So you are thinking about buying a duplex?
Why buy a duplex?
© 2001 Gordon Reeder
I've been asked the question "Who should consider buying a duplex?"
The answer to that question is: Everyone. More to the point, we should ask the question:
Why should you buy a duplex? There are a number of situations where you would want
to consider this.
- As a first time home
- A student living away from home
- A retired couple
- A single parent
- A grown child with an elderly parent
Let's look at each of these situations.
A first time home buyer
Many couples buy too much house for their first home. Many of them remember their
parent's house and think that they need to buy a similar sized house. In fact, they can get
by with something much smaller. The smaller payments that go with a smaller house will
free up much needed cash for furnishings, a car, etc.
But, does a duplex make sense as a first home? Yes it does.
- As an owner/occupant you can qualify for a mortgage using the easier homeowner
qualifications. In many cases this means you can buy with as little as 5% or even zero down.
As a first time home buyer, there are a number of programs that are available to
you. You can also use these programs to buy a duplex.
- You will receive rent income from your tenant. This income will be counted as
part of your regular income on your mortgage application. This will allow you to
qualify for a larger mortgage.
- The rent you receive will help you to pay your mortgage. Your monthly out of
pocket housing expense will be much less than if you had purchased a single
family detached house.
- As an owner-occupant, you can use your homeowner's insurance to insure your
duplex while you live in it.
- A duplex is a tax shelter. Even though you will be enjoying an income from the
collected rents, you will show a paper loss when depreciation of the property is
figured in. This loss will directly reduce your taxable income.
- When you are ready to move up to a larger house, you can keep the duplex. It
now becomes a pure investment property that will provide you with a small side
income every month. Many duplex owners will buy a larger duplex as a second
house when kids start to arrive. They will then buy a single family house when
the kids start school. They will now have two rental properties generating a larger
A single parent
As a single parent with one or two children, you will find that a duplex is just the right
size for you and your children. Make sure that you buy one with a large yard. All the
reasons I gave for a first time home buyer also apply. Furthermore, by properly choosing
your tenant, you can have the peace of mind of knowing that someone is watching your
children after school.
A professional contractor or temp worker
By professional contractor I'm talking about someone who works in the high tech industry
or other skilled profession as a temporary worker.
Most contractors move from city to city as they go from one job to the next. Since they
don't live in one place for very long they can't justify buying a house as a private residence.
The sales commission from selling their house every year would be too expensive. So
they tend to be renters. Furthermore, while their income can be quite good while working,
they can endure months of zero income while between contracts. This was my situation.
Buying a duplex provides several distinct advantages:
- It gets you off the ever increasing rent spiral.
- Your monthly mortgage payments are now building equity.
- You have a small side income that can help carry you over the periods between contracts.
The lifestyle of a professional contractor is perfect for building a portfolio of duplexes.
- When you move to a new town rent a small apartment on a six month lease.
- Immediatly begin sizing up the duplex market.
- By the third month you should be able to find a duplex you want to buy. Find a nice one, but
don't be too picky. You won't be living in it too long.
- Because you will live in your duplex you can apply for financing at the homeowners terms.
This means that you will pay no more than 10% down. You can even find zero down
programs that can be applied to duplexes.
- Close the sale in the 5th month and move in.
- Now cool your heels in your new investment while your job works it'self out.
- Start interviewing property managers as your job winds down. You don't want to wait until you
are packing up for your next assignment before you start looking for a property manager.
NARPM web sit. or
Home Management Net
- Start your new job in a new city and begin the process all over.
Now the down side of all this is that you will have rental property scattered about in several
locations around the country. This is a problem for some people. One alternative is to buy
in a select few cities that you seem to visit often.
On the other hand, I knew a golfer who owned deplexes in cities with world class golf courses.
He would make a yearly inspection visit to his properties. Spend maybe an hour inspecting the property.
Then spend the rest of the day playing golf. All tax deductable of course.
A retired couple
As a retired couple with an empty nest you don't need a big house anymore.
Furthermore, you have a lot of equity tied up in that big house. By selling it you can free
up a lot of cash that can be put into more liquid investments. So why should you
consider a duplex as your retirement home? Mostly for the rent income. You will have
no trouble qualifying to buy, but all the other reasons I gave for a first time homeowner
apply. Since you probably have more money than a typical first time home buyer you
can buy a larger property, perhaps a 4-plex or small apartment, creating a larger monthly
If you are planning to travel a lot, you will have a tenant living in the unit right next door
who can keep an eye on your property while you are gone.
A grown child with an elderly parent
If you have elderly parents who are independent but may need living assistance, you will
find that an asymmetrical duplex provides a unique solution. An asymmetrical duplex is
one where one unit is larger than the other. While you live in the larger unit, your elderly
parents live in the smaller unit. There, they can maintain their privacy and have their
own life. You are close enough to check in on them. Since you are the landlord, the
maintenance responsibilities are yours, freeing them of the need and expense of
maintaining a house.
Student living away
Got a kid going away to college? Got two kids going away? Then you should compare
the price of a duplex to the price of on campus housing. I know one person who bought a
duplex near campus and put his kids in one half. He rented the other half out as student
housing. The rent income helped make the mortgage payments, and he was building
equity. At the end of six years, when the last kid graduated, he sold the duplex. His out
of pocket cost over the six years was much less than paying for on campus housing.
Now I need to tell you that owning a duplex is not a carefree investment. There will be
- Maintenance: A duplex has two kitchens, two water heaters, two air conditioners,
and twice as many bathrooms. That means that there are twice as many things to
go wrong. When something breaks, you get the phone call. That call can come in
the middle of the night.
- Management: A duplex is not a passive investment. It needs to be managed.
Repairs and maintenance will need to be done. Tenants need to be screened.
Rents need to be collected. Late notices need to be sent. Deadbeat tenants may
need to be evicted.
- More complex taxes: You will need to keep records so that you can fill out form
4562 (Depreciation) and Schedule E (Supplemental income or Loss).
- Bad tenants: You never know how good a tenant will be. You can check
references, call previous landlords, even do a background check. But sooner or
later you will get a tenant that trashes your property.
If you think that you can't handle this, look into hiring a property manager. Typically
a manager will want to keep 6% to 10% of the collected rents as payment. In return,
he gets to deal with the broken plumbing, malfunctioning air conditioner, and