What you need to consider before buying a duplex

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What is a duplex

A duplex is a multi-family home containing two units within the same building. Note there are also multiplexes that can contain 3 or more units within a given building. The two units within a duplex will share a common wall, but the floor plan varies from building to building. Generally, investors hear 'two units in one building' as music to their ears, given the promise of ~twice the rent while surely saving a bit on expenses by sharing a single building. However, before jumping into a duplex purchase, there is a lot to consider (like any real estate investment).

What are the pros and cons of buying a duplex

Pros of owning and operating a duplex property

As outlined above, there is certainly some truth to receiving twice the rent under a single building. Below are a few pros to owning a duplex:

• Diversification of rental income
  • By having 2 units, you will have a lower risk of full vacancy and increase the chances of having at least one unit cash flowing at all times
• Affordability
  • In general, you can get more 'bang for your buck' in the sense that collecting two rents from owning a duplex will be cheaper than owning two comparable single family homes and collecting rent from those
• Maintenance
  • Because the two units are next to each other, you can frequently double up any maintenance, saving you money
  • When investing in residential real estate in general many investors like to bunch their properties together so they can benefit from economies of scale (in both maintenance and property management) -- a duplex benefits similarly

Cons of owning and operating a duplex property

While there are several pros to investing in a duplex, there are also a few drawbacks worth noting:

• Higher risk in regard to building issues
  • If there's an issue with the property you purchased (structural or otherwise) that prevents you from renting, you can lose out on 2x the rent from a single issue -- as such it's very important to do a full inspection of the property before buying
• Higher risk of tenant conflicts
  • Due the shared walls / close proximity, you not only need to screen for solid tenants like you normally would, but you also may have to worry about tenants not getting along or having disagreements -- these problems can quickly become major headaches
• All expenses will be higher than a single-family property
  • Even though you're collecting two rents, and you'll certainly save a bit on expenses, you can expect everything to still be meaningfully higher (from maintenance to insurance to property management), so be sure to budget that in advance. You can read more about the common expenses of owning rental property (here)[https://therentalwire.com/blog/how_to_calculate_rental_roi.html].

Investing in single-family rental properties vs. duplexes

One of the core decisions residential real estate investors need to make when searching for properties is whether they're interested in investing in a single-family rental (SFR) home or a multi-family property (such as a duplex). While each situation is individual, below are a few notes we have on some of the tradeoffs between the two:

• Duplexes can be fewer and farther between
  • While still fairly abundant, the listing volume of these pales in comparison to single-family homes
• Duplexes more up front capital
  • This makes it even more important to ensure the building is of quality / there are no hidden 'gotchas', since more capital means more risk
• Purchases of duplexes (and multi-families in general) can be more competitive
  • Most folks interested in these properties are investors (though a handful will purchase to live in one half and rent the other out). Because of this, there's less chance to find truly notable deals in the market like you might with a single-family home
• Duplexes have potential for higher cash-on-cash return due to shared costs
  • Collecting two rents while incurring a lower cost-per-unit for many of your shared expenses (such as maintenance, property management) can mean a higher cash-on-cash return. Each property will be unique, so you'll need to run the numbers, but this is a general trend we see
• SFRs lower barrier to entry
  • SFRs can generally be purchased for a lower price than a duplex or multi-family in a comparable market, meaning it's easier to get started
• SFRs generally appreciate faster
  • Although the cash-on-cash return of duplexes and multi-families can be higher, single-family homes tend to appreciate more, meaning their total return (including appreciation / built equity) can exceed duplexes at times