As you know, no two real estate investors are the same. Everyone chooses to let their money work for them in different ways. There are dozens of unique specializations including apartment complexes, flipping, luxury home rentals, multifamily housing, vacation properties, and many more. However, for the beginner, certain options stand out above the rest. Multi-family housing units – and duplexes in particular – can be quite advantageous.
Benefits of Investing in a Duplex
Why buy a duplex? That’s a question you’ll undoubtedly ask yourself when first presented with the opportunity. Well, there’s not a totally straightforward answer. Real estate is so unique that the primary benefit in one geographical market may not even be a benefit in another. However, generally speaking, the following benefits are afforded to those who make smart duplex investments:
• Dual income. The biggest benefit is that you get the opportunity to purchase two income-producing properties for the price of one. Along with this comes some flexibility. You can either rent them both out or live in one while renting the other. Either way, you benefit.
• Good resale. While many homeowners will try to sell their home for more than it’s worth based on the fact that there’s a “granny flat” or detached suite, it typically takes a niche buyer to pay for that value-add. When you’re dealing with a duplex, though, it’s impossible to ignore the added value. The second unit has its own kitchen, bathroom(s), bedroom(s), separate entrance, and separate utilities. That added privacy is ideal.
• Hassle-free financing. When purchasing your first duplex, financing is typically flexible and convenient. With today’s rates and the variety of structured loans, you can probably purchase a duplex with as little as 3.5 percent down while still being able to recoup your mortgage payment through rent.
• Fewer location options. While some areas are littered with duplexes, others contain very few multi-family properties. If you’re looking to buy in a specific area, you may be up against a lot of other interested buyers. This is only an issue if you’re extremely picky about location.
• Living with your tenants. If you’re purchasing a duplex with the plan of occupying one half and leasing the other, this means you’ll be living literally feet from your tenants. This can be annoying and headache-inducing if the tenant is a complainer. As a side note, if you do live in your duplex, it’s a good idea to set “quiet time” hours during which your tenant can only contact you if there’s an emergency.
• Tax complexity. The IRS takes residential rental properties very seriously. Just take a look at the sheer volume of information found on their website. If you invest in multifamily housing, be prepared to hire an accountant. The last thing you want to do is ruin your investment as a result of overlooking a minor detail.
• Legality. Is the duplex actually a duplex? If you’re involved with multifamily housing investments long enough, you’ll eventually come across properties that are labeled as duplexes – but are legally considered single family housing.
How to Find a Good Deal
The biggest question is how do you find a duplex deal worth investing in? Aside from the obvious technique of reviewing listing sites and looking for signs, there are a handful of other strategies.
• Direct mail. One strategy that many investors swear by involves sending out direct mailings. You can read extensively about this strategy by checking out this article, but it essentially involves sending hundreds or thousands of letters to property owners and asking if they’re willing to sell. The hope is that a handful will contact you – with one or two being good opportunities.
• Networking. Surrounding yourself with other landlords, investors, and real estate professionals pays off. Let them know you’re looking for a duplex and tell them to contact you with any opportunities they run across. It may take time, but you’ll eventually hear about something.
• Searching for motivation. When you’re driving around for for-sale signs, you should also be on the lookout for signs of motivated sellers. These are people who don’t necessarily have signs in the yard, but exhibit signs of being interested in a sale. Overrun yards and boarded up windows are common signs of an owner who’s ready to sell. You can then search property records to learn more about the owner.
Duplex Investment Mistakes to Avoid
Your first multifamily deal can be stressful and nerve-racking if you aren’t careful. In addition to surrounding yourself with experienced investors and a reputable real estate attorney, you’ll want to avoid the following mistakes:
• Miscalculating rental income. Just because a property is currently renting for $900 per month, doesn’t mean it will rent for the same amount when you purchase it. It’s possible that that rate has been grandfathered in, or that the current tenant is overpaying and it’s only worth $700 per month. Always verify the accuracy of rental rates and don’t take the current owner’s word for it.
• Underestimating maintenance costs. You should get reputable inspections and repair estimates for any and all issues the duplex may have. Underestimating maintenance costs can leave you with very little financial flexibility or inflated operating expenses.
• Not considering seller motivation. Finally, did you ask why the seller is selling? It’s important to get the honest answer to this question – for two reasons. First off, maybe they know something about the market and are looking to unload before values decline. Secondly, if you don’t ask, you may be missing out on a chance to lower the purchase price. For example, if the seller is moving across the country in two weeks, they may be willing to sell for $10,000 below asking price just to move on.
Let Green Residential Help
At Green Residential, we can help you manage the intricacies of duplexes and other multifamily housing investments. Whether you need assistance finding and screening new tenants, collecting rent, or ensuring all legal paperwork is taken care of, we can help. We’ve been in the professional property management industry for decades and would be happy to call you our client. Please contact us today for more information.