Are Duplexes a Good Investment?

When properly navigating the real estate market, it’s always smart to keep an eye out for potential cash generators or property investments that might provide positive returns. 

Whether you’re purchasing your first duplex property or your seventieth, knowing exactly which type of real estate may have a positive return is the first step you need to take to make a significant purchase. 

Duplexes are a piece of timeless real estate. And if you choose to invest in a duplex, it will continue to benefit you for years to come. This is why knowing exactly what a duplex is and how it varies from other rental properties can be a worthwhile choice. Duplexes are generally an excellent starting point for beginner investors who are aiming to get stuck into real estate. 

But what is a duplex? What makes it a good investment? 

In this article, we explore the reasons why duplexes are a good investment, especially for a beginner in the real estate industry.

What is a Duplex? 

A duplex is defined as “a multi-family home that has two units in the same building.” These two units always share a common wall, but the floor plan typically varies in each building. This means that the units can appear in many different ways; directly on top of one another, side by side, or taking up an entire floor (or two) of a single building. A duplex usually includes townhouses, apartments, and condominiums. 

Why Do People Invest in Duplexes?

You may be wondering why so many real estate investors look to duplexes for sale as a first property. Notably, duplexes provide a consistent way to generate income and build equity. Essentially this means that buying a duplex unit and leasing half of the space is a great strategy in developing a professional portfolio, building a significant income, and beginning the slow journey up the property investment ladder. 

But, many investors purposely seek out duplex homes for reasons other than the owner-occupied house hack. Mainly, this is because keeping up-to-date on the maintenance of two separate individual rental units appears to be far more costly and more complicated than managing a single duplex. This is mainly because investors tend to live in their duplex, so they are already on the property (and on-call) if things go wrong.

What is House Hacking?

Why are duplexes a great investment? The answer is simple: it is an affordable way to purchase a rental property and can be done so by using an FHA loan. These are loans intended for homeowners rather than investors. However, there is a clause that allows a real estate investor to use an FHA loan when buying a duplex. 

This process often referred to as “house hacking”, allows investors to use this loan to purchase a property and live in half of it as one’s primary residence for some time before moving on to a single-family home. The act of buying a duplex and living on one side legalizes this scheme. Just be sure you follow a few simple rules, and you can obtain a low-interest loan with a very low down payment. Investors would be wise to take note of pending rent control changes. 

The Benefits of Duplex Investment

Consistent Income

There are quite a few benefits to investing in a duplex. But being able to earn a consistent monthly income is one of the driving factors. Duplexes (or “Multi-family homes”) are considered an essential stepping stone for beginner real estate investors to begin expanding their property portfolio. 

And in keeping with the comparison of single-family homes multi-family homes, the latter enjoys a much lower vacancy rate. If you have chosen a good place to invest, it is highly improbable that both units will remain vacant for an extended period. To summarize: if a tenant moves out of one unit or you have trouble filling it, you’ll only lose half of the rental income. This will leave you short, but won’t leave you completely without any sort of income. But, with single-family homes, vacancy equals no rental income. 

Rent Without Legal Issues

Renting spare units out is a great idea if your duplex is near a vacation destination. Multi-family homes have many units, and you can choose to use one (or several) of these as Airbnb’s to generate a little extra income!

Airbnb rental rules can be quite strict but there are ways of skirting around them in your duplex. Airbnb typically forbids you to rent out your space as an Airbnb if you do not live in the complex. So to turn a unit of your duplex into Airbnb-friendly accommodation, you simply need to provide proof that you do, in fact, use your duplex as your primary residence. So implementing house hacking regarding a duplex opens up the door to Airbnb renting in more tourist-heavy locations including Las Vegas.

You could even utilize the units as long-term leases! Your income from such rent payments will be directly deposited into your retirement account  (IRA). As a result, you’ll have more capital readily available to reinvest straight back into your real estate properties.  

To Survive a Potential Vacancy 

This is one advantage multi-family homes have over single-family rentals. Investing in duplexes means you can afford to have a vacant unit now and then (aka between tenants). So, unlike losing all income on a single-family home if your tenant moves out, you’ll still earn half or two-thirds of your income if you lose one of your tenants.

Some Limitations of Investing in Duplexes

Investing in duplexes may be a good idea for anyone looking to get their start in property reinvestment. However, it comes with its own set of limitations

You May Encounter Bad Neighbours

Dealing with bad tenants is every landlord’s worst nightmare. You may have the best, most well-behaved tenants of them all, especially if they know that their landlord is living next door. But buying a duplex and living in one unit could also mean having to deal with loud, disruptive tenants from time to time. But this depends upon your ability to screen tenants. So make sure that you run background checks, talk to previous landlords and employers, and check employment and credit history.

Difficulty Finding a Duplex

We won’t sugar-coat it: finding a good duplex to rent is a difficult task.  Like you, other real estate investors are already looking for duplex units to buy. In some areas, the former investors may have converted the two sides into individual units. In this scenario, you can consider this as half of a condo complex. 

One piece of advice we’d strongly advise following is to completely avoid buying half a duplex as it is a risky purchase to make. This is purely because you will have no control over the other half of the property so if it begins to go downhill, you can only watch on as it is handled incorrectly. Simply, you spot a sale like this, walk away, and ignore it. This will save you money and will protect your reputation as you progress into the next phase of your real estate career.

Duplexes can be difficult to find as they aren’t as common as single-family households. But by using the right tools you shouldn’t have too much of an issue finding a duplex that you are interested in. However, uncovering duplexes becomes far more complicated if you plan on house hacking. All in all, if you cannot move to cities where duplexes are more common, this strategy may be put entirely out of your reach. If that’s the case, consider saving up for a down payment and investing in a duplex out of state to enjoy the other benefits of this type of rental property. 

Do Duplexes Go Up in Value? 

The short answer? Yes, they can go up in value, except this depends on a variety of factors. You should never buy an investment property while thinking about a prospective increase in its overall value. 

But it is impossible to entirely predict how much something will appreciate, regardless if you’re an expert or a novice in the subject. If a realtor tells you they can predict this, then they are most definitely lying.

Though this is true, all real estate does eventually appreciate after several years. And the properties that do so in the quickest manner are the ones that have the highest number of buyers. A large number of these prospective investors are out looking for single-family homes. As a result of so much competition taking place, prices spike almost immediately. Essentially, these properties tend to go up in value quicker than a duplex.

But because duplexes can qualify for FHA-insured loans, they also have a certain appeal that attracts potential buyers. Most new duplex investors start out living in their first property and moving out when their lifestyle requires it.

So, Are Duplexes a Good Investment?

Yes, they are a good investment. Especially if you are a beginner looking to expand your professional portfolio. Classed as single properties, duplexes typically feature two separate rentable units in one package. This means that the duplex is easy to manage, making investing in and maintaining the property that much simpler. Without the added stress of condo or HOA fees, duplexes are great first-time investment properties. Your return on investment is better with a duplex home than other properties.

Final Thoughts

Duplexes are a good investment for many reasons. Not only is purchasing a duplex a great way to generate a considerable monthly income, but it is much more convenient to buy and maintain a single duplex than multiple individual homes and spaces. Plus, duplexes are constantly sought after so after a while, your property will eventually increase in value – providing many additional benefits to your personal and professional life.

Matt Roberts
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