Is Investing in Duplexes Right for You? Breaking Down the Pros & Cons

Are you thinking about investing in duplexes? This type of property can be a great investment strategy, especially for investors looking to house hack or build up their door count in a manageable way.

To help you see if this is the right investment strategy for your goals, we’ve rounded up the pros and cons of buying duplexes and how they differ from single-family homes. We’ll also provide expert tips for success with duplex real estate investing.

What is a Duplex?

A duplex is basically a two-for-one home. This property type is often side-by-side and shares a wall or is stacked on top of each other. It’s also called a multifamily home, as more than one family can live there. When a buyer purchases a duplex, they’re essentially buying two homes, or as we like to say in the investing world, two doors.

Pros of Investing in Duplexes

Let’s say you’re considering buying an investment property and have decided on investing in a duplex. Naturally, you’ll want to weigh the pros and cons of owning a duplex and make sure this is the best type of property for your return on investment (ROI) goals. To make it a little easier, we’ve compiled a comprehensive list of investing in duplexes pros and cons. Let’s start with the pros.

Pro #1 Great Monthly Cash Flow Potential

The unique thing about investing in duplexes is that it provides options to the owner.

• You can live on one side of the duplex while renting out the other side.
• You can rent out both sides.
• You can try different rental models, long-term, mid-term, short-term, and see which produces the most cash flow.

You can live on one side of the duplex while renting out the other or renting out both units. Renting out both units will produce monthly cash flow. And if you’ve taken the time to do your homework and snagged a great deal, the combined rent from both tenants will likely cover the entire mortgage and then some. This makes owning a duplex potentially very lucrative.

Pro #2 They’re Affordable – Two Units in One Transaction

A duplex is typically (not always) more expensive than a single-family home, at least initially. However, you’re getting two units in one transaction, which makes the numbers work in your favor, especially in the long term.

Another reason investing in duplexes can be very beneficial is their location, typically in very affordable neighborhoods. Additionally, you’ll get monthly rental income, making them even more affordable.

Pro #3 Live Free or Cheap While Tenant Pays Your Bills

One of the most appealing parts of investing in a duplex is the ability to live for free or cheaply. Living on one side of the duplex and renting out the other can potentially cover or lower your mortgage each month.

For example, let’s say the mortgage on your duplex is $1,500 a month. And you rent out the other half for $1,000 per month. Then, you’d only pay $500 a month while your tenant pays the rest. Or you can make double payments to pay off your loan and earn passive income quicker.

Pro #4 Relatively Easy Financing

If you’re wondering if getting financing for a duplex is more complicated than a single-family home, the short answer is no. It’s relatively easy to finance a duplex. The most common methods include cash, conventional loans, FHA loans, VA loans, and 203k loans.

For a full rundown on the best financing options, check out our recent article, Conventional Financing & Specialty Financing: What You Need to Know.

More About 203k Loans

As we discuss the pros of investing in duplexes, I want to share a few details about the 203k loan requirements and why they could be an excellent option for many investors. A 203k loan is considered part of the FHA loan family but has some unique features. For starters, 203k loans allow buyers to include the cost of repairs in the loan.

For instance, if you’re looking to purchase a duplex for $120k, but the property needs around $30k for repairs, this loan allows buyers to borrow $150k. The same is true for triplexes and fourplexes. Keep in mind, that because this is an FHA program loan, 203k loan requirements include a 3.5% down payment and living in the property for a year.

Pro #5 Relatively Easy Leasing

A few reasons make it easier to find tenants for duplexes. The first is that duplexes are usually bigger and have more of a “home” feeling, especially compared to apartments. Tenants only have to share a wall, floor, or ceiling with one other tenant, reducing noise and other possible disturbances.

If you’re living in one half of your duplex, tenants often prefer having their landlord nearby in case of emergency repairs or urgent issues. Also, on-site landlords can keep a better eye on their investment property and the tenant. A win-win!

Pro #6 Take Advantage of Landlord Tax Deductions

Did you know that investing in duplexes qualifies you for several additional tax deductions? Duplex owners can deduct most expenses for maintenance, yard work and repairs. To see a complete list of tax deductions on your income property, check out the Top 18 Landlord Tax Deductions to Maximize Your Profit.

