Buying a Duplex: Step by Step Guide for Beginners

Is buying a duplex the right choice for you? As a beginner, investing in rental property is one wise way to break into real estate investing. There are a variety of investment properties you can choose to start with. A duplex is among the best options depending on your investment goals.

A duplex gives you a chance to live for free. How is that even possible? As a beginner investor, it is straining to buy a rental property and have a separate home to live in.

With a duplex, you can rent out one unit and live in the other. Then use the rental income from the second unit to pay monthly mortgage payments. Sounds interesting? Let us learn more about duplexes and how you can buy one.

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What is a duplex?

This is a home with two units in the same building. The units can either be one upstairs and the other downstairs or side by side separated by a concrete wall. The two units have different entrances but are owned by one person.

It is not always the best choice if you like your own space. But it is a good foundation to learn about real estate investment as you build your equity.

Why buy a duplex?

Duplexes provide an investment opportunity for beginners. Are you undecided whether to invest in a duplex or not? Here are some reasons why investing in a duplex is a good financial move:

#1: Rent out one unit and live in the other

This is one of the obvious reasons for investing in a duplex. With this option, you can pay some of your finance costs from one unit rental income. Moreover, you can save on the money you would have spent renting a home.

#2: Rent both units for consistent cash flows

A duplex has separate entrances. Thus, you can rent out both units to enjoy monthly dual rental income. This will be a consistent source of passive income.

#3: Flexible financing

It is easy to finance a duplex with traditional financing. It is even cheaper when you live in one unit and rent the other. You will enjoy low down payments. Besides you can use the rental income you receive to qualify for a bigger home loan.

#4: High resale value

Duplexes are always in demand but with low supply. Like any other well-maintained property, duplexes appreciate. So whenever you are ready to resale your duplex, it will fetch you good returns within a short period.

#5: Tax benefits

Besides the standard deductions, you subtract the expenses incurred in maintaining your duplex. This reduces the tax amount. Also, selling an owner-occupied duplex grants you some exemptions on capital gains tax.

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Step by step guide to buying a duplex

#1: Research and get the relevant knowledge

Investing in real estate has its set of complexities. Possessing the right information about the process of buying a duplex is essential. Find knowledge about duplexes from websites, magazines, and real estate listings.

This will help you understand the trends involving duplexes. You will also learn how long they remain in the market and the changes in their market prices. Getting facts about how to get duplexes and analyzing deals will aid you in finding a great deal.

#2: Line up your finances

Outline a plan on how you’re going to pay for your duplex. There are a few good finance options to choose from. Research on each of them and select one that suits your goals and strategy. You can use any of the following financing strategies:

  1. Cash

This is the first and best option. Buying a duplex using cash is only possible if you have the money. But, most people don’t have the financial ability to buy using cash. The suitable option becomes a loan.

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  1. Conventional loans

These are typical loans that are available in any bank or credit union. It is a stable option because it has fixed and low-interest rates. Yet, it requires a down payment of 20%.

For a conventional loan, choosing a lender is an important aspect. Select a lender who deals with rental property loans. Also, your credit score and financial history will help you qualify for the loan. . With a good credit score, you will get better interest rates.

  1. Federal housing administration loans

Through the FHA, Americans get help to own homes. The program allows banks and other lenders to give them low down payment loans.  With an FHA loan, a down payment of 3.5% is required.  But, you will incur extra costs like mortgage insurance and live in one of the units for at least one year.

  1. VA loans

These are loans issued to U.S veterans, military service members, and their spouses. The advantage of getting a VA loan is there is no down payment. You don’t need private mortgage insurance. Also, a good credit score is not a factor.

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#3: Engage a real estate agent

A real estate agent is a crucial partner for a successful and worry-free home buying experience. They have deep knowledge and information about houses in a specific neighborhood.

With their expertise, they will walk you through the whole buying process. They will make sure you have the house of your choice by making an appropriate offer. The real estate agent fee should be the least of your worries. They are usually compensated from the commission paid by the seller.

Choose a real agent who has experience in dealing with new investors. One with broad knowledge about duplexes, patient, and quick to answer questions.

#4: Define your search

Visualize the kind of duplex you want to buy. List your preferences. With a specific criterion in mind, getting a duplex to invest in becomes easy. Here are some factors to consider:

  1. The amount of money you are willing and able to spend.
  2. Where you want to invest. Whether you have a target locality or market.
  3. The condition of the house you want to buy. If you want a ready property to move in or a distressed one for you to fix.

#5: Hunt for a house

Duplexes are few in the market and so they tend to sell very well along with triplex investment property. Those that are usually unsold are either highly-priced or are in a bad state.

To get a good duplex, connect with other real estate investors. This is through attending meetings organized by investor groups. You have a good chance of getting a seller based on your desires.

You can also browse the list of potential properties provided by your real estate agent. In the process keep in mind your priorities.

Apart from MLS, you can use other creative methods for finding properties. These methods include: driving for dollars, craigslist and direct mail.

It is advisable to visit several properties. For easy comparisons take notes, pictures, and videos. Be keen to check on the plumbing and electricity systems. Check the neighborhood and scrutinize maintenance, street traffic, and social amenities.

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#6: Analyze the deal

A duplex deal can look very appealing. You need an investment property analysis to be sure how good the deal is.

Examine the duplex as a rental property whether you live will there or not. The scrutinizing entails calculating your expected returns.

The difference between your expected incomes and expenses is your expected profit.

This simple calculation will give you a clear picture of how profitable your duplex will be. If you don’t have the relevant math skills, use a rental property calculator.

#7: Make an offer

Take your time to choose the best property as per your criterion. Once satisfied it is the right property it is time to make an offer. With the help of your real estate agent, negotiate a good offer.

Remain to your calculations. Pay the right value for the property. The price should be in comparison to the value of other properties in the neighborhood.

#8: Do a home inspection

After the seller accepts your offer, the property is now ready for inspection. Hire a professional home inspector to check for any structural damage. If you observe significant material damage, you can renegotiate or withdraw the offer.

#9: Close the deal and rent the units out

A real estate attorney will make this last step a smooth transition. Sign all the required paperwork including loan documents. Your real estate attorney will guide and help you do the paperwork legally.

The loan matures in a few days after the submission of the required documents. The seller confirms receipt of the money. You gain ownership of the property.

Hurray! You can now move in or rent out your property.

Final thoughts on Buying a Duplex

Investing in a duplex is rewarding and profitable if you are ambitious. It will help you gain experience in real estate investing. In the process, your portfolio will grow. Get the necessary information about duplexes. Follow the right procedure to buy a duplex and enjoy your new journey in real estate investing.

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