Imagine purchasing a house in your ideal location for around 50% of the price you’d pay for a traditional home. Think it’s impossible? Meet the versatile duplex. A duplex is one of the real estate world’s most significant income earners. Buying a duplex allows you to produce healthy rent yields and strong value growth for a much more cost-effective price than what you’d pay for two detached houses in the exact location.
When you plan on buying a duplex as an investment, you have to pay for a building insurance policy for both sides of the building. You usually won’t need a body corporate, but it depends on your council and the home’s design.
What Is A Duplex?
A duplex is a type of home that has two units in the same building. It falls under the category of multi-family real estate. Duplexes typically have one owner, although two different owners can own them under a condo ownership interest. This means that they each own their respective unit but share ownership of the lot.
The layout between the two units can vary; you can find side-by-side duplexes, are on top of one another or some combination of the two. Each unit’s tenants will have their entrance but will share some walls and outdoor space.
Be careful not to confuse duplexes with twin homes, two half-size homes that share a wall but have individual lots. Check out our range of dual occupancy builder for your dream house.
Aside from letting investors maximise the land’s potential without subdividing, duplexes also help them build equity and get high returns on investment.
In essence, owning a duplex means owning two separate homes on a single block. Therefore, duplexes are widely considered high-growth and high-yield investments.
If you decide to have both properties rented, you can pick two income revenues and ultimately achieve positive cash flow and high-interest return over time. Duplexes often rent for a higher amount compared to apartments. On the other hand, if you plan to live on one of the properties and have the other rented out, you can use the extra money to pay off your mortgage faster.
As good an investment as duplexes sound, it may be hard to find a good deal in the market.
For one, not all local councils allow the building of duplexes. Once you find one that does, you must keep in mind that not all duplexes are guaranteed to add value to your portfolio.
Investors are advised to be meticulous when choosing the location of their duplex. An abundance of duplexes in the area may not necessarily be a good sign because it could lower your property’s value.
Instead, pick cities with fewer duplexes among freestanding homes and with consistent population growth to secure high demand for dwellings. Otherwise, you might suffer the consequences of an extended vacancy.
Maintenance costs and other associated expenses can also fare higher since you essentially own two separate homes.
Even if you share the expenses with your tenant, you’re splitting the costs only into two, which does not make a lot of a difference compared to breaking the expenses to a dozen if you own a unit in a strata-titled complex of 12 units.
Moreover, if you decide to live in one of the properties and rent out the other, living right next to your tenant could present specific issues, including a lack of privacy and possible late-night calls due to a property emergency. It may help to set some ground rules like “quiet hours” to prevent conflicts.
There are also tax and financial implications that apply specifically to duplexes and other dual-income investments.
Considering the complexity of investing in duplexes, you may need to hire professionals to make sure that you adhere to leasing laws and regulations pertaining to multi-housing investments and ultimately avoid any potential pitfall.
Benefits Of Buying A Duplex
Dual Income & Positive Cash Flow
One of the biggest things that can make people cautious about actually completing the transaction when they’re buying a duplex is the mortgage. You have to ensure that you have enough money to cover your mortgage payments. You may even want to put more money toward the balance to pay it off quicker.
Buying a duplex as an investment can help offset the mortgage cost, with the potential to earn 7%+ rental yields. You can live on one side to reduce your monthly expenses and move a tenant into the other side. Or you can rent out both units for investment which will provide you with dual income, resulting in a positively geared property. This will free up your income earnings, so you don’t have to stress about money and perhaps take some time off work to relax or spend more time with family and friends.
Affordable & Ready To Go
Unlike building a property and waiting for the construction process to finish before moving people in, buying a duplex gives you an established home. They’re usually ready to rent out as soon as you close the deal and the property passes all of the relevant inspections, or they may even be tenanted, already giving you cash flow from day one.
Additionally, it’s usually easier to finance an existing duplex purchase if you don’t have enough savings than it is to build a duplex. However, you sacrifice the ability to manufacture equity from the duplex.
Save On Land Costs
You get double income each month from owning a duplex as long as you rent both sides out. In turn, this saves you on land costs or property taxes because it’s technically one building unless you separately title them. Duplexes don’t take up as much room as two freestanding buildings would, and they are on the same lot of land, hence why it is cheaper to buy a duplex than buying two separate properties.
Financing A Duplex
Going through the mortgage approval process will teach you how it works and what is needed. It can be eye-opening if you are going through it for the first time. You will be made aware of where the closing costs go, how long the process takes, and the last-minute items that always seem to pop up. Once you get through the closing, you will also have to study the rental process quickly. Finding a good tenant is the key to being a good landlord if you have a duplex, single-family, or 30 unit commercial building.
