Duplexes have a great real estate investment potential for seasoned investors or someone getting their start with investment property. The income generated, ease of upkeep, and benefits of owning a duplex make it an easy competitor for real estate investment. Duplexes are built in cities or other densely populated areas as there is demand for housing with less space.
Is building a duplex a good investment? The answer is yes, and here’s why.
Investing Advantages of Duplexes
Duplexes provide many investment advantages over other multi-family properties, like apartments or townhouses, despite only having two units that generate income.
Explore the main perks that come with investing in a duplex house:
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Great Investment for First-Time Real Estate Investors
It’s common to think that more units mean more rental income, responsibility, and obligation. For first-time investors, investing in a duplex can be a great starting point in real estate. A duplex only has two units and is more affordable than larger properties with many units that require a lot of maintenance and tenants to manage. Also, it’s important to note that income and expenses are easier to track.
The goal may be to invest in and own larger buildings with many units. But to get started, few buildings beat duplexes.
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Smaller Property is Easier to Manage
Another financial plus to having duplexes as an investment property is less overhead. A single property with only two or three units means more manageable upkeep on a smaller scale. Regular upkeep like lawn and maintenance is cheaper, and bigger concerns like roofing are less expensive, which means more income in investing elsewhere.
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Build Your Portfolio Faster
Rather than working your way up from a single-family home, your real estate portfolio can begin with double the number of rentable units. Besides starting your portfolio strong, it costs you less to buy a duplex than to buy two single-family homes.
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Financing Available for Those Occupied by the Owner
Some investment properties can’t deduct mortgage interest, primarily because the owners don’t live there. With a duplex, an investor can write off expenses for the half they rent, including repairs, insurance, utilities, and management fees, and deduct the mortgage interest.
Furthermore, lenders are more likely to approve a higher mortgage with low interest rates due to the potential rent income.
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More Attractive to Renters: More Space and Privacy than Apartments
Apartments provide a different space or feeling of home than duplexes. Renters are keenly aware of that, which makes investing in duplexes more attractive. Many duplexes have yards and more privacy than larger buildings, and renters are generally happy to pay more for those home features.
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Two Rental Sources for the Price of One
Some investors are tempted to look over duplexes because they don’t earn the same returns as townhouses or condo complexes, but investing in them means more monthly income than a single-family home could.
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Rent for Long and Short Terms at the Same Time
Renting helps cover half of the mortgage monthly payment. By renting, investors can repay the mortgage faster and own the property sooner. Duplexes offer versatility unmatched by other real estate investment opportunities, specifically the rental timeline. With vacation rental platforms and short-term leases, investors can rent one unit long-term while holding the other for short-term rentals, earning more income.
Your Duplex Investment and the IRA
Real estate has long been a popular alternative for people who want to diversify their retirement portfolios, taking advantage of self-directed IRAs. These IRAs allow plan owners to choose alternative assets other than 401(k)s and IRAs that employers, banks, or brokers don’t allow.
Here is how it works:
The investment property is purchased by the self-directed plan you own and titled in your retirement plan’s name, which means you don’t have to withdraw any funds to invest or incur taxes and penalties if you do.
It’s important to know that any investment expenses must be paid with plan funds, not personal funds; it’s an IRS rule for retirement plans. Also, income from the property is deposited directly into the retirement plan tax-free or tax-deferred, even avoiding capital gain taxes when selling the property if your retirement plan owns it.
Is It Hard to Sell a Duplex?
Duplexes are a great investment for all the reasons mentioned above, but if you plan to sell the property, you may encounter some difficulties. Duplexes are frequently considered a step below a single-family home due to less living and yard space, shared walls offering less privacy, and fewer amenities. If tenants occupy one or both units, then it becomes very challenging.
Duplexes can be difficult to sell but not impossible. In the meantime, they are great investments continuously delivering various financial benefits.
Is It Hard to Rent a Duplex?
Duplexes share the typical rental challenges as other types of property have, such as:
- Twice as many maintenance and repair costs as a single-family home. Duplexes have double the bathrooms, kitchens, and other living areas that the landlord can repair.
- The risk of a vacant unit is always lingering for one or both units. Researching your target market and appealing to renters is important so you're not left footing the bill for an investment.
- While owner-occupied duplexes provide tax benefits and other advantages, now you're next door to your tenants. On one hand, you can monitor them more closely, but now they have straightforward access to you for any issue that may come along.
Is It Smart to Build a Duplex?
Many investors search the market for the right investment property, but building your own duplex may be better than buying one. The challenges of building your own property, such as zoning regulations, construction challenges, design, and the cost itself, tend to put investors off.
However, with the right custom-building partner, these are easily mitigated. To help find a quality contractor or residential construction company, here are some things you can do:
- Ask to see a portfolio of past projects
- Get a few different estimates to compare costs
- Choose contractors that are licensed, bonded, and experienced with building duplexes.
- Get a written estimate and contract before making any payments.
- Choose builders with good reviews.
When you find a contractor or company that seems like a good fit, here are some questions to ask before investing your time and money with them:
- Do you have any references from past clients?
- What are your current labor rates?
- How much input can I give during the building process?
- How long have you been in business?
- Will you hire subcontractors, plumbers, and electricians?
- Can you give me a written estimate and contract?
- What delays or extra fees can I expect?
Is Owning a Duplex Profitable?
Owning a duplex, especially one as an investment, has many advantages. Even more benefits are outlined in the article below:
What are the benefits of owning a duplex?
With a seasoned custom-home builder company like HiLine Homes, there are even more advantages. Our streamlined process and Home Consultants help navigate the duplex building journey; from choosing duplex floor plans to securing financing through our Approved Lenders, we’re there every step to a profitable duplex investment.
