Why your First Investment Property Should Be A Duplex

Why your First Investment Property Should Be A Duplex

When I accidentally started investing in rental properties, I was 26 years old. I’ve owned my own business since I was 23, and as a business owner, as you progress it’s natural to start considering Investment ideas. When you work for yourself you don’t get the luxury of a pension or retirement plan, at the end of the day you will only have what you were able to save up.

Even though I eventually stumbled onto long term real estate investing, had I know what I know today, I would have done things differently. Right after high school, if I had invested in a duplex, I could have easily been retired by now.

What is a duplex?what is a duplex

A duplex is a home comprised of two separate living quarters. In general, they have separate kitchens, bathrooms, and no common living areas with the other unit. Think of them as tiny apartment complexes with only two units. In most cases, each unit has separate utility meters so that each side only pays for what the amount of utilities they use.  This type of property is ideal for investors because you can earn twice the rent with one property.




Duplexes are great investments for young, first-time investors for a lot of reasons. Some of the pros are being that you can pay off your first property by renting out one of the units, and the other benefit is that you can potentially live rent free, to save money by owning a multi-family home. As long as you make sure that you purchase at a price in which one unit’s rent will cover the mortgage, and you know how to find a good tenant, your biggest living expense, shelter, is covered.

Duplexes are better for young investors from a living standpoint because. The units are usually smaller and can make a good home before you start a family. Once you start getting married and having kids, you will likely want to get a bigger house, with more privacy.

It’s important for young investors, to remember that even though your tenant is your neighbor, you shouldn’t build a friendship with them. If you find this difficult or awkward, i suggest at the very least, acting as if you are just a tenant as well. One of the top landlord commandments is not renting to or making friends with tenants. If tenants are your friends, in times when they may encounter financial issues, they will play the friend card” and things can get awkward quickly.

You guys know I’m an advocate of paying off houses as soon as possible. And because your mortgage will be covered, your ability to save should be drastically increAsed. I recommend setting aside what you would normally pay for rent, until you have enough to pay off the property. Once your pay off your mortgage, your other units rent goes straight to your pocket.

Sometimes, I find that duplexes can be over priced. Everyone has their own methods but for me to be even consider purchasing a duplex, it would have to be cheaper than I could find, two single family homes in the same area. For example, if I know 2 bedroom rentals average around $60k a piece, I wouldn’t want to spend over $110K for a duplex In that same area. This way it’s like getting a discount on 2 rental properties at the same time, while generating a higher ROI.

Eventually, you will want to move. The good thing about having a duplex, is that you can move out, rent your old unit out and start earning two rent payments at once. Now when you buy your next home, you have the luxury of being 2 rentals In the game.

Even though your expenses will be covered, I recommend to continue working  full time, to cover unforeseen repairs, and speed up paying off your investment.

In addition to duplexes, which are two unit structures, you can also find other multi-unit properties as well. Triplexes are 3 unit buildings, and quadplexes are buildings with 4 units. Anything over 5 units is officially considered an apartment complex, and different tax laws apply.

While most duplexes are side by side units, some will have an upstairs/downstairs layout. One thing that is important to me when finding a potential duplex, is making sure that the homes have separate meters for utilities. There have been times when I’ve come across duplexes with combined utilities, and it sounds like a hassle to try to decide which tenants used, how much energy every month. In cases where only the water is combined, the landlord usually covers the water bill. For me personally, I prefer my tenants to take care of all of their own expenses.

A single duplex is probably not going to provide the income, you need to retire just yet, however by investing young, and continuing to grow your rental portfolio, once you obtain and pay off enough rental properties, you will be generating enough passive income to live comfortably.

What was your first rental property? Was your first rental property a duplex?

