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Investing In A Duplex


One of the most popular questions in the real estate community is “how do I get started?” Every day there is a new investor out there looking to enter the wonderful world of real estate but doesn’t quite know how to do it. If you are fresh out of college or looking for your first investment, a duplex is the answer.

A duplex is simply a property with two total units. The idea of owning more than one unit may sound intimidating on the surface but is actually much easier than you may think. Additionally, with current FHA loan guidelines getting approved for a duplex loan may not be as big of a hurdle as anticipated. A duplex purchase can help get your foot in the door and give you a tangible asset to help stay there. Here are five reasons to consider getting started with a duplex.

  • Minimal barrier to entry. As we stated you don’t need 20 or even 10 percent to buy a duplex. With an FHA loan you can get into the property with as little as 3.5% down. Things change quite a bit with any subsequent properties, but for your first one there is a minimal down payment. What makes FHA even more attractive is the funds don’t have to come solely from your account. FHA guidelines allow the down payment and closing costs to come in the form of a gift from eligible family members. If you have a mother, father, brother, sister, aunt or uncle that has surplus funds to gift you, they are allowed for the purchase. There are also favorable guidelines in terms of increased debt to income levels as well as reduced credit scores. If you are thinking about buying your first home you would be wise to take advantage of FHA and grab an additional unit, or two.
  • Increased cash flow. Think about how great it would be if you could live in a house that provides you with monthly cash flow. If you are looking for your first home your dream could be a reality. With a duplex you can live in one side of the property while renting the other unit. Every month you will have a tenant knocking on your door handing you a rent check. There are certainly some concerns with living so close to a tenant, but the benefits often outweigh the negatives. This is an obvious major benefit to owning two units. Instead of renting and giving money to a landlord you can reverse the process and collect rent every month. This will help ease the burden of your monthly payment and reduce the apprehension of handling a mortgage payment.
  • Decreased housing expenses. The idea of increased cash flow cannot be understated. With this surplus cash flow, you can not only use it to offset your mortgage payment but can use it to pay down debt or defray utility payments. If you are disciplined and savvy with the surplus, you can use it for several positive benefits. Many new investors use the surplus to pay down their loan balance. Just one extra mortgage payment a year will reduce the number of total payments by seven years. If you are saddled with excess student debt you can use the surplus to help ease that burden. Instead of traditional single-family purchase or rental scenario where you are worried about making the payment you have the security of knowing there is a tenant in place to help offset this. At a minimum you will have a rent payment to help with your overall finances any way you please.
  • Appreciation potential. Anyone who has been involved in real estate for some time can tell you never to buy solely for appreciation. If you buy in the right market and make the right improvements appreciation is certainly a possibility, but it is never a certainty. That being said a duplex purchase gives you the chance to earn appreciation down the road. This is especially the case if you are adding additional money towards the principal every month or make a few key improvements. Even without them your property value will likely increase over time. It could be a few years down the road but when values do rise you will be sitting on an asset with multiple options. You can keep the property and rent out both units or sell and use the equity as down payment for a future purchase.
  • Landlord education. If your long-term goal is to become an active real estate investor there is no greater education than owning a duplex. Regardless of which area of the business you want to be in, you should at least know how to handle tenants. With the rental market not appearing to slow down any time soon, a rental property may be in your future. With a tenant literally feet from your front door there is no better way to learn the ropes. You will learn how to construct a lease, how to enforce rules, rent collection and dealing with maintenance. Having a tenant right under your nose is a great education that will stick with you in everything you do in real estate.

Buying a duplex is an ideal first investment on many levels. If you have been thinking about the best way to get involved in real estate, this may be it.

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