Why You Should Consider Flipping a Duplex in Minneapolis or Saint Paul
House flipping is an interesting thing. For many, it sounds like a dream to take on the role of Chip and Joanna Gaines, fixing up places left and right, beautifying neighborhoods, and making immense profits.
However, a little research often shows that house flipping isn’t always as glamorous as Chip and Jo make it look. A lot of first-time house flippers end up sweating it out as they come closer to completing their project, and they realize that their profit margins are getting thinner every day. In many cases, they end up losing money.
However, there is a better approach to flipping in Minnesota that isn’t quite as well known. If done right, this kind of flipping can often produce the best results. We’re talking, of course, about duplex flipping.
Flipping any kind of property involves some risk. In many cases, you don’t know what you’re getting when you sign up to flip, and there’s often a major project involved that forces your budget to increase.
Flipping any kind of property involves some risk.
However, with duplexes, there is much more room for profit margin. Why? Well, to make a profit on a single family home, you have to sell it. Single family homes rarely rent out for much more than the mortgage payment costs, and even if they do, the profit margin is tight enough that necessary repairs may cause the owner to lose money on the deal. Because of this, single family home flippers are forced to put their properties on the market and hope they sell. If the process is slow and takes a lot of time, monthly payments will begin to eat into their profits.
Single family home flippers are forced to put their properties on the market and hope they sell.
With duplexes, on the other hand, it’s possible to make a profit without selling the property. In some cases, duplex flippers intentionally hold on to the property for a year or more to rent it out before they even try to sell. In cases like these, they’re often able to increase their profit margins on the flip by generating rental income and an income from selling later on.
In this way, many duplexes could rightfully be considered as a safer alternative to flipping single family homes since most single family homes do not generate enough rental income to make a significant profit – they must be sold to generate any sizable kind of income.
A common misconception about duplex purchases is that they’re expensive and complicated. However, duplexes can often be purchased in almost the same exact way that single family homes are purchased. First-time home buyers that intend to owner-occupy for at least a year are even eligible for FHA loans that require just 3.5% down.
But even if you’re not intending to owner-occupy, there are some powerful financial tools available to help you qualify. For instance, mortgage lenders are able to consider up to 75% of the property’s anticipated rental payment to help you qualify for a duplex. In essence, this means that you’re able to buy a bigger or better duplex than you could otherwise afford. If the property is expected to rent out for $1,000, you could have an additional $750 counted as income when you’re buying. Make sure you check with your mortgage lender to ensure that they will offer you this loan.
Mortgage lenders are able to consider up to 75% of the property’s anticipated rental payment to help you qualify for a duplex.
For potential flippers, there’s another key loan type that can be utilized on duplexes – 203k loans. These loans are the most famous of all renovation loans – they allow you to finance improvements and updates and they work for duplexes in a similar way as they would for single-family homes.
If you’re looking for more information on duplexes or why they’re such a great investment opportunity, we’d love to sit down and talk about the duplex landscape in Minnesota. We’re duplex specialists, and we’d be happy to talk about what this kind of investment could look like for you. In addition to a free consultation, we’d also encourage you to read more here on our blog. For more of our thoughts on duplex renovations, take a look at this article about some simple maintenance tips to increase your duplex’s ROI.
Also published on Medium.