A duplex is a multi-family home that consists of two units in one building. Units usually stand side by side. They share one wall that connects them but has their own entryway and front landscaping. A duplex can also be a two-story building with a single front yard.
A duplex is a common investment property. Instead of buying a house, a buyer can live in one unit while renting the other. A duplex may be ideal for a growing family, too: Parents can live in one unit while grandparents or college-aged children use the second.
However, you decide to use it, buying a duplex is a bit different from buying a house.
Here’s what to know:
- You Have Plenty of Financing Options
The idea that duplexes offer few loan options is, thankfully, a myth. You don’t need cash to bid on a duplex. In addition to conventional financing, FHA loans, VA loans, and 203k loans can all be used. In some cases, you can also include the cost of needed repairs in the financing package. That helps you get both units of your duplex ready for occupants sooner. - Repairs and Maintenance Can Be an Issue …
If you choose to allow a tenant to live in one of your units, then you have certain responsibilities as a landlord. It’s a good idea to talk to a specialist in real estate law to know the expectations. In general, units must be kept safe – free of mold and other hazards. Landlords must act quickly on major repairs, like water heaters, that affect tenants’ quality of life. These charges can stack up! - … But They May Be Offset by Tax Breaks
On the flip side, tax breaks for duplex owners can be substantial. If at least one unit is used by tenants for some part of the year, you may qualify for offsets on property taxes or repair costs. Using the duplex as your primary residence expands your options in many jurisdictions. Remember, there may be state and local programs to look into as well as federal ones. - Many Tenants Prefer Duplexes
At an apartment, a tenant could be sharing as many as five walls with other people – yikes! On the other hand, a duplex means there’s only a single point of contact between units. The lower potential for noise complaints and other conflicts attracts many tenants. Plus, duplexes tend to have more floor space. This can help you maintain occupancy. - Location is Even More Important
To maximize rental income, you want to get as close as possible to 100% year-round occupancy. Location is crucial to attracting reliable tenants who are interested in long-term accommodation. For example, there can be a high demand for a unit in a “bedroom community” outside of a major city, a much easier lift than trying to purchase a comparable property in the heart of downtown. - Reselling Can Be a Challenge
Reselling a duplex can be tough for several reasons. You may find yourself in hot water if you want to evict a tenant on a rapid timeframe. Likewise, it can be difficult to attract a qualified buyer who is interested in what you have to offer, and you may need to perform more pre-sale repairs than you would on a single-family home. Be prepared for a longer sales horizon.
A duplex offers both the potential to grow in value and passive income that takes the sting out of a mortgage loan. As with any time buying a house, consider your options carefully. Pick a real estate agent who knows multi-unit properties inside and out!
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