(This advanced blog summarizes real estate investing tips and insights Lofty AI has acquired from working with thousands of investors and institutional funds.)
Why buy a duplex?
Duplexes are the best property type to buy for beginning investors.
A duplex is simply a house consisting of two units with two separate entrances.
The main they're the best option for first-time investors, is the ability to house hack.
What is house hacking?
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. House hacking is the perfect scenario for a first-time investor wanting to know how to learn real estate investing.
This blog post goes over the benefits and downsides of buying duplex houses for sale as well.
It also walks through the easiest way to find cash-flowing duplexes primed for growth.
Just like any other real estate investment, investing in a duplex comes with its share of pros and cons.
Pros of buying a duplex
1. Keep watch on your property 24/7
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.
2. You might end up with a better tenant
You will probably rule out most non-ideal tenants that pay late and party because they know they'll be living next to their landlord.
You will also be less likely to encounter a hold over tenant.
A holdover tenancy is when a tenant continues to live in a property after his or her lease has expired, without the landlord’s explicit permission.
3. Mortgage advantages
There are two types of property classifications given by Mortgage lenders:
Mortgage companies tend to give better interest rates to people buying a property they will also live in, AKA owner occupied. 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.
4. Low cost
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.
5. Rent to a family member
You are able to 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 great for many families. You have your beloved family members close by, they maintain their independence, and everyone has some privacy.
Cons of buying a duplex
1. Living right next to tenants
House hacking a duplex means that you’re the landlord, but you’re also roommates with your tenant. You want to be sure and set boundaries so your tenant doesn’t think it's okay to knock on your door at 10 at night because his/her stove isn't working.
You also might end up renting to a party animal, which has its own consequences.
You could also end up with a tenant that is constantly bothering you and asking for repairs and complaining, which is less than ideal.
You want to pay extra special attention to your tenant during the vetting process, because you’re essentially choosing a roommate.
2. Evicting a tenant is a pain
When you have to evict a tenant, living next to them can make the process more uncomfortable. Just imagine serving your tenant a notice to evict but then running into them daily.
We've already discussed the benefits of buying a duplex, so now let's talk about townhomes.
A townhouse is defined as single-family dwellings that shares a wall with another house. Townhouses are designed in rows, so tenants usually share at least one wall. It’s common for townhouses to have two or more stories.
Townhouses have a few advantages vs. duplexes including:
Communal areas for residents of the townhouse community to gather
Certain types of maintenance and trash removal are handled by the Home Owners Association (HOA)
Less expensive, since you're only buying one unit instead of two
Besides that, there are many more reasons why investing in a duplex will work out better than investing in a townhouse.
Ability to house-hack
No HOA fees
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.
When I'm looking for a duplex or even a triplex for sale near me, my first step is always to calculate my finances to see what I’m able to spend on a duplex.
That should always be step one before you start looking for any sort of investment property.
The last thing you want to do is spend a bunch of time looking at duplexes just to find the perfect one. Then, once you find it, you realize you’re not able to buy it because it’s out of your price range.
How most investors look for duplexes
There are a number of tools to find duplexes such as Zillow and Redfin. The biggest issue I've come across when using these platforms is the inability to differentiate the sheer number of properties.
It's very difficult and time-consuming to compare properties on these platforms. This includes which properties are cash-flowing, what the cap rates are, what the cash-on-cash return is, and if they're located within a neighborhood that's primed for rapid appreciation.
It can take days or even weeks to sort through the thousands of listings and it's really tough to know which listing is better than the next.
This is because these platforms weren't built for real estate investors. They were built for home buyers and home sellers.
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