The Real Cost of Buying a Duplex
If you’ve read anything about buying a duplex, you’ve probably come across the idea that duplexes allow you to rent out one unit and live in the other. This enables you to use rental income as a way to reduce or even eliminate your mortgage payment.
In this article, we’ll show you the cost of buying a duplex, flipping a duplex, and even building a duplex.
If you’re like a lot of people, you’ve probably already made the assumption that buying a duplex is for the already-wealthy. Some people, even realtors, think that a duplex costs the same as buying two small houses.
It makes sense, right? Two kitchens, two sets of utilities (sometimes), double the bedrooms, double the bathrooms…
Thankfully, duplexes don’t sell for twice the price of an average house. In Minneapolis – Saint Paul, the area that we service, many would be single-family homeowners are finding that there are tons of duplexes within their price range.
In fact, there are duplexes for just about any budget. There are million dollar duplexes and $100,000 duplexes – all within the borders of two major cities, Minneapolis and Saint Paul!
Here’s another important fact:
Buying a duplex doesn’t have to be any more complicated than buying a single-family home. The financing options aren’t all that different. It’s possible to finance a duplex with a conventional or VA loan. In fact, first-time homebuyers even get access to financing options like FHA.
The Cost of Building a Duplex
There’s a reason most duplexes are half a century old or more – they’re not as easy to build as they are to buy!
That said, there are still clever ways to make use of the duplex concept when building. If you work with a custom builder, you’ll have the chance to set up the perfect layout for your lifestyle. Perhaps you want to live in a beautiful home and have a little help subsidizing your mortgage – in that case, you could set up a home with a large unit and a smaller utility unit.
Maybe you’re even thinking of living in the utility unit and renting out the larger part of the home.
Whatever the case may be, know that a general estimate for building a duplex would put you at about $95 – $125 per square foot.
That might seem like a pretty wide range, but it would be hard to give a more specific estimate without having more information on the kind of duplex you plan to build.
The Cost of Flipping a Duplex
Thinking about flipping a duplex? The key is to know your limit. If you’re flipping a property for the first time, you might want to consider starting small. Your best bet is to take on a project that requires mostly cosmetic changes.
While you might not see as much profit as you would in a complete overhaul, you’ll be glad to have taken the conservative route if it was your first attempt.
The great thing about flipping duplexes is that you’re not forced to sell to re-coup your investment in the end. In fact, many duplex flippers keep the property as buy and hold real estate – they rent it out to tenants rather than listing it.
But what does flipping a duplex really cost?
That will vary tremendously. The key is to know what you’re planning to do with the property before buying it and also to have a plan of action for what you’ll do if something goes very wrong.
How Duplexes Allow You to Qualify for More
If you don’t catch anything else from this article, make sure you get this:
If you have qualified for a single-family home, it’s very likely that you can qualify for even more with a duplex. Tons of lenders make use of a program that allows them to consider up to 75% of the projected rental income a property will generate as stated income when you qualify.
That means that an owner-occupier looking to buy a duplex that rents out for $1000 has the opportunity to have another $750/month considered as their income.
Something like this can make all the difference! You could find yourself finally reaching the budget range that enables you to be in great neighborhoods, bigger spaces, and more.
So if you’re looking at duplexes and thinking, “I bet that’s way out of my price range,” then you could be pleasantly surprised to find that duplexes are not viewed solely as a liability, but also as an investment.
Regular people can actually afford duplexes!
What About Down Payments?
In the investment space, people talk about down payments a lot. In the eyes of some, massive down payments are what make investment properties so unaffordable.
“Sure, I can qualify for more, but how does that help me in paying a 20% down payment?”
While it’s often the case that a second property requires you to have a 20% down payment, it’s incorrect to say that all duplexes need to have such a large down payment associated with a purchase.
By utilizing tools like FHA financing and even some conventional loans, you could pay a down payment as low as 3.5 – 5%.
Because owner-occupied duplexes ride a fine line between “investment property” and “home.” If you’re actually planning on living in your duplex (for at least a year, in most cases) it’s very possible that more financing options will open up to you so that you’re able to make an investment you couldn’t otherwise afford.
That said, if you’re not planning to owner-occupy, it is likely that you’ll have to accumulate the cash to do 20% down. In cases like this, duplexes are viewed in the way that most other investment properties are.
If you’re reading this and are realizing for the first time that living (or investing) in a duplex is a possibility, then we’re happy that you found us. If you happen to be in the Minneapolis – St. Paul area, then we’d love to talk more about how we can partner with you in this process as duplex specialists/real estate agents.
If you’re not in Minneapolis, we’re glad you’re here too – we’d love for you to check out some of the other posts we have here on our blog. All of our posts are focused on informing potential duplex investors so that they can find and take advantage of a great opportunity.
Also published on Medium.