Beginners Guide to Starting a Duplex Rental

A duplex rental offers a world of possibilities. You can live in one unit and rent the other, or you can rent both units out and collect the rent. With a single closing on effectively two homes at the same time, a lot of investors find that owning a duplex is a smart choice as a first or subsequent investment property.

Finding the Perfect Duplex Rental

Duplexes don’t line the streets like single-family homes do, and with multifamily home prices rising, you’ll need to do your due diligence to find the right property for you. It’s possible to find these opportunities on many real estate sites, but they often sell quickly.

Working with a company that deals primarily in multifamily homes will allow you to know when duplexes are on the market and help you find the right one for your needs.

A lot of cheaper ones that are being sold need to be scrutinized to ensure they’re a good option. Be sure to:

  •  Inspect the dwelling
  • Examine rental history if possible
  • Ask for any major system repair information (plumbing, electric, septic, etc.)

Networking with investors or working with professionals that deal in duplex selling is a great option. Investment groups can be a great help in locating good deals on duplexes that don’t need major work and can generate monthly income for you.

Pros of Owning a Duplex

  • Maintains high resale value
  • Generates two income streams
  • Easy to rent out long-term or on Airbnb
  • Can live in one unit
  • Easier to manage
  • Requires only one closing
  • Lower risk of vacancy

Cons of Owning a Duplex

  • More difficult to find the right unit
  • Higher upfront costs

Investors that want to rapidly build an investment portfolio that is income generating will find duplex rentals to be beneficial. You’ll be purchasing two properties at once and can rent two out to generate income much faster than a single-family home could offer.

Financing Your Duplex Purchase

Financing isn’t as difficult as most first-time investors assume. You can finance your duplex with a multifamily mortgage because there’s less than five units, which would require a different type of mortgage.

There are two main mortgage options:

  1. Investor
  2. Owner-occupant

If you choose to occupy one of the two units, you’re effectively “hacking” your way to financing. An owner-occupant can choose to take out an FHA loan, conventional loan or even a VA loan. An investor-only, or a person that plans to use the units as a duplex rental only and not live in one, will have to use a conventional loan.

FHA and VA loans are quite beneficial because they require low down payments.

Investors don’t have to reside in the home forever, but if you can meet the requirement of one year, you’ll then be free to rent out both units.

If you can only go through a conventional mortgage, you’ll apply at a bank, mortgage lender or credit union like you would with a traditional mortgage. Depending on the duplex, you may be able to use rental income from the unit to qualify for the loan.

For example, if you purchase a duplex rental that is currently leased to tenants, you can use this income to help satisfy the income requirements of the loan.

Investors that want to rapidly build up a rental portfolio have a lot of opportunities with a duplex. While finding the right property can take time, financing is often as easy as financing a single home, especially if you’re an owner-occupant.

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