Guide to Buying a Duplex: Pros & Cons of Duplex Ownership

Searching for a home, especially your first, is one of the most exciting pursuits of your life. You’ve got financial freedom and you’re ready to use it to get a place all your own! And while you might be eager to ditch the shared walls of an apartment complex, don’t rule out buying into the shared walls of a duplex. There are plenty of reasons why purchasing a duplex could be the right choice for you. Let’s take a look.

Duplexes are very popular in the U.S. The National Multifamily Housing Council claims that about 1 in 5 households currently live in a duplex. Although they may not have been on your radar while shopping for homes, owner-occupied duplexes can be a wise investment. Similar to a single family home, duplexes are essentially two homes that share a wall with another home.

How does a duplex work?

Each home in a duplex can be either independently owned or by one entity. These owner-occupied duplexes can be split if the owner wishes to sell one or both. But what makes them so attractive is that duplexes — when one side is rented out — can help to generate income and pay down half the mortgage at the same time.

Is a Duplex a Good Investment for First-Time Homeowners?

To many, the prospect of renting out one half of a duplex is considered a good option. As far as starter homes go, it can also be a sound financial decision, too. If you’re thinking about buying a duplex as a first-time home buyer, it’s important to weigh your options and your long-term goals before making the call.

Buying a duplex and renting half out to a tenant is a big responsibility. You’ll be legally responsible for keeping the unit in a habitable state. And if something should go wrong with the HVAC or the water heater, you’ll need to be able to react — both physically and financially — to make repairs and line up service personnel if you can’t. Another consideration when buying a duplex as a first home is to be sure you’ve got the financial reserves in place to pay for the rental’s mortgage in case the tenant doesn’t work out. You may have trouble replacing the tenant if they unexpectedly move out.

Owning a Duplex: Pros and Cons

Buying a duplex and living in one half while renting out the other seems like a smart idea — and it can be a very good investment! However, like all investments, there are always some negatives to take into account. Let’s explore the pros and cons of having an owner-occupied duplex and see if it’s the right fit for you.

Pros of owning a duplex

One of the biggest reasons most people consider buying a duplex when they’re searching for their first home is the investment opportunity. Check out why it’s a good financial move to invest and live in a duplex.

Income on your property. With a tenant contributing to half of your monthly mortgage, you’ll be poised to build savings.

Renting your duplex could help you during the loan process. When you plan on renting out one side of a duplex, you may be able to factor that into your income and qualify for a larger home loan. Talk to your mortgage officer for specific details.

Your tenants help pay your mortgage. When you’re living in one side of the duplex and renting out the other, you’re taking a big chunk out of your mortgage payment every month. When you compare your reduced mortgage payment to what you’d be paying if you purchased a single-family home, duplex living seems like a no-brainer.

Tax benefits. Not only do you get your standard deductions for being a homeowner, but you can also deduct the expenses you incur while renting and maintaining your rental unit. Selling an owner-occupied duplex may also give you some exclusions from capital gains taxes since it’s treated as two properties.

Talk to your tax professional for more specific advice, but since your duplex is producing income, it’s technically a business — and that means you’ll have some opportunities for tax benefits that you wouldn’t have if you’d picked a single-family home.

Beginning of a real estate portfolio. A duplex is a great stepping stone for anyone looking to invest in real estate. While you live in half, you can pay down your mortgage. Then, when you move out, you can rent out both sides — doubling your rental income.

Rent goes up. In general, rent goes up over time, but a fixed, 30-year mortgage stays the same. So while your mortgage payments don’t change, you can charge more for rent, adding to your income over the years.

Close to your tenants. There’s nothing like living next door to your tenants for property checks and maintenance issues.

Cons of owning a duplex

If the income portion of owning and renting a duplex sounds good to you — great! But don’t let that drive your entire decision. There are plenty of other work, social and risk factors to consider before you jump into the rental game. Check them out:

Twice the expenses. There are many financial benefits to a duplex but some of the expenses double — maintenance is one of the biggest considerations. Make sure you do the math at the outset to see how your finances line up.

