Buying a duplex as an investment property has a ton of benefits. I help investors buy a lot of duplexes as well as single family houses and there’s one question that constantly comes up.
Which is better?
Like most things in life, there’s no easy answer. And I often find myself scrambling to mash a bunch of information into a short conversation.
Buying a duplex investment can be better or less optimal than buying a single family house. They both have strengths over one another. And the ultimate answer, of course, is to have a mix of both.
But we don’t all have that luxury, especially when we’re starting out. So what’s best?
In an effort to help answer that for you I’m going to dive into some of the reasons you might consider buying a duplex over a single family house. I am NOT going to talk about the benefits of house hacking a duplex rather than a single family house.
That’s a completely different topic.
Buying a Duplex Means Less Capex
The most obvious benefit to a duplex investment over a single family house is less capital expenditure in the long run.
A duplex has one roof.
The equivalent number of doors as single family houses and you’re now looking at two roofs.
You also have one exterior and one foundation on a duplex.
That’s all pretty darn easy to grasp and understand.
But that’s really where the capex benefits kind of stop. With a duplex you still have two kitchens and usually twice the number of bathrooms.
You also have two furnaces and water heaters in a duplex. So while the benefits to buying a duplex are nice, you aren’t realizing them as widespread as you might hope.
Still, roofs are expensive! And maintaining the exterior of a property can be pricey as well.
As a result, you can probably get away with earmarking slightly less of your gross rents to capex items when you compare a duplex investment to two single family houses.
I don’t actually do this when I run numbers for investors because I like to be conservative. But it can be easily justified.
A Duplex Is Rarely Completely Vacant
I personally own two duplexes in Detroit and I have never had either of them be fully vacant.
This is a great benefit to duplex investments over single family houses because there’s almost always some cash flow coming in each month.
If a single family home is empty it’s not producing anything until you have a new tenant in place.
But with a duplex, and one unit continuing to generate rent, it gives you some peace of mind. Hold your duplex investment long enough and that one unit might be enough to cover all of your monthly expenses!
In fact, one of my duplexes in Detroit is rented for $950/unit. My costs, including mortgage, property taxes, and insurance are under $542/mo.
Heck, with one unit empty, I could still hold back money each month for reserves and be covering all my costs.
Ya gotta love real estate!
Here’s a look at that cash flow power house:
So far, this is pretty obvious stuff. Less capex and the likelihood for one unit to be producing while one is vacant are things you’re probably familiar with.
But there are some less obvious things to consider as well. Like theft.
Less Theft With A Duplex
I have “lost” my fair share of furnaces and water heaters in Detroit. I can’t say I’ve actually counted, but I’ve likely been the victim of theft four or five times since I got started in 2019.
How many of those times has it occurred in one of my duplexes?
Zero.
And I don’t believe that to be coincidence.
When it comes to theft, whether it be in Detroit or any market, thieves are looking for easy targets.
And it’s usually people that are close to the property that are committing the crime.
They see activity (someone moving out) and take note of it. Then they stop seeing activity as it sits vacant for a bit. Then it’s a target.
But as we know, duplexes are rarely fully vacant. And while someone may see a tenant move out of a duplex, they don’t have a clue if BOTH people moved out.
Chances are, there’s still someone in the other unit. That complicates things for thieves.
The last thing they want to do is break into an occupied property. There are far easier targets out here.
Why bother?
As a result, buying a duplex will likely result in a far lesser chance of break ins and theft.
And since replacing furnaces and hot water tanks isn’t cheap, this can be significant.
If these were the only factors at play I would obviously be choosing duplex investments over single family houses all day.
But of course, there are drawbacks to duplexes as well.
Duplexes May Be Less Desirable For Tenants
If I gave you the choice to live above or below someone and share a driveway and a yard or, instead, offer you a stand-alone house with your own driveway and yard… which would you prefer?
Obviously, the house.
But which would you choose?
That depends on the price.
If the price point between living in a duplex versus a single family house isn’t that significant you’re going to choose the single family house in many cases.
That’s the reality in Detroit.
The city is extremely single family housing stock heavy. That means there are a lot of single family homes.
As a result, it doesn’t cost all that much more to rent a single family home over a comparable unit in a duplex.
This means it will likely take you a bit longer finding a strong tenant for your duplex units. This is an important point that many folks miss.
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How To Still Be Competitive When Buying A Duplex
If you have a product that is less desirable (duplex units) than another abundant product (single family homes) you’re going to need to decide how you can make your product more attractive.
That could be the price. That could be the finishes (having a nicer property). Or it could be location.
A friend and I just finished up a duplex in Russell Woods. We gutted the home and did a great job on the remodel, opening up the kitchen and putting higher-end finishes in the units compared to what the area normally sees.
Russell Woods also happens to be a pretty nice spot. So we have what is generally a lesser desirable product (duplex units) in a desirable location with attractive finishes.
