One of the more beautiful aspects of real estate investing is the versatility and flexibility. It doesn’t matter what your goals, interests, or expectations are, you may select from a variety of investment vehicles and opportunities to pursue.
Although a significant percentage of investors in Austin real estate focus on single-family residential properties, there’s plenty to be said for multifamily housing. Specifically, you can score big by acquiring duplexes.
What is a Duplex?
Duplexes have become extremely popular in the United States. According to the National Multifamily Housing Council, roughly one in five households live in a duplex (or quadplex).
So even if you may not be very familiar with them, you can rest assured there is plenty of interest in the marketplace. As the name suggests, these properties are essentially two private homes in one. They feature a shared wall between the two units, and each is typically a mirror image of the other.
“Duplex buildings also have two separate entrances for each unit. This means each tenant has their own entrance,” ApartmentGuide.com notes. “An example of a duplex is a house with two doors side-by-side that enter into different living spaces in one home, one upstairs and one downstairs. These two separate units are typically similar in size.”
The biggest difference between a duplex and a townhouse, condo, or apartment is ownership. The latter three property types are divided among multiple people (meaning one person owns each individual unit). With a duplex, one owner possesses both units.
How Duplex Investments Work
In terms of investing in a duplex, ownership typically plays out in one of several ways.
Option 1: Renting Both Units. With this approach, you treat the duplex like any other investment property (such as a single-family home). Both units are rented out, separately to different tenants, and you enjoy an income stream from both each month. The benefit of this approach is that you get to maximize your revenue and generate twice the income on the property.
Option 2: Living in One Unit. Under this approach, you rent out one unit and live in the other. The ideal goal is for the other tenant to pay the entire mortgage on both units. This gives you a free place to live, basically, while paying down your mortgage. Many Austin investors do this for several years and eventually rent out both units to tenants.
Depending on your situation and needs, either of these options might work. It’s up to you to identify your goals and devise a clear investment strategy that allows you to maximize your ROI.
The Pros of Investing in an Austin Duplex
If you talk to many real estate investors, most of them will readily encourage both first-time and experienced colleagues to give duplexes a try. Here are some of the reasons:
- Accelerated cash flow. Whether you live in one half or you rent out both units, a duplex ensures an accelerated cash flow; because you’re either bringing in double the rental income of a standard single-family property, or you’re getting your mortgage covered (which frees up other money in your personal budget). This empowers you to accomplish personal and professional goals at a faster rate.
- Future flexibility. Duplexes are incredibly flexible investments. In addition to the options we’ve discussed, they give you an array of options down the road. For example, you could turn one unit into a mother-in-law apartment. Or, if you ever decided you wanted to live in the property permanently, it’s usually possible to turn a duplex into a single unit with more space.
- Proximity. Although this can be a double-edged sword, it can be beneficial to live next door to a tenant (assuming they’re a good one). The benefit is that you’re on the site should anything go wrong. If a pipe bursts, for instance, you can respond immediately.
The Cons of Investing in an Austin Duplex
As beneficial as a duplex can be, it also features challenges that may be difficult for you to manage. If nothing else, these “cons” might make you rethink how you approach the situation.
- Limited inventory/location. Duplexes can be rare in many markets. You aren’t going to find them in a traditional neighborhood. They’ll typically be located in specific parts of town, where the zoning allowed them. That being so, you’ll be shunted into a particular region or market. (You might be fine with that, but it could also take you to an area of town with which you’re unfamiliar.)
- Tricky taxes and financing. Depending on your financial situation and how you choose to purchase the property, and/or whether you choose to live in half of it, financing and taxes will be more challenging with a duplex. It’ll be nothing a CPA can’t handle, but that’s something you should be prepared to face.
- Trouble setting boundaries. We mentioned the benefit of living next door to your tenant, but we’d be remiss not to mention the potential downside. Whether the tenant is friendly or a pest, it’s difficult to create boundaries when you live next door to your “customer.” There’s very little to stop the person from ringing your doorbell on a Saturday night and asking you to take a look at a leaky faucet.
- Twice the issues. When you’re a landlord, maintenance and repair issues come with the territory. But when you own a duplex, you have double the responsibility. If it’s not one unit breaking down, it might be the other!
Looking for an Austin Property Manager?
Owning two units – regardless of whether you live in one of them or not – creates real needs and responsibilities. Unless you have a fair amount of spare time (plus the emotional energy) to dedicate to screening tenants, collecting rent, dealing with maintenance issues, handling repairs, and addressing tenant concerns, you may end up exhausted and frustrated with your duplex investment.
But here’s the sweetener: You don’t have to do it on your own. At Green Residential, we make Austin property management a breeze.
We founded our company on the premise that real estate investors should have a reliable, trustworthy, and cost-effective way to manage their rental properties without unnecessarily eroding their returns.