Profile picture for redrooster3000

Would buying a duplex be a good investment for a first time real estate investor?

I would be a first time home buyer, in addition to real estate investor. My plan is to move into one of the empty units when avalible. I would like to hear the pro's and con's of this plan.

  • March 21 2009 - Portage
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Answers (40)

Great first investment! Live in one and rent the other out. Be careful, it's all about Location, Location, Location. Stay close to a University, Job center, or Downtown area for safety. Don't speculate outside of a large town. Those carry larger risks. Good luck in your search, go to Auction.com , find an investor, and bid on a cash-only sale. Those are your best bet in securing a GREAT INVESTMENT. As always do your fair share of Due Diligence and make sure you contact a title company to research that the Home carries a clear and free title! Good Luck!
  • April 15
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Profile picture for JoeScaparra
 Buying a duplex for a first time buyer is ABSOLUTELY a GREAT idea, unless of course you are thinking about buying in Detroit.  But, I would be hesitant about buying a single family home in Detroit.  I live in Austin, TX so keep that in mind as you read this.  Austin has a net increase of about 150 people a DAY coming to Austin.  The real estate here is ON FIRE.  Property values are going up and rents are going up at a very fast pace.  If your in an area where it is going to be easy to find a tenant then duplex investing should be great.  In Austin, you can advertise with a single sign in the yard and you will be overwhelmed with inquiries.  Duplexes are generally for the lower income crowd and in Austin if your renting below $1200 per month you should have very little trouble finding quality tenants.  Best entry with the lowest amount of risk with an investment element would be owner occupied duplex.  Think about it, you can get an investment property with less than 20% down (I would recommend at least 10% down....just me) and one side of the duplex should cover at least 75% of the expenses.  Your just about living for free when you consider the principal pay down on the mortgage.  Generally duplex communities are not as nice as single family but the best time to suck it up is when your either single or newly married with kids no older than 5.  Live in a duplex for 2-4 years.  The money you save during that time can be used to buy your single family home.   But when you transition to your SFH don't sell the duplex, rent out the other side and you will probably have about $500 positive to help you with your SFH payment or help pay down the duplex loan.  Cash Flow is KING!  It will help you find financial independence and you will find yourself in a better position to retirement on your terms if you own a few duplexes.  
  • April 15
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  • November 19 2013
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This type of real estate investment makes the most sense for somebody who plans to move into the building (live-in owner), especially as a first time investor.

When you own a duplex/triplex, or any type of multi-unit/multi-family building, you will have greater control over who your tenants are and the maintenance of the building if you reside there. Additionally, you will save on your own rent, making this the best use of your investment, and hopefully becoming vested in the community which is a key ingredient for building and maintaining communities.

There are tons of horror stories out there, but just like the 6 o' clock news, they are isolated incidents and not the norm. There are legions of good renters out there, and many things you can learn on your own in terms of repairs and management, and others that can be hired at reasonable rates.

However, and this is the big however, if you are lazy (physically not those who claim they aren't lazy because they try to earn money on paper), don't have patience, think that real estate investing is easy like the late night infomercial gurus promise, or have no ability to understand people who might be the same as you, then you are better off getting a condo and enjoying the quick riches and tropical drinks of the various real estate investment programs.
  • November 18 2013
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Can be but depends on the financials.  Plan on it being like a part time job. 
  • November 18 2013
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Profile picture for frankc45
I would recommend you understand how to manage a tenant living next door, above or below. you share a yard, parking space, etc.  I know one guy who bought his duplex and the tenant thinks he rents there too as his rent check is mailed to another address and he has a handyman he calls for any repairs.
I like duplexes in great locations or have high rents.
  • November 17 2013
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Profile picture for aweisman84
I think everyone's a little too Gung Ho here. Always compare an investment to its competing alternatives. In most markets the returns on a duplex are lower than those of apartments (or even multiple single family units), whether levered or unlevered. Again, it depends on the realities of your specific market, but you should always do the comparison.
  • September 28 2012
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Profile picture for Padams2012
even though this was posted back in 2009(3 yrs ago) it is still good advice for others who want to do the same(like me)
  • January 06 2012
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I think it's a great idea, especially if you can luck up on a good foreclosure duplex, in a fairly good neighborhood that you yourself would want to live in. Be sure you have separate utility bills for each apartment. The tenant you (carefully) choose should be someone you think you wouldn't mind living next door to for a long while, share a yard and perhaps a driveway with, and that you can get along with.  Some renters are frequent "partiers," so if you're not one, then be sure to address that issue with them.  Also be sure to check their references and past paying history.  You must be able to trust this tenant to take care of things if you go out of town for a while.  However, (and I've seen this happen many times), if you get too "cozy" with this tenant, he or she may try to take advantage of you if they get in a bind and will think you'll let them skip or delay payments until they get in better financial shape, just because you're "buddies".  Make sure they understand that you HAVE to have consistent rent payments, full payments, and on time.  All that being said, if you get a good deal on a duplex, triplex or quad, and can find good, trustworthy, EMPLOYED, tenant(s), then your mortgage will be paid for by someone else, but you get the tax benefits!  How great is that?  Just make sure that YOU are able to make the payments if the tenant(s) skip out on you. I've seen it happen, so be prepared for that. All in all, it's a great idea, and I think you should go for it! 
  • July 23 2011
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Provided you are fully prepared and understand the business of it, it's a great way to go! What will help more than anything is having a seasoned investor help guide you along the way. Experience is the best teacher!
  • March 19 2011
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In Minneapolis, duplexes are a wonderful first time investment; better even, in many respects, than a large apartment building.