We’re winning.
And the market told us that. We rented both units for $1,200 each, nicely above what a typical unit in that area would rent for.
All this to say you must understand your market.
If you have a duplex in San Francisco where there’s very little single family housing stock… it’s just not going to be a big issue.
But in a market where there’s a bunch of single family houses available you need to be a bit more strategic.
Picking up duplexes in mediocre areas and expecting to outperform someone picking up single family homes in similar areas isn’t going to drive the desired results.
If you don’t know what those areas are you should be taking a break from the TV every night and hunkering down with me.
My Detroit RE Playbook will show you where you should be investing in Detroit and how to evaluate properties like a pro.
Duplexes Are Harder To Sell
Eventually, we will want to sell our real estate holdings.
Knowing this, I always think about resale value.
Perhaps one of the best things about single family homes is their ability to appeal to a homeowner.
This is true in a general sense as well as emotionally.
When a homebuyer falls in love with a property there is almost no price they’re unwilling to pay for it.
It’s rare for someone to feel this way about a duplex. In fact, your buyer pool for a duplex is going to be much more limited because most people interested in purchasing it are looking at it from an investment perspective.
They either have zero plans to live in it or they’ll be house hacking. Either way, the numbers are an important part of the purchasing decision.
For a homeowner looking at single family houses, the numbers need to make sense to the extent that they can still afford it.
That’s it. That’s the baseline.
For an investor looking at a duplex they need to make sure not only the purchase price makes sense but also rents, any capex or repairs, taxes, insurance, cash-on-cash returns, etc.
So not only is your buyer pool severely smaller with a duplex but your buyer is going to be far more discerning.
In short, your liquidity with a duplex just isn’t what it is with a single family house.
When it comes to buying a duplex this isn’t the biggest drawback. In fact, it’s not a huge factor for me personally.
But you’d be a fool not to recognize it and plan for it. It’s very similar to our last drawback about desirability. Understand it and make sure you mitigate it as much as possible.
Considering we are likely planning to hold our duplex investments for many years, the best way to de-risk future liquidity is by making sure we’re buying in strong areas.
Purchasing duplexes in D Class areas will set you up for failure in the short and long term. But positioning yourself in strong areas will greatly help you attract demand from both tenants and future buyers
A Duplex Rehab Is More Involved
If you know me, you know I like to buy off-market deals, do some cosmetic updates, and then refinancing out. I also help others do the same.
This allows us to force some equity rather than paying market price. Forcing equity means we’re able to do better than just slapping 25% down (or usually 30% in the case of duplexes).
If you do this and keep at it you will grossly outperform someone plucking MLS deals. It’s the strategy I leveraged to rapidly build my Detroit rental portfolio.
But here’s the thing when it comes to duplexes and this strategy…
You’re basically doing two rehabs.
Those capex items you aren’t saving on with a duplex? You know, the two kitchens, extra bathrooms, etc.?
That all needs to be done.
And, as expected, it’s going to take longer than if you were just doing this with a single family home.
Some folks get tempted to focus on one unit, rent it, and then tackle the next.
It sounds great in theory but it’s an absolute pain in practice. It’s not efficient to have a flooring person in twice, a painter in twice, a plumber… you get the idea.
I’ve seen this actually cost people time and drag the rehab out longer? Why?
Because tradespeople can be flaky. And rather than pinning someone down to do their job once you’re now doubling the number of instances where they’re able to disappoint you.
The reality is a duplex renovation is going to take you longer. Accept it and know it going into things.
It’s for this reason we often caution first-time investors about starting off with a duplex. I’d much rather see someone tackle a quicker and easier single family home, have a great experience, understand the process, and grow from there.
Buying A Duplex Is A Nuanced Decision
When it comes to buying a duplex over a single family house there is no right answer. Hopefully you see that by now.
But I’m certain that some of these drawbacks and benefits speak more to you than others.
For instance, if you’re an out-of-state investor and concerned about theft and break ins, a duplex probably makes a lot more sense to you than a single family home.
You’re simply going to value the security a duplex provides more than other drawbacks.
But if you want to get up and running as quickly as possible and find a strong tenant with ease, a single family house might be your best bet.
Again, there is no wrong answer and everyone is going to value something different and with varying degrees.
My goal is to simply tell you how I weigh the two and help you make a decision. I currently own 12-doors in Detroit. Eight of those are single family houses and the other four doors are two duplexes.
It was definitely easier and less intimidating for me to get started with single family houses, but I’m finding myself more attracted to duplexes now.
As investors we change and evolve as we grow and reach our goals. What’s right or makes sense for me might be the opposite for you.
Look at buying a duplex (or not) objectively and decide what fits best for you at this point in time.
What about you? Are you planning on buying a duplex first?
Is there something in all this I missed that might sway your decision? Let me know in the comments!