What Is A Duplex?
When considering real estate investments, understanding how to buy a duplex can be a game-changer. This can be incredibly confusing in New York since there is a significant difference between a duplex property for sale and a 2-level apartment for rent.
Duplexes are small multi-family dwellings with two separate units in the same building. They are popular options for homebuyers and first-time investors because the rental income from 1 of the units can pay for about half of the monthly mortgage (depending on pricepoint and down payment).
Duplex demand
Since 2023, demand for duplexes has steadily increased. Despite increasing asking prices, more duplexes listed for sale and rising property values, these properties are selling 6% faster than last year!
This property type can be optimally utilized for large or extended families. Duplex investing is common for first-time investors looking to begin building a portfolio of family-owned, occupied, and operated investment properties.
Several members of my family took advantage of this strategy by investing in properties throughout New York beginning in the 1980’s. It served as an efficient way to lower living expenses and gain property management experience. This investment strategy is referred to as ‘house-hacking’.
For those not interested in house-hacking, duplexes can serve as non-occupied (or absentee-owned), income-generating properties. However, if you’re exploring how to buy a duplex as an investment, be prepared for a minimum down payment of 20% or more.For an accurate picture on your financing options, consult with an investor-friendly lender.
What Are The Features Of A Duplex?
The most common distinction between a Duplex and traditional single-family homes is the number of apartments or units. While single family residences, condominium, and co-op apartments have one unit, duplexes contain two separate units within the same building.
Each unit is contained within the same building or property. Both units oftentimes share walls, hallways, driveways, and other common spaces.
Triplexes have 3 units and Fourplexes (or ‘Quads’) have 4 units.
Benefits of Buying a Duplex
The main benefit to purchasing a duplex is that you can earn rental income. This rental income can total over $75,000 annually if we consider that most 2-family properties listed for sale this year have 6 bedrooms.
Affordability is another benefit. Lets face it, high cost of living markets like New York present challenges to those looking to keep housing at/below 25-35% of their income.
Consider this comparison:
- At the median sale price for a Queens single-family property home ($830,000), the estimated monthly mortgage payment would be $4,731.
- A Queens Duplex with a median price of $1,030,000 would have an estimated monthly mortgage payment of $5,747.
Although the duplex’s estimated payment is approximately $1,000 more per month than owning a single-family property, we haven’t yet accounted for rental income.
After subtracting the median monthly rental income for a 2 or 3-bedroom apartment, the duplex owner would be paying $2,547 – $3,047 per month. A savings of nearly 50% when compared with Single-family home monthly mortgage payments.
Disclaimer: The numbers/projections above are used as examples. Please verify all projected payments with your mortgage lender.
If you need more than affordability and rental income, consider the tax benefits. Duplex owners can deduct rental property expenses like Home Depot visits, maintenance calls to your plumber, accounting software subscriptions, and many other operating expenses.
How to Buy a Duplex: Finding the Right Property
- Online Listings: Third party listing websites are a common place to search for duplex sale listings. If you aren’t sure which one(s) to begin with, go with Google’s most popular sites in your area by searching ‘Duplex for sale (insert town, county, or neighborhood) ‘.
- Off-market Opportunities: These options include auction websites, real estate investment groups, lists of 2-family homeowners from courthouses or lead websites (for purchase).
- Real Estate Agents: One of the most efficient ways to search properties for sale is to speak with a Real Estate Agent. Agents have access to on-market, off-market, coming-soon, and seller-financing opportunities.
To have one of our agents set up your custom duplex property search, schedule a call today!
Evaluating Property Condition
Understanding how to buy a duplex begins with assessing the property’s condition. Duplex property condition is a vital part of the selection process. Properties in poor condition require more funds to renovate until the unit is considered ‘rent ready’.
One common misconception is that cost = value in Real Estate. Meaning, a more expensive renovation should command higher rents. While it is true that luxury properties rent and sell for more than their non-luxury housing, it doesn’t mean that high-end appliances and finishes alone warrant higher rents.
Consult with an agent, local investor, and/or property manager before overspending on a renovation project. Obtaining multiple contractor estimates can also help you arrive at the most accurate rehab estimate possible.
Please keep in mind that construction costs vary as projects progress. One of the main reasons is that ‘we don’t know what we don’t know’… meaning, until we remove sheetrock, flooring and ceilings, we will not have a full understanding of what kind of condition a property is in.
Financing Tips
If you’re figuring out how to buy a duplex, know that mortgage lenders offer various financing options tailored to duplex purchases. The options will depend on multiple factors including:
- Projected rental income
- Owner occupancy
- Down payment amount
- Buyer’s credit history
- Future investment goals
Discussing these variables with an investor-friendly lender can help you identify the best financing structure for your situation.
Closing the Deal: Final Steps in How to Buy a Duplex
While it is widely accepted that any form of Real Estate is a financial investment, single-family/unit properties are more personal. Home shoppers tend to consider layout, color schemes, finishes, and amenities differently than duplex buyers.
When learning how to buy a duplex, it’s important to understand that investors want more information pertaining to the property’s financial performance and responsibilities. For example, a common request is to obtain the income and expenses for a property as well as records on recent maintenance and capital expenditures.
Single-unit home buyers rarely request this type of information.
Once all financials have been assessed and the property has been toured, it is time to negotiate the deal. Price and other terms (contingencies) are exchanged via offers and counteroffers until a preliminary agreement is reached between the buyer and seller.
To solidify an agreement in New York, attorneys are hired to draft, revise, finalize and assist with the signing of the duplex sale contract. The contract can also be referred to as a sales or purchase agreement. When all parties have signed the contract, it is considered to be ‘fully executed’.
After the contract is executed, the focus goes toward closing logistics — a crucial phase in how to buy a duplex successfully:
- Lenders finalize the financing by ordering the appraisal, obtaining a loan commitment, processing the loan, and underwriting it before issuing a ‘clear to close’.
- Attorneys review the property’s title report to address any issues related to violations, liens, judgments, open permits, etc.
- Once title and the loan are clear to close, attorneys representing the buyer, the seller, and the bank will coordinate a closing date that works with everyone’s schedule.
On occasion, sellers opt to pre-sign closing documents. This is done in the event that one or more of the parties will be out of town or unable to attend the closing. It is also done for convenience when scheduling proves to be a challenge. Virtual closings became common in 2020-2021 before going back to offices. Power of attorney is sometimes used in situations where one or more of the parties would prefer someone to sign on their behalf.
Once the closing is complete, you are now the official owner of a duplex property. The work, however, is not over!
To add the final piece of the puzzle, rental income, you now need to find a tenant and have them sign a lease. Typical lease lengths in New York are 1 or 2 years.
After Closing, What Happens Next?
The American Dream of homeownership is a worthy pursuit so long as the home is affordable and aligns with the wants and needs of its owner and residents. Understanding these factors is crucial in the process of how to buy a duplex that meets your investment goals.
When considering duplex properties for sale, many prospective buyers consider the benefit of rental income. As shown in our previous example, duplexes are nearly 50% more affordable on a monthly basis when compared to single-family homes.
Saving money each month is great but strategically building long-term wealth is transformational. The tax benefits of Real Estate investing extend beyond the short-term gains reached with cash flow. Contact a tax professional to find out how you can realize these benefits with your investment.
If and when you are convinced that the single-family homesearch route isn’t for you, begin your duplex property search. Save your favorite properties, research the potential rental income, and analyze properties until you feel you’ve got a good grasp on the market.
Happy Investing!
