A duplex is a house with two units, either on different floors or side by side, with separate entrances. A duplex may be an excellent investment opportunity, but owning one can also be challenging.
Cost and Financing
Duplexes are often located in neighborhoods with affordable home prices. If you plan to live in one part of the house, you may qualify for a mortgage that is specifically designed for multi-family homes and that has a lower down payment requirement and lower interest rate than other types of home loans.
If you live in one unit, the rent you collect from tenants in the other apartment may cover most or all of your monthly mortgage payments. You may be able to pay off the mortgage early and then enjoy a steady profit.
Both apartments may not be occupied at all times. If one or both are vacant, it may be difficult to cover your mortgage and other costs unless you set aside money for times when an apartment is empty.
Expenses and Write-offs
If you buy a duplex, you will be responsible for maintenance, repairs, screening of potential tenants, rent collection and other matters. You will also have to keep detailed records related to rental applications, tenant credit and background checks, and lease agreements. A property manager can handle those tasks, but that person’s salary may reduce your profits.
You will be responsible for routine maintenance, repairs and new appliances, as well as for cleaning, painting, replacing carpet and other repairs when tenants move out. Leave room in your budget for all those expenses.
You may be able to write off a series of expenses associated with a rental property when you file your taxes. Maintenance, repairs, utilities, depreciation, mortgage insurance, property insurance and fees for property management, legal services and accounting are all possible deductions. Discuss these matters with your accountant.
You may decide to rent out both parts of the house and live somewhere else. When you retire, you may choose to sell your house and move into one side of the duplex.
If you have a relative who is elderly or who needs assistance, but you don’t want your loved one to live in a nursing home, having them live in one part of a duplex with you in the other may be an ideal solution. This can allow you to check on your relatives and help when necessary, while giving everyone privacy and independence.
You can be held liable if someone gets hurt on the property. Make sure you have the right types and amounts of insurance coverage.
If you don’t choose tenants carefully and enforce rules, you may have to deal with a lot of noise, trash or frequent knocks on your door with requests for maintenance and repairs. You may also have to go through the unpleasant process of evicting a tenant. Research your state’s laws on tenants’ rights to make sure that you follow them.