If you are thinking of purchasing a duplex but you are not too sure of where to start, you will be happy to know that you are one of the many wondering the exact same thing. One of the first things that you should know about purchasing a duplex is that it is not much different than buying a traditional house, but with a duplex, you have to approach it as more of an investment. Here are the questions you should consider asking when buying a duplex.
What should you ask when buying a duplex? If you intend to buy a duplex, the first consideration should be defining your goals as a duplex owner. Do you plan to rent out both properties or do you want to live in one? Do you plan to renovate the property and sell it for a profit?
Another concern involves how you will finance your purchase-will you pay cash or take out a loan? Assuming you successfully secure the property, how much will a unit rent? You also have to make a decision on whether you will do it all on your own or work with a team of specialists. If you opt for the latter, who should you work with and what is their perspective on your intended purchase?
Once you have settled on what needs to be done before you buy a duplex, you will have to familiarize yourself with the buying process. You will also need to be informed on how to manage your property, as well as how to find and appeal to prospective tenants.
Table of Contents
1. What are my goals as a duplex owner?
The first concern in buying a duplex, as with any other property, should be to define your goals as an owner. Purchasing a multifamily home such as a duplex and successfully renting it out potentially means that your monthly expenses could reduce. Do you plan on setting up your dream home in one of the units in the duplex or do you want to move out eventually? In this case, buying a duplex could be a reliable way of financing your mortgage.
Another goal that you may have in mind when you purchase a duplex is to turn it into a significant investment property income. Renovating a unit has its ups and downs, but a good number of duplexes are not newly constructed, so revamping your property could be just what you need to set you apart from competitors. If your goal is to add to your real estate portfolio by purchasing a duplex, you will find that they can prove to be less difficult to manage than other multi0family unit types. Having your goals in mind will help you determine whether buying a duplex is the best investment move for you.
2. What is the difference between duplexes and other multifamily properties?
Duplexes are generally considered to be the least hectic multifamily property to manage. This is because there are only two units in a duplex, which means only dealing with one or two tenants if you rent out both units. On the other hand, triplexes and fourplexes have three and four units respectively, which automatically means more responsibilities. Another difference between duplexes and other multifamily properties is availability-duplexes are more easily available, which reduces the competition and makes buying one a little bit easier.
3. What is the difference between owner-occupied and investment?
A duplex that is owner-occupied is basically one where you buy a duplex and rent out one unit and live in the second one. On the other hand, if you purchase a duplex but you have no intentions of living in it, it would be categorized as an investment property.
The main benefit of living in one of the units is that you can take advantage of financing options which are normally intended for single-family home purchases and benefit from the monthly rent paid by a tenant to cover your mortgage at the same time. As an owner-occupant, you have the option to access VA, FHA, and in some cases, down payment assistance programs as well. On the other hand, if you plan to purchase an investment property, there are more inflexible income restrictions to deal with, and you would have to be ready to pay a 20% down payment in cash.
If you opt to use FHA, conventional, or other Freddie or Fannie mortgages, as an owner-occupant, you will have to live in the duplex unit for a minimum of a year before you can move out. Furthermore, you often have to bear with additional costs like mortgage insurance if you opt to use FHA financing.
4. How do I finance a duplex?
There are various ways through which you can finance a duplex.
- Cash – Buying a duplex with cash is a desirable option, but you probably don’t carry around significant amounts of money just so you can buy a property. Nevertheless, if you have no qualms about paying in cash, then you have obviously an edge over those who opt to take loans.
- Conventional loans – Conventional loans are considered to be the standard when it comes to mortgages, where you are required to put down 20%, 10%, or 5%. You can usually get this type of mortgage through a credit union, bank, or other lenders. You may have to pay a larger down payment with a conventional loan than FHA, but they don’t usually have the added expense of mortgage insurance.
- FHA – The Federal Housing Administration (FHA) is a government agency that aims to help banks come up with reduced down payments. The down payments on FHA loans may be as low as 3.5%, but it is only available for owner-occupants. Due to the low down payments required with FHA loans, there is added risk, which consequently requires mortgage insurance. Paying for mortgage insurance on a monthly basis inevitably reduces your profit.
- 203k loans – This is a variation of FHA loans that allows you to borrow in order to make a purchase on a duplex that is in need of renovations. You will then be able to ask for a loan at what the renovated property is valued at.
- VA loans – Veterans can purchase a duplex without having to pay a down payment. They can achieve this through VA loans, as long as they live in one of the units of the duplex for at least a year.
5. How much should I rent out a duplex unit for?
It is important to have an understanding of how much a unit might rent for when buying a duplex. In many cases, the duplex you intend to buy will have tenants as well as lease agreements.
There are a variety of tools available that you can use to help you estimate rental income for different properties, but the best option may be to work with your real estate agent so that you get insider knowledge.
6. Who should I work with if I intend to buy a duplex?
You will need to work with different people so as to make the process of buying a duplex much easier.
A mortgage lender plays a significant role in helping you through the process of financing your property. You will want to work with a mortgage lender that is fully qualified and willing to guide you through the whole process.
Another professional you will need on your team is a real estate agent that is well-versed in duplex properties. A proficient real estate agent will help you estimate cash flow, rental income, repair budgets, etc. Additionally, the agent should have well-aware of all the legal aspects that come with owning a multi-family property.
You may also want to work with a property manager if you don’t want the responsibilities that come with being a landlord such as collecting rent and dealing with maintenance and repairs. This will eat into your profits, but if you find a professional, you won’t have to worry about the headaches that are sometimes associated with being a landlord.
7. How do I deal with competing buyers?
As a buyer, your offer is likely to be among one of the many that are up for consideration. As a result, you want your offer to be as appealing and competitive as possible. Elements that you should take into consideration when bidding on a duplex include the offering price, inspection requirements, amount of down payment required, financing types, and elevator causes among others.
8. How do I find tenants and manage the property?
The most effective strategy of finding tenants in a duplex is by thoroughly screening interested individuals. This way, you will find a reliable tenant who won’t give you a hard term when the time comes to pay the bills and not cause damage to your property.
When it comes to property management, ensure that you have a comprehensive budget that covers maintenance, repairs, and other costs that come with owning a duplex.
Final Thoughts
Purchasing a duplex is a viable investment that could potentially earn you a consistent stream of profit, but it may not be as straightforward as you might expect. It is important to take into consideration a variety of factors, such as whether you intend to live on the property or rent out both units, how to finance your purchase, how to deal with competing buyers, and finding tenants. If you can, do as much research as possible on your responsibilities as a landlord and the +6legalities involved so as to avoid having problems with your tenant in the future.