Why?

There are two sets of buyers for dupelxes; investors and owner occupants. With more buyers, appreciation percentages tend to be greater than it is for larger multi-family properties where there are fewer prospective buyers.

Having said that, never, ever purchase an investment property of ANY kind without first doing an investment analysis worksheet. Take your gross operating income, less vacancy rate, less money for repairs, insurance, utilities, licensing fees, advertising, etc., to get your Net Operating Income or NOI. Then subtract your mortgage payment and see where you land.

With most owner-occupied duplexes in Minneapolis, this number will be negative. Divide it by 12 and see what your monthly portion of the rent will be. Most of my clients end up paying substantially less than they would in apartment rent.

Do those calculations again but pretend it's a regular investment where you're getting income from both units. Make sure the Cash Flow Before Tax is positive.

Try to find a Realtor who can help you with these calculations. Many of us specialize; in a neighborhood, a city, or a property type. We're kind of like lawyers. While all attorneys can help you with a divorce, you might find yourself at a disadvantage if you've employed a copyright attorney.

Good Luck!

  • March 18 2011
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Buying.an investment property is like operating a busines You must figure in the real expenses and the possible expense. Make sure you do your research and buy the property at the right price Good luck
  • January 16 2011
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This was exactly what I did! Knowing that the mortgage would be less than the rental income from the other unit, I thought it was a win-win situation. I was able to own my own home and be an investor at the same time.

Cons:
You don't have the place to yourself all the time since someone is living above, below, to the left or to the right of you.
You MAY have to worry about getting the rent, if you're not careful with the tenant you rent to.
Overall, you have to worry about sharing everything with the tenant, the driveway, the backyard, the front porch...

Pros:
YOU CAN LIVE FOR FREE!!!
You can save enough money and when you're tired of living with a tenant, you can buy a single family home and still have a positive cash flow investment.
If you ever leave for a vacation, rest assured that your tenant is there to keep an eye on your place (hopefully your tenant is trust worthy).
If you live upstairs, you can ride off on their heat, since heat rises, which means you save money on your gas bill.
The list goes on...

I specialize in this in my area, contact me if you have any questions.
  • January 16 2011
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Profile picture for Linda Zyla

I don't recommend that your first purchase be a duplex especially in this market.  With the collapse of the mortgage loan market and tighter credit required to purchase a home, seasoned investors are finding it difficult to find "quality tenants".  Purchasing a duplex and becoming a landlord requires multiple skills and cash on hand for repairs,, turnover, credit checks, advertisement,  If you don't have the knowledge or ability to make ongoing repairs or replacements to the units then your property looses value.  Furthermore, what happens when a tenant moves in and damages the unit? doesn't pay rent? Can you cover the mortgage? Do you have the ability to evict them? Are you familiar with the law and the proceedings required to evict a tenant?  Then you have to start a fresh, cleaning, painting, and finding a new reliable tenant.

I would recommend you buy a home in a location that is either stable or projected to grow in the next 5 years.  Live in the home, make improvements and then in a few years you should be able to sell for a profit.