You will learn the application and lease agreement process and what it’s like to deal with an actual tenant. Your situation is a little different, seeing as how you are living in the same property as your tenant, but many of the issues you will deal with are the same. This will help you prepare a contractor list and network yourself to anyone you may need to work on your property. Each tenant is a new adventure, but if the process is something you enjoy and can easily handle, you may be ready for a more significant workload and subsequent properties.
The steps to acquire a duplex are much the same as you would take for any other property. It starts by compiling the items needed for lender approval. Income, assets, down payment, and credit score are the four main areas that lenders look at. You need to be reasonably strong in at least three of the four areas to get approved. Having a good credit score, but minimal income is not enough in today’s mortgage market. The sooner you know what you are approved for or what items you need to improve your application, the sooner you can start looking.
From there, you can call around to some local realtors and have them show you houses in your price range and make an offer. Your realtor will handle most of the purchase and offer you tasks, especially your first purchase. If you have no idea what you are looking for, take a look on the Internet and see what is available in your area. The more knowledge you have going into the process, the better equipped you will be to make good decisions on where and what properties you want. Planning for a new look for your house? Look no further! MJS Construction Group is here to help in your dual occupancy builder Melbourne
A Few Things to Know Before Buying a Duplex
Are duplexes a good investment? Yes. Does that mean this type of investment property doesn’t come with any drawbacks or risks? Of course not. So before you start wondering how to buy a duplex, you should be aware of them. There are two major issues you may face when investing in duplexes:
Duplexes Can Be Hard to Find
Finding a duplex isn’t always an easy feat. These investment properties are not as common as single-family homes and larger multi-family homes in some areas. Still, if you’re using the right investment property search tools, like Mashvisor, you should be able to find profitable ones quickly and easily.
Finding a duplex becomes a little more complicated when you plan on house hacking. If you cannot move to cities where duplexes are more common, it may put this strategy out of reach. If that’s the case, consider saving up for a down payment and investing in a duplex out of state to enjoy the other benefits of this type of rental property.
You May End Up Living Next to Nightmare Tenants
One general drawback of investing in real estate and becoming a landlord is dealing with bad tenants. But typically, they aren’t also your neighbours, and you don’t share a wall with them. Buying a duplex and living in one unit could mean having to deal with loud, disruptive tenants. Or you could end up with the type of tenant that thinks it’s okay to knock on your door at 3 a.m. to let you know the faucet is dripping- news that could have waited until the morning.
You could also have the best tenants who are well-behaved, knowing that the landlord lives right next door. This all comes down to your ability to screen tenants for a rental property. Make sure to run background checks, talk to previous landlords and employers, and check employment and credit history as well. MJS Construction Group has the best range of dual occupancy builder services to help you create your dream house.
What Are Your Financing Options?
When you buy a duplex, there are three ways you can finance your investment:
- Traditional Mortgage – You can take out a traditional mortgage as a property investor to finance your duplex. You’ll put around 5%-20% down and pay over a set term. You can negotiate your interest rate with your lender. The better your credit score is, the better rate and terms you’ll get.
- Owner-Occupied Loan – Can you buy a duplex with an owner-occupier loan? Yes! You have to physically live on one side of the duplex in order to qualify for this type of loan. It’s a perfect fit for someone who needs a place to stay, and you can use the tenant’s rent payment toward your mortgage repayments.
- Owner-Financing – Buying a duplex as an investment by using owner-financing is trickier to do, but it’s still possible. The owner of the duplex acts as your lender instead of a traditional bank. You make your payments to the owner, and the property slowly builds up equity.
Which financing option is best for buying a duplex as an investment property? It depends on your situation. If you have good credit and don’t want to live in the duplex, a traditional mortgage may be the most effective route. If you want to stay in the duplex, the owner-occupied loan can offer you significant savings. Finally, if you don’t want to go through a traditional lender, you can choose owner-financing. If you’re wondering how to buy a duplex with no money down, this is an option if you have equity built up in another property, such as your family home.
At the beginning of this article, you may have been asking, “what is a duplex?” Hopefully, by now, you have a sufficient understanding of what a duplex is and why they are generally an excellent fit for new investors. Of course, there can be some downsides to duplex investing, but the benefits far outweigh them. Bottom line, you’ll be able to live in one of the units and earn a rental income by renting out the other unit. If you execute the deal strategically, you might even be able to have your rental income cover your mortgage payments, additional expenses and have some monthly profit left over. If you mind your due diligence and analyse deals carefully, you can find yourself an excel.