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Buying a Duplex, Living in One Unit, and Renting out the Other

Investing in real estate is always a smart move. But if you listen to some financial experts and businessmen, anything that does not generate income is a liability. So that means your home is a liability and not an asset because you are spending on it and not earning from it. Even if you pay off your home mortgage, many financial consultants would point to it as a liability. So, how can you turn your real estate investment into an asset? You need to earn from it.

But to do that, you have to put it up for rent or sale, right? Where would you live? If you buy another property for you to live in, you’re basically replacing one liability with another. That’s why you have to consider investing in a duplex. You can get an FHA multifamily loan to finance this investment, as long as you prove to the lender that you are going to rent out one unit of the duplex. You can get approved for a loan for up to four units–one unit is where you will live in while the other three are for rent. That is permitted under the rules.

Buying a Duplex

FHA loans are less strict when it comes to multifamily home loans. These types of loans have fewer requirements and low closing costs. It’s a better deal compared to single-family investment properties. In detached homes, you have to put down at least 20% of the total cost. The rules are a bit different in multifamily homes. You can make a 3.5% down payment on a duplex and get the loan approval.

A duplex also increases your borrowing potential. You can count a portion of your future rental income into your own income to qualify for a mortgage. The final loan amount can get you a nicer duplex or one that’s in a better neighborhood.

Living in a Duplex

People have a lot of misconceptions about a duplex type home. They believe that living in a duplex lacks privacy because you are sharing a home with another family. The truth is that people who live in apartment buildings have less privacy than those living in duplexes.

The only thing that you have to share in a duplex is a wall and a laundry room in the basement. You are basically living in separate parts of one house. You can still enjoy the privacy of a single-family home. Duplexes are more spacious, too, which means you don’t have to worry about your upstairs, downstairs, and next-door neighbors hearing your every step.

And just in case you need a can of peeled tomatoes, wouldn’t it be nice to knock on a wall and have that neighbor appear with a can on your doorstep? Duplexes build a sense of community without the crowd that’s usually associated with an apartment unit. If you’re lucky, you’ll be friends with the family in the other unit for a long time.

Renting out a Duplex Unit

Real estate investors like Jason Reed, who runs The Duplex Doctors, believe that investing in a duplex is a great way to set yourself up for financial success. While you still have to pay off the mortgage, you can do so with the help of the rental income from the duplex. That will allow you to save more for retirement or to reinvest the money.

You can also use the rental income to cover your living expenses, as well as allow you to pursue some of your other interests. Are you planning to leave your regular day job and start a business? The rental income can help you become self-sufficient enough to wait for the business to take off.

Of course, you should never underestimate the tax cuts that renting out a unit can give you. Renting out a duplex unit can count as a business, right? You can write off repair expenses to the rental unit, as well as the maintenance work done on common areas like the yard, basement, and laundry room. You’ll be paying less in taxes because as a landlord, you have access to tax breaks and cuts that aim to help businesses like yours grow.

Living in and renting out a duplex unit doesn’t have to be forever. You can use this as a starting point for your real estate investments. Save some cash from the rental income, so you can begin looking for more real estate investment opportunities. In the future, you can move out of the duplex, rent out the two units, and move to a detached home.

About the author

Paul Petersen

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