A duplex property (or duplex as it is short) is a single dwelling that has two living units.
Find out how a duplex property works and its advantages as an investment.
What is a Duplex Property?
A duplex property is a type of multifamily property that has two living units on the same property. The units can be attached or detached. However, the majority are attached.
- Alternate name: duplex
How a Duplex Property Works
A duplex was traditionally owned and maintained solely by one owner, but it was occupied by two households, one in each of the living units. There are three possible duplex living arrangements.
- Rent out one unit and live in the other. This is a common scenario where the owner of a duplex lives in one unit and rents the other out to someone within or outside their family. A young professional might live in one unit, and rent the other to a friend, colleague, or to an adult child to act as a caretaker. The second unit is an investment property that the owner can use to offset potential mortgage payments and maintenance costs.
- Rent out both units – An owner can buy a duplex while still living in their primary residence and rent them out. This is an excellent option for someone who is financially stable and wants to invest in a duplex.
- Live in both units. Although it is less common, duplex owners with large families may decide to not rent out one unit but instead purchase a unit with the intention of occupying both. For example, a homeowner might choose to live in one unit with their spouse and children while their parents reside in the other.
The pros and cons of a duplex property
There are many benefits and drawbacks to purchasing a duplex:
Pros
- Single-family homes are less expensive than single-family houses
- Rent income
- Investment property is easy to access
- Tax benefits
Cons
- Maintenance costs ongoing
- Second unit vacant
- Tenants who are irresponsible and incompatible
- Second mortgages are difficult to obtain and can be very expensive
Pros Explained
A duplex can offer many benefits:
- Less expensive than single-family homes Duplexes are often more affordable than single-family houses 1 This could make duplex properties a great option for first-time buyers or cash-strapped individuals.
- Rental income Buying a duplex and renting one or both of the units out is a great way to make some money, especially if it’s located in a tourist-friendly area. To offset your mortgage payments and home maintenance costs, you can get a monthly rent check from a neighbor. You could even live without a mortgage. Renting income can help retirees pay for essential expenses during their golden years.
- Quick access to investment property You don’t have to travel far to resolve the issue.
- Tax Benefits: You might be eligible to receive tax deductions for mortgage interest and rental expenses for your duplex. However, if the duplex is used for rental or personal purposes, you will need to divide the expenses according to the days each purpose was served. This can limit your rental expense deduction.
The Cons
There are some drawbacks to duplex ownership:
- Monthly maintenance costs: Just like any other home, you will need to pay for the repairs and maintenance of the duplex. These costs can be difficult to manage if the tenant has a demanding schedule.
- The second unit vacant: Even though you do your best to maintain your duplex property, there is still the possibility that you might not be able to rent the second unit. It is possible to lose out on the help you need with your mortgage payments and maintenance, and it can defeat the purpose of purchasing a duplex property as an investment.
- Incompatible or irresponsible tenants: If you and your tenant are not compatible or live in the same area, or if your tenant is neglectful or causes frequent damage to the property, it can make living in a duplex difficult.
- A difficult-to-get and expensive second mortgage: It may be more difficult to get a mortgage for a duplex if you already have a mortgage on your primary residence. A lender may offer a less conservative loan or require a larger down payment. This is because there is a greater risk of having two mortgages.
How to get a duplex property
You should consider a mortgage loan if a duplex is a right choice for you. To determine the amount you can borrow to buy a duplex, get preapproved for mortgage financing. Make sure you have enough money saved for a down payment.
Consider the location you desire and the features you would like in a duplex. These include the architecture, number of bedrooms, and bathrooms.
Consult a realty agent to help you find the right duplex for your needs. You will be guided by the agent through the entire process of closing the deal and making an offer.
You should be familiar with landlord responsibilities if you plan to rent one or both units. To ensure the rental unit is occupied, you should research the rents in your local area and determine a fair rental price. This will allow you to maximize your return on investment.
