Today we will look at why owning a duplex is one of the most accessible ways to get into real estate investing via a lovely thing called house hacking.
But first… I hate inefficiency. A while ago I wrote that I was looking into buying a quadplex because it’s the most efficient way to own a home without having to make complex mogul money moves. Trouble is, I can’t find one in my area. Now what?
Meet the Duplex
If you don’t already know, a duplex is simply a multifamily home that has two units. They are almost always split fairly equally right down the middle using something that looks like a “townhouse” style. However, you’ll sometimes find duplex styles where one unit is stacked over the other.
The big defining feature of the duplex is that you have a separate entrance for each unit. If you’ll be living in one side of the duplex, that separate private entry is a beautiful thing!
Let’s look at the numbers
In my area the cheapest single family home goes for $650K. If I were to buy the house now, I’d need:
- $162,000 downpayment (25%)
- $2,064/month in mortgage (at 2% interest over 25 years)
- PLUS in this case, I’d pay $430 in HOA fees!
Now, There was a duplex for sale in my area going for $750K. (And I wasn’t fast enough to jump on it!) This is what it would look like:
- $187,000 downpayment (25%)
- $2,382/month in mortgage (at 2% interest over 25 years)
- But NO extra fees AND I’d get $1,500 in rent from the other unit.
WHAAAAA! That’s too good!
Are those numbers unicorns? You’d have to check your own MLS listings to get an idea in your market. What I do know is I feel kinda stupid paying my whole mortgage all by myself when someone five minutes away is getting more than half of theirs paid for.
Here’s Why You Should Consider the Duplex
I like to think of a duplex as a way to have a home that just happens to come with a sidekick who pays all or some of your mortgage every month!
Yes, it’s almost like having a roommate who lives in an entirely different home that just happens to be attached to yours. However, you’re still getting the benefits of your own front door, back porch and yard in most duplex layouts.
A quadplex is a more aggressive way to save money on your home situation but you can bet it won’t be as nice to live in as a duplex.
As you can probably tell, I like the aesthetics of a duplex. However, I also like the way this living setup sets you up. I’ll show you what I mean.
A duplex makes it easy to qualify for financing.
First, duplexes are generally easier when it comes to qualifying for financing than other larger rental options. That’s because a duplex only requires a normal residential loan that doesn’t require you to file all of your paperwork like you’re a corporation the way you might with a multi-tenant property. There’s more!
When financing a duplex, you’re able to boost your borrowing power using rent totals from your tenants. You’re looking at up to $980,325 in borrowing power with a two-unit residential home. Just be careful about biting off more than you can chew with this one!
A duplex puts you in a nicer neighborhood.
The reason I get so excited about the potential to increase borrowing power with a duplex isn’t just because I like the prestige of scooping up more expensive properties. Unlike other types of rental investments, a duplex actually allows you to live where you want even if you can’t technically “afford” the neighborhood.
Duplexes put your dream home in a dream location within reach in a way that a single-residence house can’t. Living in one half of your duplex while renting out the other half is a way to live in a more expensive area that you couldn’t afford just based on your primary income.
For many people, getting to live where they want means cutting down commute times and all of the costs that go along with that!
Keep in mind that I’m pretty open about the fact that I’ve been able to get good results with rental properties in all types of neighborhoods within my own investment portfolio.
The numbers only get better!
That said, putting yourself in a position to buy in a more expensive area sets you in motion to perpetually make more from your property because rents always rise.
That means that an attached rental unit that merely pays for a portion of your mortgage today could potentially fund your full retirement a few years down the road. In fact, rental income mixed with a flexible part-time job could have you living the high life decades earlier than the standard retirement age.
If you find that you want to move to a standalone home in a few years, your current home will transition into another moneymaker for you because you’ll just rent out your side!
My Final Thoughts: A Duplex Is Like a Business That Runs Itself
With a duplex, you’re generally going to enjoy long-term tenants who have no reservations about living next door to their landlord! If you’re looking for the easiest way to make money through property investing, this is it because you only have one tenant to manage.
Let me tell you that this setup is going to save you from the hassle that comes from feeling like you’re always losing money as you try to fill vacancies with larger properties.
I also find that covering repair costs in a duplex is simply less painful. If there’s a big issue like a leak, it’s probably also impacting you because you live there! That means you’d be spending money to fix it either way!
Yes, I’m a fan of spreading out my real estate portfolio all the way up to quadplex properties. However, a duplex is really the best option for someone who is looking to get their house paid for today while setting things up for permanent passive income with the potential to get a windfall when it’s time to sell years down the road.
TL;DR – Why you should own a Duplex:
- Financing: It’s like a normal mortgage, but you qualify for more because of the rent income.
- Better area: You give yourself options to buy your home in an area you wouldn’t normally afford.
- You can eventually rent out both units and really get your real estate investing portfolio rolling.
If you’re looking at other ways to get into real estate, check out:
Crowdfunded real estate and top eREITs review
Farmland investing: why it’s a growing trend worth investing in
Investing in a duplex sounds like a great ideas, especially now when interest rates are at rock bottom. For someone who can afford it, do you recommend going straight into buying a quadplex instead of a duplex?
Yeah for sure. Quadplexes are life hacks as far as I’m concerned, you still get personal loan interest rates but you get 3 tenants who likely pay your entire mortgage.
Duplexes are close to just being a single family home, but you have a helper.
For me it came down to finding a house (with the most units) that would fit my family and is in the area I want to live in. For my area it was a duplex, but I wish there was a 3BR/2Bath, + 3x2BR/1Bath units here to buy 😛
Being happy with your house and neighborhood is more important than optimizing your finances I think.