Tenants have expectations. When your tenants are next door, they may expect you to deal with any issue they encounter immediately.

The landlord business. Once you rent out the other half, you become a landlord. Whether you love being a landlord or could leave it, it’s a business and needs special attention. Some mortgages require you live in your half for a year. Are you able to commit to staying put for a year? Or do you need more flexibility?

Location limitations. Your region may have zoning limits on where multiple family units can be located, which could restrict your location options.

Handling an empty unit. If the other side of your duplex doesn’t have a renter, you need to be prepared to advertise, show the unit, maintain it and handle months of no rent payments. Make sure you’re able to devote as much time as necessary to keep the unit in good shape and get it occupied.

Sharing walls. If you had your heart set on privacy that your old apartment couldn’t offer, you might not love the fact that your unit will share at least one wall, ceiling or floor with your neighbors. Be prepared for the occasional noises, especially if your tenant likes to entertain.

Respecting shared property. You’ll probably be sharing a driveway, a lawn or other parts of your property with your tenants. Making sure that you’re both respecting the shared property and cleaning up after yourselves is an important part of creating a healthy tenant and landlord relationship.

Renting Out An Owner-Occupied Duplex

Buying a duplex to live in can be appealing. And joining the ranks of the hundreds of thousands in duplex ownership is a great way to have a go at being a landlord for the first time. Unfortunately, buying and renting out a duplex isn’t a “set it and forget it” kind of investment. Before you ever show the unit to a prospective renter or hold an open house, you’ll need to brush up on some landlord basics. Here are some tips for learning to become a duplex landlord:

Research rent prices in your city, town or neighborhood. Setting a fair rental price is a major key to getting renters and keeping your other unit occupied. Look for similar units and compare and contrast the features, prices and location to yours.

Check out local rental and landlord laws. Depending on the location of your duplex, you’ll have different rules and regulations to abide by. Your tenant’s rights will depend on your location, too. These laws will cover things like security deposits, what you’re required to disclose about the unit to potential renters and more.

Prepare for repairs. If you don’t fancy yourself a handy person, ask around and search online for a reputable maintenance person in the area. You’ll be doing yourself and your tenants a favor by making sure you’ve got someone trustworthy to handle the unexpected maintenance issues that come with renting.

Don’t expect regular, on-time payments. It’s a tough pill to swallow, but as a landlord, you won’t always be paid promptly by your tenants. That’s why you should work to build a strong rapport with whomever is living on the other side of the duplex. Give your tenants the respect and honesty you’d expect to get, and you’ll be better off — both financially and personally — in the long run.

Learn about the required insurance

Get in touch with an American Family Insurance agent to get the coverage and peace of mind you deserve. Here are the policies you should consider:

Homeowners insurance. One last consideration when buying a duplex is your homeowners insurance. In most situations, if you have an owner occupied duplex, you can insure both sides through a traditional homeowner’s policy.

Business insurance. But, if you decide to move and rent both units you may need to look into business insurance. Your American Family Insurance agent will be happy to navigate these policy options with you so you can find the best option for your unique situation.

Landlord insurance. While you handle the day-to-day of managing your rental unit, you also want to make sure you’ve got landlord insurance that protects you from the surprises that come with the job.

The next steps to purchasing a duplex

Once you’ve made the decision to purchase a duplex, you’ll need to make preparations for the purchase in much the same way that you would if you were buying a home for the first time. As you’re considering how to buy a duplex, you’ll need to apply for a mortgage and figure out how much cash you can put towards a down payment.

Frequently Asked Questions

How can I buy a duplex with no money down?

You’ve got a few options if you’re looking to purchase a duplex with no money down. In addition to working out a lease-to-own arrangement with the current duplex owner, you could join forces with a financial investor who’s willing to partner with you on the deal.

