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Investing In Duplexes- By Karl Jennings, Jr.

I have been asked from time to time what is my favorite or most preferred investment property. My preference is a multi-family duplex property. A duplex offers several advantages over a single family resident property. An investor purchase can purchase a duplex as an owner occupant buyer which requires a much lower down payment. Additionally, a duplex can generate a higher cash flow, lower vacancy costs, produce a larger pool of qualified tenants, and be an easier property to manager if property is not located in a mandatory Homeowner’s association (HOA).

Many tenants prefer to rent a property that is not in a mandatory HOA. The tenant may have a commercial vehicle they use for work, and subdivisions with a mandatory HOA may not allow this. We receive many violation letters from HOA for items such as grass being too high, garbage dispenser being left outside, weeds being in flower beds, items left in yard, and front fences in need of repair. This is just a small list.

The HOA can fine the owner and place a lien on home or even foreclose if there are outstanding HOA dues, fines, and or attorney fees. These rules can be burdensome for both the tenant and owner. A tenant may choose to not renew their lease if multiple letters or fines are issued. This can result in unnecessary vacancy costs for the landlord. Monthly HOA fees also decrease your profits and cash flow.

A duplex can also produce a higher cash flow than a single family residence. It is more costly to purchase two homes than a duplex. A duplex will produce a higher rent as a percent of sales price than a home. If investors want to maximize their cash flow, purchasing a duplex in a good location can be very profitable. For example, an investor you may not get $1,600 in rent for a $160,000 home. However, if an investor purchases the right duplex at a good price point, he or she may get $1,600 in rent or close to 1% of the sales price.

There is also a larger pool of tenants who can afford a duplex. Rents are more affordable for a duplex. Most duplexes have two or three bedroom units. Not every tenant needs a three bedroom unit. So, a duplex can be attractive to a small family, two roommates, students, or single person. This increases the number of tenants who can afford the property.

Unlike a single family residence, if a tenant vacates one unit of a duplex, an investor does not lose 100% of the rent. Having more than one unit can minimize monthly vacancy costs. It is better to have rent from one unit than no rent at all. The owner can also setup leases where the lease expiration dates are at different times of the year. This will minimize both units being vacant at the same time.

Finally, an investor can purchase a duplex as an owner occupant buyer and occupy one side. This is a great way for a first time investor to be a landlord without putting 20%-25% down. An owner occupant buyer can purchase a duplex with an FHA mortgage which offers attractive mortgage interest rates and down payments as low as 3.5% if property meets FHA guidelines. An owner occupant must live in the home as their primary residence for at least one year. After one year, the unit can be leased out and investor can purchase next property and have us manage both units.
In summary, investing in a duplex can be very profitable if an investor uses a professional to purchase the right property. We can analyze monthly cash flows, provide a lease analysis, and help you purchase the right property. We are experts and lease and mange hundreds of properties.

For any questions regarding duplex investments, email Karl Jennings at karl@smartsourcerealty.com or call our office at 512-257-9836.

 
Posted by: smartsourcerealty on June 1, 2013
Posted in: Uncategorized