  • January 15 2011
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Profile picture for John A Tiffany
Better yet find a Duplex thats a Repo and make SURE the utilies are split!!!
  • January 15 2011
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Profile picture for broker_GRI
Oi Vey            2009
  • September 24 2010
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Profile picture for shawnspaw
This is a great plan.  If you have a good agent and make sure you don't overpay for the property, you can't really lose.  There are also a lot of Duplexes in Foreclosure that are newer on the market.  Speculators got caught building them in the New Construction market as well.  I know a lot of people who have lived in on half for several years and had the tenant pay their mortgage for them.
  • September 24 2010
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You get owner occupant financing which will get you a better interest rate, lower downpayment and some rental income. Make sure to put pencil to paper on a conservative rental and expenses schedule and make sure you are getting a fair return for your money. Make sure to buy something in good shape and try to buy with at least one tenant already there.

You might be able to use 75% of the rental income, less expenses, to help you quality for the loan. This could be a big help if the numbers are tight. 

You might want to start, however, with a unit you plan to live in for 12 months and then rent out. You would be able to learn the property without the hassle of another tenant who might have problems you would have to pay to have fixed. If you try homeownership first by yourself, you'll learn the ins and outs before graduating to landlordship. Waiting a year or two is a small price to pay for the on the job education you will get when YOU are responsible for fixing issues.
  • September 10 2010
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I used to work for a cmpany thought bought large amounts of investment property and wish I had kept a couple of the duplexes for myself.  Make sure that you screen your renters credit and rent history.  A good tenant makes all of the difference, preferrably a long term one.  That way you don't have to keep investing in painting, carpets, repairs. etc.  Good Luck!  Real Estate is still a good investment if you buy right.

  • September 09 2010
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If you buy right and pick your tenant right it can be a wonderful way to own property for an investment.  The Rental income can offset what the mortgage payment is and you can build equity.  Good luck on buying your first investment.  It is exciting. 
  • August 31 2010
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Connie STILL thinks it is a good idea.

Just like she did 4 days ago.

Too bad the original question was posted in March of 2009.
  • August 31 2010
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a duplex would be great... just keep in mind you will become a landlord... keep cool... I have lived in duplex (actually 2 on 1) for decades... seperate the property as best you can to give you and your tenant privacy and enjoy to cash you get monthly!
  • August 31 2010
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The smartest way to invest in residential property and still generate some form of "positive cash flow" is to purchase a duplex, live in one side and rent the other. Many times the rent income coming in from the other side can nearly cover the mortgage payment of the entire property providing nearly free housing to the owner. The renters on the other side are not only paying your mortgage, they are helping you build equity in your property. This equity will also grow over time with appreciation, providing two sources of wealth building: one from cash flow pay-down of the mortgage and the other, property value increase through natural appreciation.
  • August 30 2010
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Always have a good agent prepare a comparative market analysis before you buy real estate.  Questions I would consider asking before I made the decision to buy a duplex are:  Is this floorplan built all over the area?  In my market builders really copy each other with respect to duplex floorplans.  When the floorplan you are considering has been built 300 times, and in some cases continues to be built -which means should you sell in the next couple of years you could be competing with new construction - I would only purchase that floorplan if I could get it for several thousand dollars less than the next compeating resale like it. In my opinion for any real estate to be a "great" investment there has to be a the potential for solid appreaction over the holding period.  If you plan to live in one side of the duplex you do minimize the risk of making a poor investiment, but consider what I wrote above as well.
  • August 30 2010
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I think this would be a good investment especially if your going to live in one of them the tenants will be happy to come right next door to talk about problems they may be having. You'll have the ability to keep an eye on them to make sure they are not destroying the property.
  • August 30 2010
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Profile picture for sunnyview
She thought so back in 2009 too. It's like deja-what-ja-ma-callit. 
  • August 27 2010
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Roberto....

....Connie thinks so.....

  • August 27 2010
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Better than a house, not as good as a four-plex... good luck
  • August 27 2010
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March 2009, do you nitwits really think the poster is still around here waiting for your wisdom 17 months later?
  • August 27 2010
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This is a good option when you consider multiple incomes with multiple units.  If you purchase a home and rent it out you either have it rented or not.  It's a big blow to your cashflow when it's not rented out but when you have multiple units it's not so bad if just one isn't rented out.
  • August 27 2010
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