Let me know in the comments section below.



the landlord commandments

The 15 Landlord Commandments

For people like me, that accidentally started building passive income. Learning the landlord game has definitely been an interesting journey. As with any career path, when your in it, you get to see a whole different side of things. I believe one of the keys to success is the ability to adapt, so as Ive continued to grow my rental portfolio there are some tips that I have learned that can help to ensure your success with rental properties, and the keep them profitable and passive as possile

  1. Thous shalt Always Screen Tenants. The first line of defense for any landlord against major headaches, and utter destruction. Screen your tenant. Take a look at a persons track record with an online background check. Being able to find a good tenant is the foundation of a strong rental business.
  2. Thou Shalt NOT Rent To People You  Don’t Know. Your friends, your cousins, your moms friends, your brother, ex girlfriends little brother who’s “cleaning up his life now”, these are the people you want to avoid as tenants. When things go left, they will ruin your investment plan.
  3. Thou Shalt Always Do A Video Walkthrough Before Lease. Self explainatory right, which damages or stains were done before then tenant moved in, become merely hersay, when both parties not video evidence is available. I always do a video walk through with the tenant present. This way when they move out, they know if theres any holes in the wall, we both they weren’t there before hand.
  4. Thou Shalt Set A Tone For The Relationship. Always be prompt, professional, and reliable with your tenants. Set a standard for the way you run your rental business. Have policies and procedures in place, and follow them. Let tenants know up front what is expected.
  5. Thou Shalt NOT Discuss Personal Matters With Tenant. This is a big part of professionalism. Some tenants can naturally be friendly, and inviting. Maintain a professional relationship, when tenants begin to think of you as a friend, it can lead to late rent payments, and request to waive late fees, and a plethora of other things, that can undermine the foundation of your rental income
  6. Thou Shalt Be Clear Whats Expected. On time rent payments, how much are late fees, these are things you  need to express . If cutting grass, and raking leaves, or snow removal are the tenants responsibility, make sure this is clear in the beginning. I make sure a tenant knows whats available by including a tenant responsibility sheet.
  7. Thou Shalt Collect Electric Payments. Come on its 2016, I really hope your not driving to pick up a check from a tenants. Always collect rent via online payment service such as Paypal, or get a deposit only bank card from your bank, this lets tenants deposit your rent payment at any local bank of your choosing. Then all you need to do is check your balance from your app. Work smarter not harder!
  8. Thou Shalt Answer Your Tenants Calls. Believe it or not I know a few landlords who actually have a callous attitude towards this. A landlord should be accessible, or atleast have a 24 hour property management company in place. The tenant may be calling you to tell you a pipe burst in the wall, you need to be able to address problems fast, the faster you handle it the faster its in the past.
  9. Thou Shalt Make Repairs Fast. If the fridge goes out or the disposal break go fix it. Remember your tenants are paying you for a fully function living space, when things break fix them fast to keep the space functional. Don’t give your tenants a reason to get upset with you.
  10. Thou Shalt Fix Things Right The First Time. This is one I learned the hard way, in the beginning, I tried to nickel and dime things, cheap $10 fixes, I learned fast that this just creates an everlasting headache. If I’m fixing the same problem for $10 10 times, I probably could have just had it done right in the first place. Im all about keeping it a passive as possible. If you are not handy, get yourself a GOOD handy man that you can call for repairs.
  11. Thou Shalt Set Aside Money For Repairs. When its time to replace the water heater, or a leak from the upstairs shower caused the ceiling to sag. This emergency fund will keep you from hurting your profitability. If you fail to plan, you plan to fail, always set aside ATLEAST $75 per month per rental. I find by saving a designated amount, and setting aside, the emotion is removed from the money. When a tenant calls with an issue, instead of thinking, “more money out the window” you think “thats fine we have money set aside for that”
  12. Thou Shalt Have A Firm Late Fee Policy, and do not defer. Make your tenant sign a copy of your late fee policy before moving in. Let them know what date rent is expected, and how much per day it will cost after that. If you let this slide tenants do not have an incentive to be on time. I need my tenants to make me a priority, the business can only run efficiently with promptness. If something breaks, I fix it fast, I expect my money with the same speed. Now if a tenant tells me they switched jobs and now get paid on a different day, I would be willing to work something out, but never be willing to accept consistent late payments.
  13. Thou Shalt Always Have Eviction Paper Work Ready To Go. Have all late notice and eviction papers ready to go. I keep a folder with these by my desk. If a tenant doest pay, the late notice is sent, which usually rectifies the issue, but if not, Im ready to follow up with the rest of the eviction paper work
  14. Thou Shalt Raise Rents Yearly. This is something I wasn’t doing. You will need to check in you area for local laws regarding raising rent but its a good idea to raise rents yearly. This is one of the reasons I enjoy investing being a landlord, they keep up with inflation. Always check what other rentals are going for in the area. As a general rule I raise my rents by $50 per lease renewal. This is about half of whats allowed in my area!
  15. Thou Shalt Recognize A Good Tenant. If you have a good tenant, know what you have. Be a good landlord, and you will keep good tenants around for many years. These people are the heart of the business, show them respect, and respect their privacy. If you have a good long term tenant that pays well and treats the property good, you will always stay profitable
how to find a good tenant

