If you’re considering investing in Austin area real estate, you may want to consider purchasing a duplex. In today’s blog post, we’ll examine the pros and cons of investing in duplexes in the greater Austin area.
Pros of Investing in Duplexes
- Affordability. When you purchase a duplex, you get two units in a single transaction. While they are typically (but not always) more expensive than a single-family home, the fact that you will receive two rental payments may make them a wise long-term investment. Additionally, duplexes are often located in more affordable neighborhoods, which can increase your tenant pool.
- Several Financing Options. The most common methods of financing a duplex are cash, conventional loans, FHA loans, VA loans, and 203k loans. A 203k loan may be a particularly good fit for your investment position. This type of loan is considered part of the FHA loan family, but it has some unique advantages, including the cost of repairs into the loan. 203k loans require the owner to live in the property for at least one year and a 3.5% down payment.
- Strong Cash Flow Potential. Some real estate investors choose to live on one side of the duplex, making it a more affordable living option. Others opt to find tenants for both units, which improves an investor’s cash flow position. If you’ve used a Deal Calculator to figure your return on investment (ROI), your rents may cover your PITI (payment, interest, taxes, and insurance) and then some. This can make owning a duplex more lucrative than other investment options.
- Relatively Easy to Lease. Potential tenants often prefer more space and a more “at home” feeling, and duplexes usually fit the bill. Additionally, tenants only have to share a single wall with one other tenant, which reduces noise and other potential disturbances. Last but not least, if you’re living on one side of the duplex, tenants will often find comfort in knowing that their landlord is near in case of emergency repairs or issues.
- Tax Deductions. Because duplexes are considered investment property, they can come with specific tax deductions that aren’t available with single-family homes. For instance, duplex owners can deduct most of their expenses from ongoing maintenance, yard work, and repairs. Check with your CPA to determine your specific tax situation.
Cons of Investing in Duplexes
- Rental Income Isn’t Guaranteed. As with any investment, consistent rental income isn’t guaranteed. Before investing in any real estate, be sure to use a Deal Calculator to run the numbers so that you have proper expectations concerning vacancies and your duplex’s vacancy rate. Remember, it’s essential to take the time to find the right tenant. Quality tenants are worth every minute and dollar spent to find them.
- Repairs and Maintenance are on Your Dime. When you buy a duplex as an investment property and don’t plan to hire a property management company, you’re essentially signing up to be a landlord. While that comes with reaping the benefits of rental income, it also means that you are responsible for maintenance and repairs. Make sure that you’re ready and willing to invest the extra time and attention a rental property requires.
- Sharing a Wall With Your Tenants. While it will often save you money, sharing a wall (or a structure) with a tenant isn’t always the most comfortable situation. The remedy? Commit to finding and screening the right tenant.
The moral of the story? Be sure to do your homework and be diligent about selecting the right duplex investment for your particular situation.
Have a real estate investor or property management question? Reach out to TALK Property Management anytime. We’re always here to help.