, especially if your multifamily property is in a desirable vacation location. In this case, renting out your property short-term will generate much more money than renting it out long-term.
Buying a Duplex Allows You to Live Rent-Free
The great thing about buying a duplex is that you can live on the property while you allow your renters to pay your bills. Rather than wasting money on rent, owning a duplex allows you to put that money into improving the property. If you don’t want to live on the property, you are free to rent out one of the units to a family member.
Renting out the other half of your duplex to someone you know provides a certain level of trust and comfort. You can trust family and loved ones to take better care of your property than strangers.
Duplexes Are Easier to Rent and Sell
Another benefit of buying a duplex is that it is easier to sell and rent. Renting a duplex is usually more enticing to most potential tenants than renting a single-family house. Why? Because duplexes typically have much larger spaces than most rental properties.
Unlike most apartments, where most or all of the walls are shared, duplexes have only one shared wall or area. On the other hand, buying a duplex is a good investment because it is easy to sell the property. That property will attract any savvy investor if you own a duplex with a proven track record of tenant occupancy and decent cash flow.
Buying a Duplex Allows You to Build Equity Over Time
Investing in a duplex allows you to build equity over time, especially if it is in a desirable location. This is also true for other rental properties. Most long-term investors favor real estate investments because of the high potential for equity growth. Savvy investors value and look for rental properties with a track record of providing steady monthly rental income. Also, note that maintaining and improving the grounds and structure of your property will increase its value and boost the equity’s growth when you decide to sell.
Disadvantages of Duplex Real Estate Investing
Yes, buying a duplex has many benefits, but it also has several drawbacks. Here are some of the cons of buying a duplex
Living With Bad Tenants
Bad tenants are one of the main reasons why most real estate investors don’t venture into the real estate business. Renting out your property to a bad tenant means you’ll have to live next to them and deal with the financial consequences. This fear can discourage many investors from buying a multi-family home.
This is a real and completely legitimate concern. The best way to avoid bad tenants is to perform a thorough screening before renting the property. If you don’t exercise due diligence before renting out your property, you’ll have to deal with tenant conflicts from time to time. Also, it’s worth noting that purchasing landlord insurance and homeowner’s insurance is usually quite high with a duplex.
Rental Income Isn’t Guaranteed
Another drawback of buying a duplex is vacancies. Having vacant units for long periods can be worrisome. When a rental unit sits empty, you must keep paying the mortgage even though you aren’t receiving any rent. Instead of making you more money, a duplex can cost you more money if left unoccupied for long periods, racking up additional costs.
Also, unlike traditional homes, renting out an empty unit in a duplex can be a real challenge because it is separated. It’s also worth noting that monthly rental income from duplexes isn’t guaranteed (especially in undesirable locations) and cannot necessarily be relied upon.
You’re Responsible for Property Management
As the landlord, you are responsible for property management and repairs. Also, as the landlord, you are the one the tenants will contact if there’s an issue with the property. This simply means you are responsible for fixing and maintaining the property. You’ll also be burdened with replacing expensive items like appliances. However, a good way to prepare yourself for emergency repairs like this is to set up an emergency fund.
Buying a Duplex Can Be a Time-Consuming Investment
Before buying a duplex, you must consider how much time you can commit to maintaining your investment. Initially, maintaining a duplex can be as time-consuming as working a part-time job.
Also, researching the property and finding the perfect duplex can take several hours and even days. Plus, you must take time to find good tenants and make necessary repairs. Other drawbacks of buying a duplex include high property taxes, noise and disturbance, and lack of privacy.
Are Duplexes a Good Investment? – Verdict
Investing in a duplex is a great way to make passive income. But is buying a duplex a good investment? Although investing in duplexes has some drawbacks, getting the perfect duplex can be very lucrative. Funding and financing a duplex is cheaper than most rental properties.
Plus, buying a duplex allows you to live rent-free, earn monthly income, and build equity over time. However, on the downside, maintaining a duplex can be time-consuming, and you are responsible for all the repairs. If you decide to buy a duplex, check thoroughly to find good tenants.
Find people who are as committed to the property’s upkeep as you are. You’ll have a much more enjoyable living experience and earn more money if you do. If you are new to the real estate market, you can hire a real estate agent to find the perfect duplex for you.
Should You Buy a Duplex or a House? (Real Estate Investing for Beginners)
Paul Martinez is the founder of BendingDestiny.com. He is an expert in the areas of finance, real estate, and eCommerce.
Join him on BendingDestiny.com to learn how to improve your financial life and excel in these areas. Before starting this blog, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.