Investing is real estate in the form of rental properties can be extremely lucrative, and an excellent asset that generates income. When you talk to people about rental properties the response normally falls into one of two groups. They either love it, and are swimming around in large pools filled with coins like Scrooge McDuck, whenever they have spare time, or they hate it and have tales terrible drawn out evictions, and thousands of dollars in damages. For some reason, this is the life associated with being a landlord, which is true to an extent, but can usually be prevented if you can find a good tenant. Here are a few tips to put the odds of building wealth with real estate in your favor. If you’ve ever had to find a tenant for the first time, you might ask the following questions:

  • What’s the best way to find a good tenant?
  • How do I screen a tenant?
  • What are the characteristics of a good tenant?

When you are a landlord, you need to rent to good people.  Screening tenants for your rental property will be the key to your success. – No Nonsense Landlord

The Number 1 rule to find a good tenant

Do NOT rent to any family, friend, or anyone you have any type of relationship. This is should go without saying, and is ranked very high on the 15 Landlord commandments, if you want to find a good tenant, and goes without saying but you wouldn’t believe how many people do this. No matter how nice this person is it wont generally work well. Your tenant landlord relationship needs to be professional. This means do not make friends with your tenants. One of my tenants used to always invite me out for drinks, but I always made sure to politely and respectfully decline.

Tenant Screening.

Screen your tenants. No really really screen your tenants. Seems like common sense for anyone hoping to find a good tenant, but remember those angry investors, this is the step that was either skipped or botched, that cause them to feel this way.  The first step to find a good tenant is the pre screen. This is done when you first advertise your property. Make sure you clean before taking pictures, because clean rentals help to attract clean tenants. Post your ad, with a detailed description of the property.

Next, you will want to add the things that will be required, I always choose the following, no felony convictions within the last 5 years, no sexual crimes arrest, must have verifiable rental history of at least 3 years, and must earn 3 times the rent, and no evictions ever. Those questions for potential tenants, are my first defense to help weed out the rift raft. I find that it filters out the majority of dead beat tenants. Last I include my application fee, this is generally $50, and is used to cover the background check, this is also put in the ad, for two reasons, so they know that I will be verifying the above questions, and because no one wants to waste $50 if they know they won’t pass. As I get potential responses, I call them back give them the address, and tell them do a drive by to see if they like the area. If they are interested I meet with them, and show them the inside. If the prospective tenant wishes to proceed. I have them fill out my application, and collect the application fee.

Now its time for the background check. Back in the day, this was tricky, but these days there are a number of tenant screening services such as Next you will want to add the things that will be required, I always choose the following, no felony convictions within the last 5 years, no sexual crimes arrest, must have verifiable rental history of atleast 3 years, and must earn 3 times the rent, and no evictions ever. Those questions for potential tenants, are my first defense to help weed out the rift raft. I find that it filters out the majority of dead beat tenants.

