Buying a Duplex

On the list of potential investments for real estate investors should be buying a duplex. It can be a good investment for a current living situation, rental income, equity, real estate experience and tax benefits. While this type of investment can be a little tricky to navigate, investors enjoy many advantages to buying a duplex. Keep the potential in mind for a future venture of purchasing an existing duplex or creating your own possibilities. 

What is a Duplex?

A duplex is a multifamily home made up of two units. Each unit has its own entrance, bedrooms, bathrooms and living spaces. Many duplexes share a common wall, with each unit on either side. However, some may be laid out as one unit stacked on top of the other. The units are completely separate living spaces though, with a shared or partitioned backyard or outdoor space. 

This type of housing is an option between a single-family home and apartment living. The home and layout may give off more of a feeling of a detached home, but the units are still attached to one another by either the side or the floor/ceiling of the dwelling. However, this type of housing is most commonly side-by-side and spread over two floors. The living areas are on the main floor and the bedrooms are on the second floor. These two units also share a single lot.

Some buildings are made specifically to be duplexes for real estate investments. Others were once single-family homes converted by homeowners or contractors to become a multi-family opportunity. Duplexes are more common in certain geographic areas and are typically found in suburban areas or on the outskirts of urban areas. Some areas may have duplexes situated with other types of single- or multi-family housing. 

The need for more housing can cause contractors and owners to attempt the conversion of a single-family home to a duplex. However, research the regulations on converting because the second unit must be permitted to avoid legal issues when being used as a rental investment.  

How to Create a Duplex

When looking for great real estate investment opportunities, keep in mind the potential of creating a duplex. You can buy a house and split it into two functioning units. A conversion like that allows you to invest in multiple properties while also increasing housing in the area. 

Many markets currently have a major demand for housing. Creating a duplex can offer a more affordable way for multiple families to get into a town — or allow for you to get in and earn rental income that can be used towards your own mortgage payment. 

While there may be some concern about breaking up historic homes or cookie-cutter homes in certain areas, many areas welcome the extra housing and extra residents to the community. You can double the housing availability by creating a duplex. 

Buy an Existing Duplex

Sometimes you can find an existing duplex property that needs some rehab to reach its full potential as a great rental investment. Instead of doing all the extra work to create one, updating and cleaning up an existing one can be plenty rewarding and pull in some nice income. 

Advantages of Buying a Duplex

Buying a duplex offers many advantages:

• You can live in the duplex, too. You live on one side, and you rent out the other to a tenant. You stay in control of your investment and be your own property manager —  from the inside out. If the A/C or heat needs maintenance, you’re the first to know. Is a new roof needed? It covers your home too. Paying for lawn care? You get to enjoy it too. Take the income from your rental investment and put it right towards your own mortgage, while you enjoy the perks of living right in your investment property. 

• Rent adds income to your budget. Maybe you thought that purchasing a duplex was out of your price range. The rental potential added from the second unit can be factored in to help you qualify for the purchase. As long as you have a reasonable idea of the rental income potential, and you have an adequate down payment (at least 25%), you may be ready for a great real estate investment. 

• Investment properties tend to rise in value. Buying real estate is one of the best-known ways to build wealth. Keep your investment maintained and rented out and you could see an impressive long-term appreciation.

• You can save dilapidated properties. Not only would buying and renovating dilapidated properties look good for the town, but you would also be helping the overall real estate market in that town — including your own investment. Even better — you can usually score a run-down property at a cheaper price. Turning it into a duplex will double the rental potential, or give you a new home with a much lower mortgage payment after the rental income is applied.

• It’s much less complicated than an apartment. One of the best things about a duplex is that it involves one owner. If you own an apartment, you are still under the rules and terms of whoever owns the overall building. A duplex also allows you to be dealing with one set of neighbors instead of multiple neighbors. Keeping things simple with just one neighbor in close proximity and just one owner can save you from a lot of issues that may arise in an apartment setting.

Drawbacks of Buying a Duplex

Most real estate investments come with a few drawbacks, and a duplex is no exception. Keep these in mind when deciding whether to pursue a duplex investment. 

• Firewall. Apartment buildings use these to prevent the spread of fire. You might consider installing one between the two units, or it might be required by the local building code. This renovation can get pricey and is worth factoring in. 

• Renting is complicated. Make sure you rent properly. All building codes, permits and insurance must be up to date and meet regulations. You can’t just rent however you see fit — you need to comply with specific guidelines and regulations to successfully rent out a unit in a duplex. In addition, renting out one side and living in the other can present its own set of complications. You may end up with needy or annoying renters who clearly know where you live and can bother you at any time. They can also be loud and disrespectful, which you now have to live with. 

• If you move out, you have to rerent: While you can make rental income from the duplex — which is nice — it’s twice as much work renting to two rental clients. If you only have experience with renting out one side of your duplex, it’s an extra effort now to have two tenants in a building that you no longer live in. Finding the right tenants and keeping up with the property management and maintenance on the property is more work once you move out. 

Alternatives to Buying a Duplex

A duplex can be a great way to get into real estate investing, but it can require a considerable amount of capital to get started along with a significant amount of work. Real estate crowdfunding provides investors with another option to take advantage of the cash flow and growth potential real estate can provide, but with much less capital and no management headaches. Here is Benzinga's list of the best crowdfunding platforms to use as an alternative to buying a duplex.

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