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Is Buying a Duplex a Good Investment Idea? Thoughts + Case Study

Is buying a duplex a good idea?

You may be thinking about investing in real estate, and wondering if buying a duplex, otherwise known as a multi-family home, is a good idea, or if you should buy a single family home, a condo, or a larger multi-family property instead.

The answer is, it is something you will have to research and really think through and there is no right answer for any one person.

Reasons buying a duplex is a good investment

  1. House-hacking AKA if you want to live for free or inexpensively: Some real estate and investment gurus, including the famous YouTuber and real estate agent Graham Stephan, talk about the benefits of buying a duplex so you can live in half and rent out the other half.

    When you do this, you now have another person or family paying rent that is covering the mortgage, insurance, and taxes, or at least covering a lot of them, so your cost can work out to be low or free to live in the other half monthly depending on what the other tenant is paying for rent, and how high your mortgage costs, taxes, insurance and maintenance costs are.

    This is the quintessential “duplex-investing” house-hacking dream that many people have, and one way many people choose to house hack.

    I strongly considered doing this when purchasing my first duplex, however I ended up keeping both tenants who were already living there. However I like the idea if I ever needed to I could always move into one side of my duplex for. a pretty low monthly cost.

  2. It can help you qualify for a mortgage: Whenever you buy a property that already has renters, or has the potential for renters, your lender is able to apply a portion of that rent when calculating your debt to income ratio. Any property you are renting out to anyone as an investment can help you qualify for a mortgage in this way, the main advantage with a duplex is:

    If you are living in half, plus you have a renter in half, it is even easier to get approved for and pay for a mortgage since now you have a much lower cost of living which is included in your mortgage debt to income ratio calculation. Also, your base monthly costs will be lower in this situation as you have another renter paying their share of monthly rent.

    You can also qualify for an FHA loan when you live in half, which means you can put much less down, even as low as 3.5% which can make the process much more affordable for those starting out.

    When buying a typical multi-family property, you have to put down at least 20%, and if you live in half of a duplex, that means you can use an FHA loan and only have to put down 3.5%, while you still get to rent out half while you’re living there. You do have to live there for a year to complete the loan requirements, but then you could always move and expand your real estate portfolio if that is something you’re looking to do.

    However, you are still responsible for all maintenance costs, which can be quite large and unexpected, and you never know if a renter will have trouble paying or need to move out unexpectedly, which would shoulder all the costs back onto you until you were able to find a new renter.

  3. A duplex can have a better rent to cost ratio than other types of housing:

    You are often getting more in rent in relation to what you paid for an entire duplex than what you could have gotten if you bought a single family home for half the amount of what you paid for the duplex. This means duplexes can be a better value in the sense you can get more rent for less cost of a house. However, this is a calculation you will need to do with your real estate agent as it can differ by area.

    A better rent to cost ratio can also help you qualify for a mortgage more easily, even if you aren’t living in either side, since more rent will go toward your income when the lender is calculating your debt to income ratio. However if you are on the edge of qualifying for any type of mortgage, you may want to search in a different area, get a co-signer, plan to live in half of the duplex, or lower your total housing budget to make sure you will get approved.

Reasons not to buy a duplex

  • Location: They may not be available in the area you want to live. Duplexes are subject to strict zoning laws in many areas of the US, so you may not be able to find one in the area you want to live or invest in.
  • Neighborhood Quality: They may not be in the nicest neighborhoods: Sometimes duplexes have many tenants in each side of the duplex, which means many cars will line up on the streets, and due to the high number of people living in the area there can be a lot of congestion, also due the fact that duplexes can be more affordable to rent it may be a lower-income neighborhood which not everyone is looking for. Also zoning can sometimes mean duplexes aren’t in the best school zones, so if you have kids or want to invest in an area where families with kids will flock to, then you may want to consider an area in a good school zone.
  • Why buy a duplex in Austin?

    I’ve been looking in Austin, Texas and nearby areas for the past 4 months and recently bought a duplex 30 minutes away from central Austin.

    I decided to invest in real estate and liked the thought of a duplex for the positive reasons mentioned earlier in this article, and especially because duplexes tend to have a better rent to cost ratio, making it a better buy in many cases, such as my own, for investors.

    I am currently concerned about the future of US businesses, stocks and inflation, due to government regulations and excessive government debt including the many trillion dollar packages of stimulus money printing.

    That’s why I wanted to buy an asset that had value outside of the dollar and would keep pace with inflation as an asset on its own.

    Is Austin Texas a good place to buy real estate?

    Many companies are coming to Austin including Tesla, Oracle, and other companies, who are bringing many workers along with them.

    Additionally, now that many people have the opportunity to work remotely, many are choosing Austin due to its lower cost of living, no state income tax, better weather and fun culture when compared to many other city areas.

    As is the case nation-wide in the US housing market right now, there are fewer listings and more demand right now, so prices are going up at historic rates due to the high demand and low inventory.

    I was able to buy my duplex investment in March of 2021, so I will keep you all updated how it goes and if prices continue to rise or not. Right now, the market seems to keep going up, but anything could happen in the future.

    Mortgage interest rates are low right now which is another reason buying demand is so high, so we will see what happens when mortgage rates go back up at some point again as that could likely push demand back down and make it easier to get good real estate deals across the US and in Austin, TX again.

    In conclusion, Austin is an up and coming place that people are still flocking to meaning it has great potential as a place to buy real estate. Prices seem to be high right now in Austin and across the US, so you can take that into account when choosing if and where to buy real estate right now.

    My Austin Multi-Family investing case study

    I started looking for a multi-family home in Austin and surrounding areas in late 2020, in November. Even then there were tons of offers on every house, and only a two months later prices seemed to increase 20% to the point even putting 25% down would mean you were breaking even with the winning bid if buying as an investment property when you factored in all costs.

    Houses would go on market when I was searching in Austin and then they would get offers and go into contract that same day or the very next day, meaning competition was fierce.

    How did I get an Austin area duplex?

    I ended up looking in Austin via FaceTime with my realtor while he showed me houses in Austin, and other areas in Texas.

    My realtor would send a hand-curated list of deals daily, including homes in Hutto, Round Rock, Leander, and Georgetown in addition to Austin.

    I wrote offers on over 8 houses and duplexes in the area but didn’t end up getting any due to high competition.

    I ended up winning a duplex that I had first bid on and lost. My first bid had been higher than the bid that one, but they chose the other person because they bid all-cash and wanted to buy both duplexes the owner was selling. The buyer then pulled out and they reached out to only my realtor due to his good relationship with the listing agent, and I was able to offer $20K under my original bid and still get the duplex. getting was a duplex I had initially bid on and lost.

    I will keep you guys updated how my Austin duplex purchase goes, and let me know in the comments if you are planning on buying a multi-family home or not and why.

    Financial Disclaimer: *Nothing in this post or any site posts is financial advice, and I’m not a financial advisor. I simply share my own thoughts and actions about my own choices and thoughts. You may find or talk to your own financial advisor if you are looking for financial advice or direction.*

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