Last I include my application fee, this is generally $50, and is used to cover the background check, this is also put in the ad, for two reasons, so they know that I will be verifying the above questions, and because no one wants to waste $50 if they know they won’t pass. As I get potential responses, I call them back, give them the address, and tell them to do a drive by to see if they like the area. If they are interested I meet with them to show them the inside. If the prospective tenant wishes to proceed. I have them fill out my application, and collect the application fee. Now it’s time for the background check. Back in the day, this was tricky, but these days there are a number of tenant screening services such as

As I get potential responses, I call them back give them the address, and tell them do a drive by to see if they like the area. If they are interested I meet with them, and show them the inside. If the prospective tenant wishes to proceed. I have them fill out my application, and collect the application fee. Now it’s time for the background check. Back in the day, this was tricky, but these days there are a number of tenant screening services such as Next you will want to add the things that will be required, I always choose the following, no felony convictions within the last 5 years, no sexual crimes arrest, must have verifiable rental history of at least 3 years, and must earn 3 times the rent, and no evictions ever. Those questions for potential tenants, are my first defense to help weed out the rift raft. I find that it filters out the majority of dead beat tenants. Last I include my application fee, this is generally $50, and is used to cover the background check, this is also put in the ad, for two reasons, so they know that I will be verifying the above questions, and because no one wants to waste $50 if they know they won’t pass. As I get potential responses, I call them back, give them the address, and tell them to do a drive by to see if they like the area. If they are interested I meet with them to show them the inside. If the prospective tenant wishes to proceed. I have them fill out my application, and collect the application fee. Now it’s time for the background check. Back in the day, this was tricky, but these days there are a number of tenant screening services such as rentprep, that can do a full background and credit check for a reasonable price. These checks are quite comprehensive. Within 24 hours, any lies are exposed, as I have access to their former addresses, criminal history, eviction history, bankruptcy filings, credit score, and employment information. I then cross reference this with the application for discrepencies. My personal preferences are:

  • Credit Score must be atleast 600. I feel this score means you are fairly responsible, I may sometimes go as low as 570 if everything else is in order.
  • Criminal history must be extremely mild. I don’t allow any recent felonies within the last 7 years, no drug crimes(have you seen how the DEA kicks in drug dealers doors, looks very expensive), no sexual offenders, and pretty much anything that would indicate the tenants lifestyle could end them back behind bars, because jailed tenants can’t make rent. However if the prospective tenant got into a got arrested for public intoxication during Mardi Gras 5 years ago, I would not disqualify the tenant. Things happen, but this is a judgement call.
  • No evictions ever! I don’t care if it was 20 years ago. An eviction is one of the worst, and expensive things a landlord can go through. Evictions mean the tenant would not leave and had to be escorted out by law.
  • I make sure that they really work where they claim. Tenants will sometimes get creative here and give family members numbers, and instruct them to pretend to be employing them. I call jobs and speak with the supervisor, I verify employment and length of employment, this should match what was on the application. I require them to be on the job for at least 2 years.
  • I verify previous landlords, tenants also sometimes try to use family members for this, so use discretion. When the former landlords pick up, I confirm who I’m speaking with then ask them to verify the address of the the tenant, usually landlords will know this address right away and is a good indicator. Its always a good practice to speak to the landlord before the current. Sometimes the current landlord will be anxious to get rid of a bad tenant, and give a false praise. Once confirmed, I ask how the tenant was and how the home was treated. Landlords will tell you if they were trouble makers, or if they were late on rent.

If everything checks out, I can end my search to find a good tenant, and call the prospective renter and let them know that they passed the check and give them a move in date, and request one months rent plus a security deposit equal to one months rent. By pre filtering, and then screening and verifying potential tenants in this manner, I end up with end up with a responsible person who has the makings of a good tenant. I find that tenants with clean backgrounds, and pass these verifications are not flukes, they actually care about their reputations, thus are less likely to tarnish it. Both my tenants from house #1 and my tenants in the townhouse investment property that have been screened this way have rented my homes for 3 or more years at a time, and are extremely low maintenance. By thoroughly researching to find a good tenant from the beginning, I have less hassle and can truly consider this income stream passive income.

 

Are you a rookie landlord or a seasoned veteran landlord? Any tips I might have missed here? Let me know in the comments below!