For many beginning investors, a duplex is a great entry point for getting into real estate. Duplexes are a type of multi-family home that includes two units in the same building.
As the owner of a duplex investment property, you have a few options. Depending on your financial situation and needs, you can live in one of the units and rent out the other. Or, you could rent out both units. Or, you could explore options with one of the units as an Airbnb. There are plenty of possibilities to consider.
If you’re considering buying a duplex, here’s how to get started and some advice on how it could help your finances down the road.
Why buying a duplex is a popular choice for new investors
A duplex is an attractive first purchase over a single-family home for many buyers because it provides you with some flexibility and options.
If you plan to live in one part of your duplex, renting it to another person can help cover a significant chunk of the mortgage payment. You can live in your own home while having your tenant pay most (or even all) of your mortgage. In some states, indicating you plan to rent part of the duplex may factor into your income, which can help you secure a larger home loan.
Duplexes also tend to be more affordable and easier to manage compared to larger investments. They are also attractive options for renters, often offering more space than an apartment and sharing fewer walls with others. Plus, for many renters, having a landlord nearby is a bonus, and you’ll be around to keep an eye on what’s happening too.
Finally, depending on the market, you might be able to get a great deal on a duplex for not much more than the cost of a single-family. That, coupled with a solid monthly cash flow from rents, can provide a nice return on investment.
Buying a duplex: How to get started
Buying a duplex has its own set of challenges and opportunities, so it’s critical you do your research before you jump in. Once you’ve decided this is the best option for you and your family’s future, here’s how to start the process.
You’ve done your research, and you’re keeping your eye out for a great deal on a duplex. But, before you get too far, you’ll want to have your financing in order, so start the mortgage process. With pre-approval, you’ll know your budget, which can help define what you can afford.
Find a great real estate agent
One secret many experienced duplex buyers will tell you is who you choose as your real estate agent matters. What you want to do is work with someone who has done deals on duplexes before. These agents will have a lot of insights into the multi-family housing market in your area. That can be invaluable information, especially in competitive markets.
Start looking and refine what you want
When buying a duplex, there are a lot of factors you need to take into consideration compared to a single-family home search. Your real estate agent and online home search tools can help you find hidden gems.
As you start your search, think about:
- The neighborhood: Is it close to family-friendly amenities? Is it near public transportation? Is this an area with long-term job growth and potential?
- The rental potential: Look at what other units in the area are getting for rent and the vacancy rates.
- Your budget: Know what you can spend as well as how much you think you’ll need for repairs and upgrades. Cash flow is very important for multi-family investments.
- The shape the property is in: Are you planning on doing a major renovation, or do you want something move-in ready?
Do the math on potential finds
As you go through your listings, work with your real estate agent, and do the math. A deal that looks great at first glance might not add up once you start running the numbers.
Part of running the numbers is taking the rental market into account. For example, if your mortgage is $1,500 and you can rent out one side of your duplex for $1,000 then a big chunk of your mortgage is covered each month. If you rent out both sides, you’ll cover your mortgage plus have extra each month for utilities, emergencies, and repairs.
However, in a market where you might only get $500 a month for rent, you’re going to see a much smaller potential for cash flow, even if the duplex is a good deal.
Something else to consider is the costs of taxes, maintenance, insurance, and so on. When compared the costs of a single-family home to a duplex, you might find that expenses for a duplex aren’t much higher. However, when you add in potential cash flow and the savings on mortgage payments, you might find the duplex is saving you money because you’re generating income to cover those costs. That’s something you can’t do with a single-family home.
Make an offer
You’ve found a good deal. It’s time to put in an offer. At this point, make sure you’ve done your due diligence before you agree to terms. Once it’s accepted, it’s time to close.
Congrats! You’re the proud owner of a duplex. Your next steps are preparing the home for renting and getting a property manager (if you want one) to help you manage the process and the property.
How a duplex can help you reach your future financial goals
Now, let’s see how your property can turn into a long-term investment and help fund your future.
Rents can cover your mortgage.
The biggest advantage of having a duplex is the rental income and potential cash flow. Your tenants could cover your mortgage costs, plus more, depending on where you live.
Having your mortgage payment taken care of each month can help you start saving quite a bit of money for your future needs. You can put that money toward your kid’s college fund, use it to pay off loans, or build up your retirement savings.
It’s a great beginner strategy.
Once the real estate investor bug has bitten you, it’s hard to think about anything else. Many seasoned investors get into investing because they bought a duplex. It’s one of the most beginner-friendly ways to get into investing and climb up the ladder.
Owning a duplex might help with future real estate purchases too. Counting your rental income as part of your overall income could help you increase the amount you qualify for on future mortgages. That can help you with your next home or investment property purchase.
As you can see, there is lots of potential when it comes to buying a duplex. Investigate your options, be patient, and you might find the perfect multi-family home waiting for you just around the corner.
As an OVM Financial customer, you know you’ve got help through the entire loan process. Ready to get started? You can start today with our QuickStart application. If you have any questions along the way, reach out and get in touch.
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