((This advanced blog summarizes real estate investing tips and insights Lofty AI has acquired from working with thousands of investors and institutional funds.)
If you are a first-time investor, you are likely wondering how to start real estate investing and how to make money from real estate investing.
You are also likely wondering which property type to buy.
Over time, we have seen first-time investors succeed the most when they buy a duplex for sale as their first property. One of the main reasons to invest in a duplex is the ability to house-hack, which it provides. House hacking means a landlord can live in one unit and rent out the other, which has many advantages.
The rest of this blog will explain the 9 main reasons why you should be looking for a duplex to buy:
House hacking means that you live in one unit and rent out the unit next-door for cash flow.
With this method, you get to live in your investment property while also keeping an eye on it at all times. In this case, you are the landlord, but you are also next-door neighbors with your tenant. You want to be sure and set boundaries so your tenant doesn’t think it is okay to knock on your door at 10 at night because his/her stove isn't working.
House hacking is the perfect scenario for a first-time investor wanting to know how to learn real estate investing.
If you are wondering how to become an investor in real estate, house hacking a duplex is a great place to start.
It's much easier to keep an eye on your property and tenant when your unit is connected to theirs. This is a great way to get started after you ideally find a cheap duplex for sale.
You can make sure that the tenants are treating your property with respect, before the tenants leave and you are left with damages to fix and pay for.
You will probably rule out most bad tenants that pay late and party into the night because they know they will be living next to their landlord.
You will also be less likely to encounter a hold over tenant.
Mortgage companies tend to give better interest rates to people buying a property they will also live in. They also consider a duplex as one property which can help you get a better rate as well.
Many lenders will even allow you to include part of the potential rent into your income when qualifying for a mortgage.
It also means that you are unlikely to have to pay the whole mortgage yourself. The rent you are collecting from your tenant should be enough to cover some of the mortgage.
Duplexes for sale are generally located in affordable areas primed for growth. This makes them an excellent investment for a first-time real estate investor.
Cost wise, you will also benefit from having two units in one transaction. Your building and landscaping costs will be lower per unit compared to two single-family rental units. Property taxes will be lower per unit than they would be compared to two single family homes of equal square footage.
You can rent the additional unit to a family member who needs more supervision, instead of them moving into a nursing home.
This sort of living situation works well for many families. You have your beloved family members close by, they maintain their independence, and everyone has some privacy.
Maintenance, repairs, and your rental schedule will all be in your complete control with a duplex. With a duplex, you control the vendor list and you control the rental demand in ways you do not with a townhouse rental property.
For example, other properties may have a no pets rule. That makes your available tenant list shorter, and possibly also reduces your rental income.
Renting out both units will produce monthly cash flow. And if you have taken the time to do your homework and snagged a great deal, it’s likely the combined rent from both tenants will cover the entire mortgage and then some. This makes owning a duplex, potentially very lucrative.
Did you know that investing in a duplex as an investment property qualifies you for several additional tax deductions? Whereas single-family homes do not offer the same tax breaks, duplex owners can deduct most expenses for maintenance, yard work and repairs. But remember, renting to a family member can disqualify you from some of these deductions.
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The duplex vs townhouse debate is often brought up on real estate investing websites.
We have already discussed the benefits of buying a duplex, so now let's talk about townhomes, as they are properties that are often confused with each other.
In general, longer-term rental candidates prefer a “home” rather than an “apartment.” Both duplex homes and townhouses offer this. Each is really part of a home, not an apartment building.
Townhouses have a few advantages versus duplexes including:
Besides that, there are many more reasons why investing in a duplex will work out better than investing in a townhouse, including:
Remember: It's not that townhomes are inherently bad investments. You could invest in townhouses and do perfectly well for yourself.
But, you shouldn't be thinking about whether a property type is a good investment or not.
Instead, you want to think about how well a certain property type will do in comparison to other property types.
Townhouses are fine. Duplexes are much better.
Read more: Townhouse vs. Duplex: Which is a Better Investment?
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