Learn about how a duplex property is typically used along with its pros and cons as a real estate investment.
What Is a Duplex Property?
A duplex property is a type of multifamily property containing two living units located within the same structure and on the same lot. Although the units may be detached, most are attached, either horizontally such that the units are side by side and share a common wall, or vertically such that they’re on separate floors and share a common ceiling.
Alternate name: duplex
How a Duplex Property Works
Traditionally, a duplex is owned and maintained by a single owner but inhabited by two households—one in each living unit. There are three potential duplex living arrangements:
Live in one and rent out the other: In this common scenario, the duplex property owner lives in one of the units and rents out the other to someone inside or outside of their family. For example, a young professional might occupy a single unit and rent out the other to a friend or colleague, or a senior might rent it out to an adult child who serves as a caretaker. The second unit acts as an investment property, making money for the owner that they can use to offset the potential mortgage and maintenance costs. Live elsewhere and rent out both units: An owner who already has a primary residence can purchase a duplex and rent out both units while they continue to live in their separate residence. This presents a good option for a financially established homeowner who is primarily interested in a duplex as an investment property. Live in both units: Although less common, a duplex owner with a large or multigenerational family may choose not to rent out either unit and instead buy a unit with the aim of occupying both. If a homeowner is transitioning to a multigenerational living arrangement, for example, they might live with their spouse and children in one unit while their older parents live in the other unit.
Pros and Cons of a Duplex Property
The advantages and disadvantages of purchasing a duplex include:
Pros Explained
There are several advantages of buying a duplex:
Cheaper than single-family homes: You’ll often pay less for a duplex than for a single-family home. This may make a duplex property a good option for a cash-strapped or first-time homebuyer.Rental income: A significant benefit of buying a duplex and renting out one or both units is the opportunity to make money—potentially a lot of it if the duplex is based in a tourist-friendly or otherwise desirable area. You can use the monthly rent check from your neighbor to offset the costs of your mortgage payment and home maintenance or potentially live mortgage-free. The rental income may allow retirees to meet essential expenses in their golden years.Easy access to investment property: If you plan to live in one of the units of your duplex and rent out the other, you’ll be in close proximity to the second unit should you need to tend to issues that arise with the property or the tenant. There’s no need to drive across town to address the matter.Tax benefits: You may be eligible for tax deductions on mortgage interest and other rental expenses for your duplex. But if you use the duplex for both rental and personal purposes, you’ll typically need to divide the expenses based on the number of days you used them for each purpose, which can limit your rental expense deduction.
Cons Explained
Drawbacks of duplex ownership include:
Ongoing maintenance costs: As with any home you own, you’ll need to cover the expenses of repairing and maintaining the duplex. But when it comes to a duplex, these costs can become unmanageable if the tenant is particularly demanding.Vacant second unit: Even if you diligently maintain your duplex property, the risk remains that you will be unable to fill the second unit with a tenant. If it remains vacant for a prolonged period of time, you miss out on help with your mortgage payment and maintenance and defeat the purpose of buying a duplex as an investment property.Irresponsible or incompatible tenants: Whether you and your tenant don’t get along or have similar lifestyles, or your tenant is neglectful and frequently damages the property, it can make a duplex living arrangement hard to bear.Hard-to-get, costly second mortgage: If you already have a mortgage for your primary residence, it may be harder to take out a second one for a duplex. You may get a more conservative loan from a lender or be on the hook for a higher down payment because of the higher risk involved with carrying two mortgages at once. You can also expect a higher interest rate on that second mortgage.
How to Get a Duplex Property
If a duplex is right for you, and you plan to obtain financing to buy the property, shop around for a loan. Consider getting preapproved for a mortgage to determine how much you can afford to borrow for a duplex. Also, have a down payment ready. Think about the desired location and features you want in a duplex, such as the architecture and the number of bedrooms and bathrooms. Then, consult a real estate agent to find a duplex that meets your needs. The agent will guide you in the process of making an offer on and closing on the duplex. If you intend to rent out one or both units, familiarize yourself with local regulations pertaining to landlord responsibilities. Similarly, research rents in your area and set a fair rent price to ensure that the unit remains occupied and you maximize the return on your investment.
