Buying a duplex or multi-family unit to use as both a residence and source of income is different from buying a single-family home or single unit. If you are considering this strategy, you need to know a few things.
If this is your first time buying a rental unit, your other current income is likely all that will be considered. One exception to this rule is the purchase of a duplex that already has a tenant. Since you will begin receiving the rental income as soon as you close on the property, lenders may be willing to consider it when assessing your loan eligibility.
The remaining amount is what goes towards your mortgage payment. Compare this remaining amount with what the mortgage would be on a single-family property, and this will tell you whether buying a duplex will make you a homeowner at a lower cost.
Based on comparable rents in the area, if you could get $1,000 per month for the rental part of the duplex, you would take half that amount and apply it to the mortgage (the other half would be set aside for expenses). Deduct $500 and you are left paying $874 for your half of the duplex. Compare this to what you would be paying for a single-family home.
ExperienceBrandon began buying rental properties and flipping houses at the age of 21. He started with a single family home, where he rented out the bedrooms, but quickly moved on to a duplex, where he lived in half and rented out the other half.
To be clear, simply buying a duplex is not the secret to success. If you buy a bad deal, you might as well keep renting! However, if you do your homework, shop smart, and snag a great deal, a duplex can be a springboard to a financially stable future.
However, buying a duplex makes a lot of sense when you think about it. If you've decided to buy a house, why not pair your dream with a valuable investment Buying a duplex home is a fantastic approach to real estate investments. It can generate rental income from the other side or even from one side and then the other once your family is big enough to take over both units.
But while that sounds like it could save you money in the end, there's more to consider before delving into this investment. Luckily, this post has got you covered. Here is everything on buying a duplex and why it's a good idea.
You've got your sights set on a duplex or a multifamily home, so you're saving and preparing to make your first home purchase. That's great, but before you start house hunting, here are some things you should know about buying a duplex as a first home and why it is worth considering.
By purchasing a duplex, you'll get something as close to a turnkey investment property as you're likely to find without actually buying one. A duplex offers the chance to live in one part of the property while renting out the other. It's a great way to build equity without taking on the risks and hassles of being a landlord. You can also build your real estate portfolio by using the cash flow from your tenant to cover down payment costs on your next investment property.
Duplexes and other multifamily homes can be great investments, primarily if they are located in areas with good rental demand or high property appreciation rates. Some people buy duplexes because they are cheaper than single-family homes in the area, while others prefer the idea of living in half of the building and collecting rent from tenants who live in the other unit. But if you're buying a duplex for the first time, you should consider some potential pitfalls before your final decision.
Will you be able to handle a tenant who has loud parties while you're trying to sleep Do you want to allow pets or smokers Can you deal with having an apartment turned over every year If not, maybe consider buying a duplex and renting one side for now, or buying a single-family home because it will likely have fewer responsibilities and distractions.
If you've been thinking of buying a duplex, it's worth looking into your lender's loan limits. A loan limit is the maximum amount of money you can borrow with a mortgage or home equity loan, and the Federal Housing Finance Agency (FHFA) sets them. These limits are based on the county in which you live and its corresponding median home price. Because these limits apply to both primary residences and second homes, many first-time homebuyers use them as a tool for affordability.
Finding the ideal affordable house might be tricky if you're a prospective homebuyer on a tight budget. You might wonder if buying a duplex is an excellent first home choice as you look at properties. Consider these pros before buying a duplex as your first home.
A duplex can be an excellent investment, especially if you look toward future rental income. One of the biggest is that renting out part of it can help pay the mortgage, property taxes, and other expenses. It can also be an affordable way to get into a neighborhood housing market that may otherwise be beyond your means.
Many people think that buying a duplex instead of a single-family home is too risky. But it can be far less risky than you think! One of the biggest advantages of buying a duplex as your first home is using future rental income from one or both units to qualify for larger loan limits. This means you'll be able to buy more houses for less money, making it an excellent investment opportunity.
If you're considering buying a duplex as an investment property and renting out both units, keep in mind that these homes are more expensive than single-family homes and require more maintenance and repairs. Duplexes also often require extensive repairs and upkeep. This can pile up quickly when considering its not just one house but two units that need your attention! The cost of a major repair on one unit could easily bankrupt someone who doesn't have any money saved up beforehand.
One of the most appealing parts of investing in a duplex is the ability to live for free or cheap. Living in one side of the duplex and renting out the other can potentially cover or lower your mortgage each month.
After comparing the pros and cons of investing in duplexes, hopefully you have a better idea of which type of property to invest in. Buying a duplex as your first rental property can be an excellent route for new investors, especially if you live in it. Remember, buying real estate is all about finding a quality property in strong markets.
One of the largest benefits of investing in a duplex is the ability to rent a portion of it out. Usually, the owner will rent out the second half divided by a separating wall or floor. In this situation, the tenant will pay rent. This rent will either pay for a portion of or the entire mortgage that you took on in your investment. This assistance with your mortgage can be a huge financial help. Usually, depending on the area, typical rent is somewhere around what a mortgage may be.
One major perk of investing in a duplex is that you can finance it with a conventional mortgage as long as you plan on living in half of the duplex. That means you won't have to put down a large, 20% down payment as you would with other types of investment property.
Having a renter pay you rent monthly while you also live there provides the opportunity to save a large chunk of change while you live in the home that you own. Owning a duplex allows you to invest your money into the home instead of wasting the cash on rent. You may even be able to rent out half of the duplex to a family member. This can be fun and provide a certain level of comfort and trust, knowing exactly who is renting from you in the second half of your duplex. Family and close friends will typically take better care of your property.
It should be noted that when it comes to finding renters, a duplex is enticing to many. This is because the space available in a duplex is usually much larger than the space in most apartments. There is also usually only one wall or portion of the home that is shared with the other half, instead of all of the walls in an apartment.
When it comes to duplexes, having a vacancy can be very worrisome. The single biggest risk of investing in duplexes is, without a doubt, vacancies.,When a unit goes unrented, you are stuck paying the mortgage without the additional monthly rental income. If your duplex winds up vacant and unrented for some time, they may wind up costing you additional money, instead of making it like duplexes are intended to. Unlike traditional homes, when a duplex is left unrented, utilizing that wasted space can prove to be difficult because it is separated. It should be noted that income from renting out a duplex is not guaranteed and cannot necessarily be relied upon.
Another risk involved in investing in duplexes is who you choose to rent to. It may be difficult to ensure that you are renting to the right person or group of people. It is understandable to make filling a vacancy a priority, but a bad tenant can wind up costing you a lot of money if they cause damages to your duplex property. Vetting out your tenant is essential to make investing in duplexes profitable. In some cases, you may be able to screen the tenants prior to renting to them.
When you live in the duplex and rent out the other half, you wind up living with your tenants. This means your privacy will be somewhat infringed upon. It can be very cumbersome to have your tenant right next door, potentially knocking on your door any time they need help or a repair made.
Another con of buying a duplex is that inventory and floor plans may be limited. Some towns and neighborhoods may have zoning laws that don't allow duplexes, so they won't be as common as single-family homes. Also, if you plan on living in half of the duplex and have specific needs you may want to consider building a duplex, as you may not have many layouts and floor plans to choose from.
You must consider how much time you have available. When first beginning, managing and maintaining a duplex can eat up a lot of your time, almost as much as a part-time job would. Researching the property, deciding if you want to live there while renting some of it out, weighing remodel options, and making plans, can take hours. Once you get to the point of having a tenant, you must have enough time to make necessary repairs and provide for maintenance. You can even think of it as an entrepreneurial opportunity with many lessons and tactics to learn along the way. 59ce067264