How can I buy a duplex with bad credit?

In order to qualify for financing, you’ll need a minimum FICO credit score around 580 – 620. With that, you may qualify for an FHA loan to buy the duplex.

Suburbs Apartment Rents Close to Their Pre-Pandemic Peak

Though the rental market in major cities has been hard hit by the Coronavirus pandemic—plagued with a mass migration by remote workers seeking larger homes, as well as relocations because of social distancing concerns—it appears that the suburbs have not just survived COVID-19’s wrath, they’re thriving in spite of it.

While rents have declined steadily in the larger, denser, principal cities at the core of each metropolitan region, rents in the outlying suburban areas have, on the whole, rebounded to pre-pandemic levels,” according to a new report from Apartment List.

From June through September, rents dropped in cities but “quickly rebounded” in the suburbs from losses that were seen from March to June across all of the property type’s markets, the report stated. In October, rents were 0.5% higher than they were at the start of the year, and came in just under their pre-pandemic peak in March.

Suburbs are outpacing cities across the country. In 27 of 30 large metropolitan areas tracked by Apartment List, “principal cities are experiencing faster rent drops or slower rent growth than their surrounding suburbs. And in 11, including major economic centers like Atlanta, Dallas, and Philadelphia, apartments in the principal city are getting cheaper while at the same time apartments in the suburbs are getting more expensive.”

The data jibes with other recent research concerning the impact of move-outs from cities, and the resulting strength of the suburbs. A recent report from Redfin showed that in the third quarter 29.2% of Redfin.com users looked to move to another metro area—the highest share since Redfin started tracking migration at the beginning of 2017. The uptick is partly due to the pandemic, Redfin stated, as well as the now pervasive work-from-home culture.

Short-term suburban rentals—which it defines as one-to-two-year lease terms—could be demand drivers for residents seeking work-from-home space and outdoor access. Suburban renters typically seek larger units, such as two-to-three bedroom apartments.

If this work-from-home trend is going to be a little bit longer term, people will feel more comfortable with moving out into the suburbs.

Efforts to socially distance also are fueling shifts away from major cities to the suburbs people just don’t want to be in enclosed, dense areas.

How Technology Is Disrupting The Apartment Rental Experience

Do you remember the last time you left home without your smartphone? Neither do I. We have integrated technology into almost every part of our daily lives. The average U.S. adult spends around three hours on their smartphones every day, from listening to music to scrolling through social media and streaming videos.

Today, technology is changing the way people engage with one of the oldest industries: real estate. It seems like just a few years ago that landlords faxed brokers black-and-white pictures of available apartments and agents would hang them on a bulletin board to display available properties.

Renting an apartment was a lengthy process that required in-person meetings, physically inspecting numerous properties and signing leases in an office space. Although the process might still feel lengthy in many cases, the accelerated rate at which technology has advanced has enabled us to streamline processes and make the apartment rental experience much faster and safer than it was only a few years back.

From Brick-And-Mortar To Smartphones

Residential real estate is reactionary. To remain competitive in a tough market, savvy brokerages have quickly adopted innovative online platforms that allow a faster flow of information and paperless transactions. While real estate agents continue to work from home, brokerages have shifted focus from their offices to their online presence.

Mergers and acquisitions have aided small and medium brokerages by eliminating fixed costs and sharing expenses. Having an online presence is now more critical than ever.

Numerous brokerages in the U.S are adopting video tours to easily share listings with their clients, social media and distinct advertising platforms. Video tours and virtual reality speed up the process by gathering feedback from potential clients. They also make the process safer by avoiding unnecessary physical inspections or gatherings that could lead to exposure to Covid-19.

Improving Potential Matches

The digitalization of the modern brokerage has allowed customers to use complex filters that improve their search for a new place to call home. A few years back, I had to select an apartment for rent from a printed list of properties attached to a wall. Today, a person can filter available properties online and may get as granular as looking for a two-bedroom rental apartment on the Upper East Side with a dishwasher and a walk-in closet that’s located in a pet-friendly building that has no elevator or doorman.

