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?
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.