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What Is A Duplex & Should You Invest In One?

Written by Than Merrill

When you’re looking for a good real estate investment, you’ll probably come across your share of duplexes. Whether you want to earn more money from your personal residence or you own dozens of rental properties, it’s important to know the ins and outs of different types of property. Here, we’re going to discuss duplexes.

So, what is a duplex, and why might you want to invest in one? More to the point, what makes them different from any other kind of property? Let’s talk about it!

What Is A Duplex?

A duplex is a specific type of multi-family home that’s split between two – and only two – units. In most cases, a duplex is owned by a single individual, although they can also be owned separately as condominiums. In this case, the two owners will each own their unit, but ownership of the lot will be shared jointly.

Approximately 18% of American households currently live in duplexes or quadplexes (four-unit buildings). These properties are most popular in smaller cities or in the outskirts of larger ones. They provide some benefits of a single-family home, such as a backyard, while falling into a more affordable price range.

A traditional duplex is split side-by-side, but that’s not a hard and fast rule. Duplexes can be split between upper and lower floors or even through other arrangements. Tenants will have their own separate entrances, but other areas will be shared in common. This includes the yard, and sometimes storage areas in an attic or basement.

Duplexes are often confused with twin homes, but the two are not quite the same. Twin homes are built side-by-side and share an interior wall in common. However, the lot is split down the middle and is not shared.


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types of duplexes

What Are The Different Types Of Duplexes?

So, what does a duplex look like? There are several designs, but these are the most common:

  • Standard duplexes – A standard duplex is a two-story house, with a flight of stairs connecting the two levels. The upper story is typically used for bedrooms, while the lower story consists of a kitchen and living area. The units are separated by a wall that runs down the middle of the building.

  • Ground duplexes – Ground duplexes are designed similarly to standard duplexes, but they’re plumbed and wired differently. The upper story is designed as a kitchen and living area, while the bedrooms are on the bottom, which opens to the backyard.

  • Low-rise duplexes – A low-rise duplex is taller, and includes a lofted attic over the second story. You’ll often see balconies around the second story, and the footprint is typically smaller. This is about a slender, more elegant building with more emphasis on the lot.

Duplexes Vs. Other Types Of Housing

Duplexes are often confused with several different housing types. Let’s look at some of those and compare and contrast them with duplexes.

Duplexes Vs. Apartments

There’s some overlap between duplexes and apartments, but not all duplexes are apartments. A duplex is any unit in a building with two single-family units. But many duplexes are owner-occupied. Many people purchase a duplex and live in one unit while renting the other unit out.

Most apartments, by comparison, are owned by corporations or real estate investment trusts. The only people living in them are tenants who are renting out the units. Along the same lines, most apartment buildings have more than two units. That’s not to say that there aren’t any corporate-owned duplexes. But multi-family buildings are more the norm.

Duplexes Vs. Two-Story Houses

Duplexes almost always have two stories, although they can sometimes have three or more. But not all two-story houses are duplexes. In the United States, the vast majority of freestanding single-handed homes have two stories, and these homes, by definition, are not duplexes.

Duplexes Vs. Villas

A villa and a duplex are both residential houses, but they’re entirely different concepts. Duplexes are typically more affordable homes and provide access to a yard or garden at prices that are closer to that of an apartment.

Villas, on the other hand, are single-family homes that are situated within a gated community. The community itself shares amenities, including a gym, a pool, and a community clubhouse. At the same time, each house sits on its own lot, so residents get all the privacy that comes from living within your own four walls.

Duplexes Vs. Town Houses

Townhomes and duplexes have a lot in common. The units sit side by side, and share a common interior wall. But that’s where the similarities end. Townhomes can have three, four, or even several adjacent units, all of them connected. A duplex, on the other hand, always has two units; no more, no less.

At the same time, most duplexes are owned by a single owner, and at least one of the units is rented out. In a townhome, each unit has its own individual owner. Owners can make their own modifications to their portion of the building, subject to certain restrictions. A duplex tenant has occupancy rights, not ownership rights, and cannot make any modifications to the building.

Duplexes Vs. Penthouses

A penthouse is a single unit that occupies the top story of a larger, multi-unit building. The penthouse is a luxury suite, which typically occupies the entire top level and can even occupy parts of multiple levels. As you can see, this is nothing like a duplex, which is one half of a two-unit building.

Duplexes Vs. Flats

Duplexes are similar to flats and condominiums because you’re living on a semi-shared property. But with a duplex, you’re only sharing the property with one neighbor. If you need to coordinate use of the backyard, for example, you only have to coordinate with one other party. With a condo, you’re part of a much larger community, so sharing the common spaces becomes more complex.

Benefits Of Buying A Duplex

As you can see, duplexes can make an excellent real estate investment. They’re also a good way to earn some money on the side, while living in one of the units yourself. Here are some of the reasons you might want to think about buying one:

  • They’re great for beginners – If this is your first home, a duplex is actually not a bad way to start. When you’re buying, you can take advantage of many of the same perks as you can when buying a single-family home. For example, you can take an FHA loan and make a down payment as low as 3.5%. You can live in one half of the duplex and rent out the other to defray much of the cost of the mortgage. In the end, you’ll pay less than you would for a single family home. And if you want to move into a larger home later, you can keep the duplex and rent out both halves, turning it into a source of passive income.