The ability to get very granular with an individual customer’s potential matches translates to a better quality of life and improved satisfaction during the apartment rental experience. It also shortens the time it takes them to find the perfect home.

Social Real Estate

From sharing video tours of available properties to signing legal documents online, technology has streamlined the process of buying and renting a home. People who fail to adopt new technologies will miss big opportunities.

Six Trends to Watch for in Multifamily Property Management in 2021

Pandemic creates opportunities to rethink how best to serve residents.

2020 has presented the multifamily industry with unparalleled challenges due to the pandemic with the secondary and tertiary effects forcing the industry to quickly pivot to meet resident and prospect needs. However, the pandemic has also created opportunities for multifamily owners to creatively rethink resident retention strategies and communication and how to demonstrate value. While some external factors will remain uncertain as we transition into 2021, here are six trends we expect for the future of the multifamily industry:

1. Service Will Be a Secret Weapon

Next year, enhanced customer service will become the most critical component for demonstrating value and increasing resident satisfaction across multifamily communities. While efficiency and timely communication remain two essential strategies for solid customer service, expectations are on the rise as more residents work from home. Although some prospects and residents may continue to request face-to-face (albeit socially distanced) interaction, we foresee most leaning into digital communication via smartphone apps, emails, or text alerts for updates and ongoing communication with on-site teams. For multifamily operators, that means expanding your digital resources and increasing the frequency of communication in 2021.

This also means accelerating response times and prioritizing maintenance requests since many residents are still working from home and spending ample time in their living space. It’s important for on-site teams to prioritize quickly and efficiently, especially as the volume of requests increases and residents expect almost real time responses. What was once a minor maintenance issue can now quickly escalate into an unsatisfied and angry customer as residents are experiencing the maintenance issue for more hours of the day. As we continue into 2021, on-site teams will have to provide an enhanced experience by quickly managing requests, clearly communicating all updates, and going the extra mile to offer the best possible management experience.

2. Prioritize the Retention of Top Qualified Talent

Employing a highly skilled property management and maintenance staff is paramount to resident satisfaction and successful day-to-day operations. However, finding and retaining top talent will remain a challenge in 2021 for several reasons. Multifamily is a highly competitive and growing industry with a surplus of opportunity. We’re now seeing an excessive demand for experienced, trained personnel, but a labor shortage of qualified candidates entering the market. 2021 will continue to expose the need for more highly skilled and passionate staff members. The companies that succeed in attracting top talent do so by offering competitive salary packages; providing training, education, and support; and continually looking for creative ways to “surprise and delight” employees. Example perks could always include an appreciation day for the teams, flexible work hours, or an unexpected day off. Onboarding a professional, qualified, and capable team translates to resident satisfaction and long-term resident retention.

3. Looming Economic Uncertainty Clouds the Industry

Although this year brought economic uncertainty with changes in income and employment status, rent delinquency for multifamily hasn’t been as significant as anticipated. Research conducted by the National Multifamily Housing Council reflects a 1.1% increase in overall delinquency in September 2020 versus the prior year, with a 4.8% decrease in on-time payments. We’ve had a similar experience at Fogelman. Rent collections have outperformed expectations during the early part of the pandemic; however, we recognize that many are still struggling financially, which might impact future collections.

It’s difficult to predict what delinquency will look like in 2021 since it’s dependent on employment recovery and what stimulus is available to help struggling renters pay their rent. Along with the rest of the industry, we’ll be monitoring economic conditions as we head into the new year.

4. Getting Creative with Resident Connection

Striking the balance between resident interaction and safety precautions will continue to be a challenge for multifamily teams in 2021. Residents may want to resume “normal” social connection and activities with the coming winter months, but the ongoing pandemic will challenge property management teams to rethink social events and connectivity. Though we’ve seen a lot of virtual happy hours, drive-by celebrations, and Zoom classes, it’s the teams that leverage creative programming to bring people together online that will have the most success in 2021. For safe, socially distanced resident activities next year, we expect to see more virtual scavenger hunts and trivia, virtual cooking and mixology classes, and community visits from local favorite food trucks.