Tip: Renting to family members disqualifies you from several tax deductions.

Cons of Investing in Duplexes

Con #1 Rental Income Isn’t Guaranteed

Buying a duplex as an investment property is a great idea until you can’t find renters. Then, you’re faced with having to cover a larger-than-expected mortgage payment.

Hopefully, you ran the numbers before buying the property and can afford to cover the entire mortgage (for up to three months) in case vacancy issues occur. Just because you expect rental income doesn’t always mean your duplex won’t go unoccupied for one to three months a year (on average, depending on your market).

The trick is to take the time to find the right tenants. Good, quality tenants are worth every minute or dollar spent.

Con #2 You’re Responsible for Repairs & Maintenance

When you buy a duplex, you’re signing up to be a landlord unless you plan to hire a property management company. Even though it’s only one unit, a rental can potentially require a fair amount of work and time.

What if your tenant’s oven stops working, and you must purchase a new one? What if the AC stops working, and you need to get it fixed? What if part of the roof is leaking and needs to be repaired? All of these unexpected expenses will cut into your rental income.

Before buying a multi-unit property, ensure you’re willing to invest the extra time and money—otherwise, budget for a property manager.

Tip: As mentioned above, most repair and maintenance costs are tax deductible.

Con #3 Potentially Share a Wall with Your Tenants

Sharing a wall with your tenants may be enough to dissuade potential investors from buying a duplex. If you’re easily annoyed by noise or have a tenant constantly knocking on your door with complaints, a duplex may not be for you.

However, as a landlord, you get to choose your tenants. So, if you find great tenants, these issues are easily avoidable.

Con #4 You Could Get Stuck with Bad Tenants (If You Don’t Choose Wisely…)

Even if you spend the extra time and money looking for quality tenants, it’s not always a guarantee they’re going to be quality renters. If you end up with bad tenants, it could make your living situation a nightmare. One of my latest articles provides tips on finding great tenants, Owning Investment Property: 3 Potential Pitfalls & How to Avoid Them.

Investing in a Duplex vs. Single-Family Home Earning Potential

Real estate investors often compare different types of properties to determine which will help them reach their financial goals. In this instance, let’s consider a duplex vs. a single-family home investment.

To start, a vacant single-family home will affect your monthly return on investment much more than a duplex. Whether you’re living on one side of the duplex and renting out the other or renting out both units, the chances of both units being unoccupied simultaneously are unlikely. With a single-family home, you are responsible for 100 percent of the mortgage if left vacant.

Conversely, property insurance for a duplex is typically 15 to 25 percent higher than that for single-family homes. As mentioned earlier in the article, duplexes usually cost more out the gate than single-family rentals. There is more demand for SFR’s than duplexes, so selling a duplex could take longer than expected. However, duplexes produce more cash flow over time, which is appealing to buy and hold investors.

ROI Potential

Whether you decide to buy a single-family home or invest in a duplex, all investors need to look for the best return on investment. The key is to figure out which will generate a better long-term return. Many factors go into your ROI, including property condition, appreciation potential, and how well tenants care for your rental.

The graphic compares buying two single-family homes to one duplex. Keep in mind that this is strictly from an investment perspective.

4 Questions to Ask Before Investing in a Duplex

1. How much do I want to spend?
2. Location, location, location! Where do I want to buy?
3. What condition do I want my property? (Move-in ready or fixer-upper)
4. Do I want to live in my duplex or rent out both units?

4 Questions to the Seller Before Buying a Duplex

1. Have any major repairs been done (roof, plumbing, electrical)?
2. Has the inside of the property (kitchen, bathrooms) been upgraded?
3. What are the average monthly expenses?
4. Are the units individually metered?

Duplexes for Sale Now

Duplexes can offer a wide range of advantages to investors. As with any investment property, it is critical to do your due diligence. Crunch the numbers and ensure your investment has the potential to create the greatest return.

If you are interested in investing in duplexes in some of the nation’s top markets, RealWealth can connect you with turnkey teams selling duplexes in some of the nation’s top real estate markets. Check out our available duplexes for sale and become a RealWealth member. Membership is 100% free! Join RealWealth today to see properties and sample pro formas.