  • Rental income – We already talked about using the rental income to pay for your mortgage. But if you’re an investor, you’re getting the same perks as you would when investing in any other property; rental payments. And if you want to sell the property somewhere down the line, you can.

  • You’ll build equity – When compared to a rental, you actually build equity by purchasing a duplex. Every time you pay your monthly mortgage, a chunk of that payment goes directly into the property’s ownership. And if you want to move, you don’t always have to sell. You can switch over to renting both units, and continue to build equity. At that point, you’ve basically turned your starter home into a long-term investment property.

  • Tax perks – When you own a duplex, you can take advantage of some powerful tax incentives. Let’s say you’re living in one half of the building and renting out the other, and you need to install a new roof. Half the cost of that install would be deductible as a business expense. If you’re repairing a single-family home, then you’re not getting any tax break on that expenditure.

  • Duplexes are great for extended families – Let’s say your parents are getting older, and you’d like to live closer to them. At the same time, you still want to have the privacy of your own home. With a duplex, you can get the best of the both worlds. It’s a great way to stay close to family without being too close to family.

  • Duplexes are versatile – If you want to use one half of the building for some other purpose, you can. This is obviously subject to zoning restrictions. But suppose you have a home office, or your hobby requires a ton of floor space? In that case, you can simply use the other half of your duplex.

  • For renters – Renters get the benefit of access to a real backyard. You won’t get apartment-style amenities like a swimming pool. But you also won’t have to share the common space with many other people. And instead of neighbors on all sides, they’ll only be on one.

Risks Of Buying A Duplex

There’s no such thing as a perfect investment. Just as there are many benefits to a duplex, there are also several drawbacks. Here are some of the things you should think about before you invest:

  • Vacancies – No matter what kind of rental property you own, you’re going to run into this issue. Simply put, every day one of your units goes un-rented is a day you don’t get paid. Meanwhile, property taxes and other expenses continue to mount. If a property sits vacant for long enough, it’s not just a bad investment – it’s actually costing you money. This is the opposite of what you want as a landlord.

  • Bad tenants – As much as you want to avoid vacancies, you also don’t want to be too hasty when approving your tenants. When you sign a lease with a tenant, you give up a lot of your rights as a property owner. And if it turns out you’ve got a bad tenant, it can cost you a lot more than a latency. If someone’s constantly violating their lease, causing a disturbance, or making late payments, evicting them can be a real headache. It pays to do your due diligence beforehand and make sure you’re only renting to reputable tenants.

  • Maintenance costs – A duplex costs more money to maintain than an ordinary single-family home. As with any building, there’s the physical structure itself. But you also have double the number of appliances. There are twice as many bathrooms, so you have twice as many fixtures. You have two hot water heaters, two furnaces, and two central air conditioners. This means twice as many potential failure points. And as the landlord, you’re responsible for all of the expenses.

  • Shared walls – When compared to a single-family home, you’re not going to get the same amount of peace and quiet. Even the quietest neighbors will make noise occasionally, and you’ll hear at least some of it.

  • Shared outdoor spaces – If your neighbor’s daughter has a high school graduation party, the backyard is going to be out of commission for the day. Shared gardens can introduce complications of their own.

  • Reduced rental incomes – Duplexes tend to exist on the periphery of cities, where rental rates are lower than downtown. There are plenty of homes in the market, but you won’t get the same high rental rates you will in more centrally-located neighborhoods.

  • For renters – You may have to do more work than you would with an ordinary apartment. You may have to mow the lawn, shovel snow, and take out your own trash.

How To Finance Your Duplex Investment

Unless you’re a commercial investor with tons of cash on hand, you’ll probably want to finance your duplex. This works much the same way as it does for any other residential property. You start by shopping around with various lenders, and seeing what kind of loan terms you can qualify for. Take your time, and make sure to compare several different rates, so you know you’re getting the best possible deal.

As with an ordinary mortgage, lenders will compare four factors: your income, your assets, your credit score, and your proposed down payment. You’ll typically need to score well in at least three of these four areas to get approved. If you’re having trouble getting approved, run a credit check on yourself, see if there are any negative items you’re unaware of, and take steps to get those things addressed.

Once you’ve been preapproved for a loan, the next step is to find a good property. Call several realtors, and have them show you buildings that fit your budget. Unless you’re a real estate pro, rely on your realtor to handle most of the actual paperwork. Your main task is to make sure you’re doing your due diligence and finding the best property for your needs. That’s why it’s so important to look at many properties, and compare them to other similar properties in your area.

After the home inspection and appraisal, you’ll be able to get final approval for your loan and move forward with the closing. After that, all you have to do is make your regular monthly payments, and make sure you’re renting out units only to reputable tenants.

Summary

What is a duplex worth to you as an investor? Duplexes can make a great investment, both for first-time homebuyers and seasoned professionals. They combine the affordability of an apartment with the property access you get from a standalone home. This makes them a great choice for young families, investors, and anyone who wants to earn a passive income from real estate.


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