5. Adapting to the Evolving Needs of Residents

We understand residents are using their living spaces differently in the wake of increased remote working. Apartment units have become a place of work and leisure, and there are no signs of that changing anytime soon. Some major companies, such as Google, Target, Salesforce, and Facebook, are delaying the return to a traditional office environment until summer 2021, and a handful of companies, like Microsoft and Twitter, are transitioning to a permanent remote status.

In 2021, management companies will need to continue adjusting their offerings to meet resident needs in the short and long term. Whether that’s providing better high-speed internet packages, creating socially distant co-working spaces, offering reservation-based conference rooms, or establishing wellness-focused areas like outdoor green spaces and trails. Those that adapt the fastest and implement feedback from their residents will be most successful in strengthening resident retention and satisfaction.

6. Go Digital, Stay Connected

Because of the pandemic, we’ll continue to see less physical interaction with residents, causing a greater demand for information and the frequency at which it’s delivered across online platforms. As mentioned earlier, digital communication tools like apps, emails, and texts are the industry standard and mainstay for properties in 2021. Another must-have for convenience is a web portal that allows residents to make payments, submit maintenance requests, and view discussion boards or upcoming events. For prospects, offering self-guided and virtual property tours will be an important, safer option. Overall success in 2021 requires that digital tools provide both convenience and ease of fast, frequent communication to help us meet our residents and potential residents right where they are—online.

Tech Companies Moving to Texas Fuel State’s Apartment Boom

In the last few months, several major California technology companies have announced plans to move to Texas—an exodus that will further fuel the Lone Star state’s ongoing  apartment construction boom. There are already currently 126,900 apartments under construction in Texas, making the state the national leader for new apartment construction, according to RENTCafe.

Nor is this influx likely to through the state’s supply-demand balance out of whack. “Texas holds the indisputable advantage of land use,” says Doug Ressler, manager of business intelligence at Yardi Matrix. “What’s great about it is that it enjoys an adequate availability to support population growth and migration, from dense cores to available exurban or suburban areas.”

Dallas is leading the state in new apartment construction with 49,000 new units under construction. In the last decade, more than 177,000 new units have been built in the market. Austin comes in second with 31,000 apartment units in the current construction pipeline and 22,600 of those units are located in Austin proper.

It isn’t surprising that these two markets, which account for more than half of the total apartment construction in the state, are also the primary locations for tech companies. Oracle and Tesla are both planning to move their California headquarters to Austin. Tesla alone says that it will create 5,000 new jobs and occupy 4 million to 5 million square feet of office space in the market. Oracle opened its Austin office campus in 2018, and the property supports 10,000 employees. Both companies have noted the business-friendly state and a large pool of tech workers as the reason for the move.

Hewlett Packard Enterprise Co. is also moving to the Lone Star state, but the firm is relocating to Houston, where it is building a new campus. Houston rivals Austin in terms of new apartment construction, with 28,600 new units in the pipeline, and more than 17,000 are landing in Houston proper. The city has been named the most popular market for corporate relocation and expansion.

San Antonio rounds out the list for apartment construction in the state with 10,900 new units in the pipeline.

Apartment construction has been robust in Texas for the last decade, with more than 500,000 new units in 2,000 new apartment buildings delivered in that time. Dallas has led the apartment construction activity with 177,400 new units added in the last 10 years, followed by Houston, which has seen 131,000 new apartment units come to market.

The apartment boom has also helped fuel growth in surrounding metros. Suburban Texas markets have grown in popularity among renters, many of which are offering many urban-style amenities found in the urban core, without the price tag and congestion. Texas has eight cities on RentCafe’s list of the top 20 suburbs in the US.