What’s a duplex? It’s a two-for-one special in the real estate world: two units in one building on one plot of land.
Duplexes are the perfect blend of income production and personal space for some. For others, they may be too small and involve too much maintenance.
Read on to learn what a duplex is and who should consider owning one.
Characteristics of a Duplex
Duplexes, which fall into the multifamily property category, have these common characteristics:
• Single lot. While there are two units, they’re on the same lot.
• Shared yard. Duplex units will typically share a yard and will have a common wall or ceiling/floor.
• Similar size and layout. The two units in a duplex may not be exact replicas, but they often have the same square footage and a similar layout.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Types of Duplexes
Duplexes take one of these forms:
Stacked
When the two units are atop each other, that’s a stacked duplex. Occupants have a common ceiling or floor.
Side-by-Side
In a side-by-side duplex, units are next to each other. Occupants have a shared wall.
In general, the units in a multifamily property have separate entrances, kitchens, bathrooms, and utility meters.
Here’s what a duplex is not: a “twin home.” With a twin home, two homes share a wall, but each is an individually deeded home on an individual lot.
Pros and Cons of Owning a Duplex
Duplex living isn’t for all homeowners but could be the perfect fit for some. Let’s start with some upsides.
Pros of Buying a Duplex
• House hacking. An owner can live in one unit and rent out the other, earning income to help cover a mortgage.
• Affordability. Owner-occupants can use a government-backed home loan and enjoy the same low or no down payment requirement that they would with a primary home. Also, duplexes are often located in more affordable neighborhoods, and buying a two-unit property will typically cost less than buying two stand-alone single-family homes.
• Tax advantages. Owner-occupants can write off mortgage interest and property tax on the half of the property they live in. If the other half is a rental, they can write off repairs to that unit, any utility bills paid for it, and any management fees. The owner can depreciate the rented half of the property.
• Easy tenant management. For first-time landlords, living in a unit and renting the other one can be a lower-stress alternative to investment property. A resident owner can address issues immediately and keep an eye on ongoing maintenance.
• Buying property together. Whether it’s friends owning real estate together or a multigenerational household looking for some private space, a duplex might be a perfect fit, as the property is already naturally divided into two. There’s proximity but also space.
• A boost in getting a mortgage. With conventional or government-backed financing, you can usually use projected rental income to qualify for the loan. The lender will add a portion of the rental income to your gross income to determine your debt-to-income ratio.
Cons of Buying a Duplex
Some drawbacks also exist. They include:
• Lack of privacy. In a duplex, occupants are on top of each other or right next door. Sharing a wall or ceiling/floor might be hard for some homeowners. If privacy is a priority, a duplex might not be the right fit. That’s also true of co-op and condo living.
• Possibly a large down payment. If both units will be leased, you won’t qualify for a government-backed loan. You’ll need to put down at least 20% for a conventional loan and will pay a higher interest rate. If you do plan to live in one of the units and use a conventional loan, you may qualify to put 15% down.
• Tricky taxes. Tax season gets more complicated for duplex owners than owners of traditional single-family homes.
• Sharing space. Duplex owners may have to share a laundry room or backyard with the other occupants.
• Landlord duties. Unless a duplex owner purchases the property with another party or has the property managed, they’ll have to serve as landlord for some or all of the home. That means regular maintenance and searching for tenants, which could be stressful for some homeowners.
Recommended: Pros and Cons of Different Types of Homes
Finding a Duplex
Duplexes are enticing to people looking for a starter home, other owner-occupants, and real estate investors, which can make the search much more competitive.
As duplexes are often more expensive than single-family homes, figuring out your budget before the search will help (give this mortgage calculator a whirl), as will having your anticipated down payment at the ready and credit in good shape.
Having financing lined up can make the process more seamless. If the duplex will be owner-occupied, that may help determine which kind of loan to choose among the different mortgage types.
Should you go with a mortgage broker or direct lender? You can get quotes from both.
They should be able to answer your mortgage questions. And it pays to shop around for home loan offers.
Should You Own a Duplex?
Owning a duplex isn’t for everyone, but it could be the place to call home for buyers who want to dip their toes into the investment property market. Although duplexes come with quirks, some benefits (especially rental income) may outweigh the drawbacks.
If you do plan to live at the property, you might eventually outgrow it and move on. In that case, your home equity can help purchase the next home.
And that duplex and other assets can help build generational wealth.
The Takeaway
What is a duplex? Two living units in one property. Duplexes pack a two-for-one punch when it comes to real estate ownership. They aren’t the right fit for all house hunters, but so many buyers are interested in duplexes that they’re a hot ticket.
Ready to start searching for a duplex? Begin the journey with SoFi Mortgages.
SoFi offers mortgages for owner-occupied primary residences, second homes, and investment properties.
FAQ
How can I profit from my duplex?
Duplexes can be either entirely rental properties or owners can choose to occupy one of the units. As an owner-occupant, you can use rent from the other unit to supplement or perhaps pay your monthly mortgage entirely.
As an investment property, you can collect rent on both units, with the profit potential based on the monthly mortgage payment.
How do I rent out a duplex?
There’s a high likelihood you’ll rent out one of the units year-round. However, some duplex owners use the other unit as a guest space, short-term rental, or even an artist studio, depending on their needs.
Should I sell my duplex?
Deciding whether or not to sell your property is a personal choice based on circumstances and the local market. A duplex, though, can be a good property to keep as an investment, as the two units provide a lot of flexibility for renters, Airbnb guests, and an owner’s place to live.
Photo credit: iStock/RichLegg
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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