So, you’re thinking about buying a duplex and renting out half of it. Maybe you want to save on that hefty mortgage payment or maybe you just want to move to a new city without a ton of expenses. A duplex is a great first investment property that helps cover your expenses and can lead you to financial freedom. Investing in real estate has long been a way for people to build their wealth, and investing in a duplex is often recommended to those who are new to real estate investing.
You might be envisioning a world where your mortgage is fully covered, and you no longer have to share your living space with a roommate who continually leaves the Britta empty and thinks that the trash magically takes itself out. Sounds great, right? It totally can be. But buying and renting out half of a duplex isn’t all sunshine and rainbows. Read on for the pros, cons, and everything in between to help you decide if buying a duplex is the right choice for you.
Things to Keep in Mind Before Buying a Duplex
- Know your real estate market. You’ll need to know how much property is going for in your area and rent on the properties.
- Run the numbers! This is ESSENTIAL. This online calculatorcan help to determine how much money you could make with an investment property.
- Consider if you can handle mortgage payments during vacancies and how much debt you’re comfortable with.
- To make sure you’re not making a bad investment, get inspections, get the property history, verify rental income, property taxes, liens, etc.&
Cons of Buying a Duplex and Renting out Half
- Being a landlord is hard work. Unless you plan to hire a property management company (which would decrease your profit), maintenance and property damage will be your responsibility. Even if you choose to hire someone to do the maintenance, you’ll be the one fielding calls or knocks at the door from your tenant if something goes awry.
- Having a bad tenant in any rental property is less than ideal but having a bad tenant that lives right next door and shares a wall with you is downright dreadful. You can do your due diligence with a background check and have very specific written rental criteria, and you can still end up with a nightmare tenant.
The worst-case scenario, in this case, is the E word… eviction. Evicting a tenant is emotionally taxing and expensive for all parties. It’s important to consider how you handle confrontation. Could you evict a tenant who broke their lease or stopped paying their rent without warning?
To avoid having a bad tenant, here are some must-haves to include in your rental criteria:
- minimum monthly income
- proof of income
- minimum credit score
- positive rental history
- references
You should also state whether you allow pets or smoking in the unit.
- Dealing with clogged toilets and expensive repairs is just a part of being a landlord, but it can be a nuisance if this happens often, which is sometimes the case in older homes. It’s essential to keep in mind the age and condition of the duplex during the buying process. You should also make sure you’re handy enough to deal with repairs. You’ll want to have some money set aside for unforeseen maintenance issues.
- Setting boundaries as a landlord can be difficult – especially when your tenant is also your neighbor. Your tenant may expect you to be on call at all times.
- While you won’t be sharing a living space with roommates, you may be sharing a driveway or backyard with your tenants. If you’re easygoing, this might not be an issue. But if you’re used to the privacy that a single-family home provides and can’t handle if things are occasionally out of place, then buying and renting out half of a duplex may not be the right choice for you.
Pros of Buying a Duplex and Renting out Half
- Buying a multi-family home that you plan to live in is a low-risk way to dip your toes into real estate investing. It’s also a great way to reduce your cost of living.
- It’s very cost-effective when compared to buying and renting out a single-family home. Typically, you’ll need to put at least 20% down if you’re purchasing a free-standing rental property. That’s not an option for a lot of people. However, the rules are different if you plan to live there yourself. It’s possible to purchase a duplex for just 3.5% down with a Federal Housing Administration Loan (FHA). Buying a duplex with an FHA loan has lower closing costs and it’s easier to qualify for if you have less than perfect credit.
- Buying a duplex is an easy way to start building your real estate portfolio. While you live in half of the duplex, you’ll be paying off your mortgage with a tenant’s help. Depending on your financial situation, your tenant may be paying your full mortgage. Eventually, you could choose to move elsewhere and rent out both units, which would double your rental income.
- You’ll be eligible for additional tax benefits. Owner-occupants get some special tax advantages that landlords who rent out single-property homes don’t.
You’ll get the standard deductions for being a homeowner, and on top of that, you’ll be able to deduct the expenses you incur while renting and maintaining the rental unit. Tax write-offs allow you to get money back for improving your property. Just be sure to familiarize yourself with what the IRS qualifies as a deduction.
- Rents increase as the markets change, which happens with each passing year. As you raise rent over time, your rental income will grow while your mortgage remains fixed.
Once you’ve decided to sell your home and buy a duplex, we make the rest of your move easy.
When you hire Colonial Van Lines, you’ll get:
- End to end service, including packing, moving and storage
- Reliable, friendly, experienced movers
- A plan customized to fit your needs and budget
- A free transparent rate quote
- Affordable pricing options