Buying a Duplex as Your First Home: What You Should Know

Most people buying a house for the first time are primarily interested in a single-family home – a traditional house that was designed to provide shelter to a single family, with a single unit.

But there are also multifamily homes available for sale, including duplexes. Duplexes are multifamily houses with two individual units; if you buy this type of property, you can move into one of the units, secure a tenant for the other unit, and collect monthly rental income from that tenant. Later on, if you decide to move out, you can fill the remaining space with another tenant, thus doubling your income.

But is this a wise move? Should you consider buying a duplex as your first home?

Why Buy a Duplex as Your First Home?

Buying a duplex as your first home can be advantageous in several ways.

• Income supplementation. The principal benefit of buying a duplex as your first home is income supplementation. Let’s say your monthly mortgage payment for the duplex is $1,800, covering principal, interest, home insurance, and property taxes. When the other property is occupied, the tenant pays you $1,850 in rent every month. Essentially, they’ll be covering your entire mortgage, and you should have $50 leftover. You’ll be living for free in the short term, and in the long term (with the benefit of rent increases), you’ll be capable of generating a significant profit.
• Long-term revenue potential. The long-term revenue potential of this type of property is also lucrative. Over time, assuming you have a fixed interest rate with your mortgage, your costs associated with the property will remain relatively the same – but if you’re in a growing neighborhood, you’ll be able to gradually increase monthly rent. Additionally, if you move out, you can replace yourself with another tenant and instantly double your income. If you hold the property long enough, you can also benefit from property appreciation, giving you a chance to make even more money.
• Loan qualification. In some cases, purchasing a duplex can allow you to qualify for a bigger loan. Banks consider a great deal of variables when deciding whether to loan money to an individual, including the income potential of their future purchase. If the duplex is in an attractive neighborhood and stands to attract high-paying tenants, the bank may be willing to lend you more money for the property.
• Tax write-offs. As a homeowner and a property manager, you’ll be entitled to several tax advantages. You can write off certain types of qualified expenses and minimize their financial impact.
• Entry into the property management world. If you plan on eventually getting into rental property management and building a more robust portfolio of properties, buying and living in a duplex is a great way to start. You’ll only have a single tenant to work with, you’ll live onsite so you can easily respond to emergency situations, and you’ll be intimately familiar with the property because you live in it yourself. Once you gain some experience, you can expand your portfolio with new acquisitions.

Key Challenges of Buying a Duplex as Your First Home

Buying a duplex isn’t the right move for every first-time home buyer, however.

• Vacancy potential. When the other unit of your duplex is occupied, you’ll generate substantial revenue. But there’s no guarantee that it’s going to be occupied immediately, or that it’s going to stay occupied in the long term. Whenever there’s a vacancy in your duplex, you’ll have a shortfall of income, which means you’ll have a bigger financial burden to deal with on a monthly basis. If the vacancy becomes prolonged, you might find yourself in a dire financial position.
• Income inconsistency. Even if the other unit does remain occupied, your tenant may or may not pay rent consistently on time. You may have to hound them to make rent payments, and in some cases, you may be forced to evict them for not paying rent. If you rely on this income to make ends meet, this can be a tumultuous situation. Additionally, if you struggle with tenant retention, your income may become volatile, bordering on unpredictable.
• Landlord responsibilities. Remember that you have major responsibilities as a landlord. You’re responsible for making necessary repairs, ensuring that the property is habitable, and respecting your tenants’ rights. Arguably, living on the property puts you in a position to practice these responsibilities more conveniently, but you need to take them into account. If you’re not familiar with your core responsibilities as a landlord, this may not be the right time to buy a duplex; spend some time researching the prospects and return when you have more knowledge and/or experience.
• Shared spaces. Living in a multifamily property isn’t the same as living in a single-family property. Depending on the structure of the duplex, you may share a wall with your tenant or they may live above or below you. You’ll likely see your tenant on a daily or nearly daily basis, and their activities might interfere with your comfort or jeopardize your privacy.
• Disqualification from homebuying programs. As a first-time homebuyer, there are several homebuying programs for which you might qualify if you buy a traditional single-family home. However, if you choose to buy a duplex, you may instantly disqualify yourself from these programs. If you have a good credit score and plenty of cash on hand, this won’t affect you much.
• Higher upfront costs. You should also keep in mind that buying a duplex is typically more expensive than buying a single-family unit. You’ll need a bigger down payment, your mortgage payments will be higher, and the costs of repairs will likely be higher as well. You can make up for those upfront costs with regular income – but this still takes time.

Every Duplex Is Different

Keep in mind that every duplex is different. You can find them in a wide range of different neighborhoods, they can be structured in different ways, and they can be anywhere from very cheap to very expensive. It’s hard to make a general recommendation on whether you should buy a duplex, in part, because every duplex is truly unique. It may make perfect sense to buy one duplex, but another may be totally unreasonable.

If you’re looking for a duplex in the Houston, TX area, or if you’re thinking about jumping into the property management world, you need a team of experts who truly has your back. That’s why Green Residential is here – we have property management and real estate experts who can make sure you make the best possible decision for your individual situation.

Contact us for more information today!