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What is A Duplex? Buying a Duplex as an Investment and a Home!

Most of us are aware of the difference between single-family homes and large apartment buildings, but what about the types of properties in between? Duplexes, along with three- and four-flats, are three other types of multifamily real estate properties.

All three property types are financed and taxed differently than larger residential buildings. This allows them to be a more financially accessible option for homeowners. They also provide an alternative option for renters when it comes to choosing a place to call home.

What is a Duplex?

Technically speaking, a duplex is one property that consists of two livable units all in one. These units are often either side-by-side or situated where one unit is on the top floor and the other is on the bottom floor.

Either way, both units are in the same building. Unlike a townhouse or a twin home, a duplex is not one building with two separately-owned homes. Instead, it is two units in the same building under one ownership.

Difference Between a Duplex and an Apartment

Let’s break this down further. Someone who is looking to buy a property will consider purchasing a duplex either as a way to become a landlord over both units or to live in one unit while renting out the other. Either way, they will purchase the entire duplex.

Those looking to rent a duplex will be interested in renting out one of the two units in the duplex. They will rent one unit while other tenants will rent out the second unit, meaning you’ll have neighbors in the same building when you rent a duplex.

Other Terms for the Word “Duplex”

By now, you probably understand what a duplex is. In some cities, however, it can mean something different.

For example, in Chicago, Detroit, and Buffalo, a duplex can refer to any building with two residential units, whether those are separate properties or two units within the same property. Instead of calling them a duplex, these cities use the terms two-flat or two-family dwelling.

Fortunately, this isn’t something to be worried about if you don’t live in one of these cities. Let’s learn more about what it’s like to purchase a duplex and what benefits come with living in a duplex.

Is a Duplex a Good Investment?

Buying a duplex can be an easy way for homeowners to make supplemental income each month while also paying off the property’s mortgage. Plus, the money is often put towards the cost of repairs and upgrades as well.

Also referred to as house hacking, buying a duplex as an investment usually involves living in one unit while renting out the other. Purchasing a duplex instead of a traditional single-family home can provide a great alternative to traditional homeownership thanks to the supplemental income.

In addition to earning income in the form of rent, buying a duplex as an investment can give homeowners access to unique tax cuts as well. However, it might not be for everyone. Let’s break down the pros and cons of buying a duplex.

Pros of Duplex Ownership

Investing in a small multi-family like a duplex can give homeowners access to rental income, tax benefits, and flexibility when it comes to making repairs and improvements. Let’s take a closer look at what these pros mean in greater detail.

  • Rental Income: As we discussed above, buying a duplex and renting out one of the units while living in the other one gives homeowners the opportunity to cover at least part, if not all, of their mortgage payment each month with the money from rent. This will allow you to save more of your own money that would otherwise go towards rent or mortgage payments. Homeowners can put this extra cash towards personal savings or renovations and updates around the property.
  • Tax Benefits: Owners of small multi-families, which are properties with anywhere from two to four units, are eligible for tax write-offs on property-related expenses each year. These expenses include costs for property management, like landscaping, replacing large appliances like water heaters or boilers, and making other changes to the property. Tax benefits are also available for landlord duties like money put towards advertising the unit.
  • Flexibility: Another benefit of investing in a multi-family is the flexibility that comes with having multiple units. Many homeowners live in one unit while renovating the other, or they upgrade the space they live in over time while renting out the other. Either way, it allows homeowners to upgrade or customize their space without having to live in the messy construction zone, for example. Or it can provide a unique way to upgrade a future rental unit while still bringing in rental income from the other one.

Cons of Duplex Ownership

While owning a duplex comes with many financial benefits, it can also cause some disadvantages for you, especially when it comes to hands-on property maintenance and work as a landlord. You will also lose some of the privacy that comes with living in a single-family home. Depending on your lifestyle and any time constraints it causes, the property management aspect of renting out part of your duplex might not be beneficial for you after all.

  • Shared Spaces: Most duplexes have exterior features that are similar to the features of single-family homes, including yards, garages, parking spaces, and porches. However, the main difference is that these spaces will be shared among all residents of a duplex so there’s less privacy. Having shared spaces can often be a pleasant experience, but those looking for a private yard for their children or who need enough space for multiple vehicles on the property may not find living in a duplex conducive to their needs.
  • Property Maintenance: All homeownership comes with property maintenance, but it’s a landlord’s responsibility to make sure that a renter’s home is always a safe and pleasant place to live. This means being available at all times if issues arise in the home and taking responsibility for maintenance over time, including paint jobs and the replacement of appliances.
  • Landlord Duties: In addition to property maintenance, a duplex homeowner is responsible for finding renters, creating a lease agreement, and collecting rent. While most landlord-tenant relationships end up being pleasant, some can result in disputes.

Financing a Duplex

One of the biggest benefits of buying a duplex is that it can be financed just like a single-family home. Homebuyers can choose between FHA and conventional loan options. Plus, if you are eligible, you could apply for other government-backed programs like the VA loan. While larger apartment complexes with five or more units require different types of financing, duplexes remain accessible to homeowners thanks to traditional lending options.

Considering a Duplex for Your Next Home

If you’re up for some extra property maintenance and you don’t mind sharing your backyard or a garage, purchasing a duplex can be a great way to own and live in your home while getting some help covering the mortgage thanks to the tenants in the other rental unit. If this is conducive to your lifestyle, the financial flexibility and tax benefits can help you save money for your personal goals or other house-related expenses.

 

Ready to Buy a Duplex?

All material is presented for informational and educational purposes only and should not be construed as individual financial, investment, or legal advice or instruction. ZeroMortgage does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by ZeroMortgage. ZeroMortgage, its affiliates, and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. ZeroMortgage does not provide tax advice. Please contact your tax adviser for any tax related questions.

This page last updated: March 21, 2022