How to Buy a Duplex

Posted by Hannah Lapin on May 25, 2023 2:57:50 PM

How to Buy a Duplex-min

Duplex owners have a unique opportunity to make double the rental income on only one mortgage payment. Also, investors often buy a duplex and live in one unit. For the purposes of this article, we will not discuss owner-occupied duplexes. We will only discuss duplex investing where both units are rented out.

When done properly, buying a duplex can generate healthy cash flow. However, duplex owners will tell you this is by no means a passive income source, at least at first. Buying a duplex requires significant research, due diligence, and capital. In this post, let's take a closer look at the process, the pros and cons, and some other key considerations.


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What is a Duplex?

A good starting point is defining the term duplex. Put simply, a duplex is a multi-family home with two units that have separate entrances on one plot of land. What is really interesting about buying a duplex is that any multi-family property with two to four units is considered single-family residential

So even though a duplex has two units, it is still considered a single-family residential property. Let's take a closer look at some of the pros and cons of this investment strategy.


Pros and Cons of Buying a Duplex

Before buying a duplex, it is essential to weigh the pros and cons.

Beige Clean Entrepreneurship Pros and Cons Table Infographic Graph (1)

Pros of Duplex Real Estate Investing

Double the rental income: Real estate investors can purchase a duplex on one loan with one monthly payment, yet earn rental income on two units.

Tax benefits: Rental properties have tax advantages including deductions on interest, landlord insurance, marketing expenses, and more.

Management ease: Manage two rental properties at one location.

Cons of Duplex Real Estate Investing

Double the risk: There is double the chance of vacancy and lack of help in paying your mortgage. That being said, having one unit occupied and one unit vacant is better than a standalone vacancy.

More expensive financing: Often real estate investors will have to pay higher interest rates and have a higher down payment to finance a rental property. We'll get into more detail later.

Stringent requirements: A conventional loan or government backed loan through the Federal Housing Administration is extremely difficult to qualify for if you are purchasing a rental property. We'll get into that more later.


How to Buy a Duplex Walkthrough

If you've decided that buying a duplex is a good move for you, here are some key steps to follow. Keep in mind, this is a rough guide, and you should always consult your counsel before moving forward with any real estate investments.

Define Your Goals and Budget

Before buying a duplex, it's important to define your goals and establish a budget. Run a complete financial analysis to determine your potential rental income, monthly expenses, closing costs, and down payment.

Don't forget about potential maintenance and repairs, and keep in mind that multi-family housing investments require a bigger down payment than an owner occupant property.

Research Your Identified Housing Market

So much of real estate investing comes down to location. Conduct thorough research on the housing market in your desired location. Look for areas with low vacancy rates, strong rental demand, and potential for property appreciation.

Consider factors like neighborhood amenities, proximity to schools and public transportation, and future development plans. Real estate websites, local market reports, and working with a knowledgeable real estate agent can provide valuable insights.

Find a Lender

Few investors are able to finance an investment property on their own. This is particularly true for multifamily properties, which are typically much more expensive than single-family homes. At the same time, many real estate investors find that loans structured for single-family homes don’t meet their needs, as their qualification requirements may be too strict. 

As such, you’ll need to seek out a mortgage lender with experience financing investment properties who will be able to guide you to the loan option that’s right for you. We’ll discuss more about financing in real estate investing further on in this article. 

Engage an Investor-Friendly Real Estate Agent

Collaborating with experienced real estate agents who specialize in investment properties is highly beneficial. Buying investment properties is much different than the process of buying a primary residence, so you need an experienced agent who can guide you through how to buy a duplex. 

With their assistance, you can identify suitable duplexes, negotiate offers, and navigate the entire multifamily housing buying process without a hitch. Look for agents with a strong track record, local market knowledge, and expertise in multifamily homes.


Find a Rental Property to Purchase

When selecting a duplex, evaluate key factors such as the property's condition, cash flow potential, and location. Conduct thorough inspections to identify any potential issues or needed repairs. 

A professional home inspector could save you in the long run. Review historical rental income and expenses to assess the property's financial viability. Familiarize yourself with local regulations and zoning laws that may affect property use.

Make an Offer

Once you've found the ideal duplex, it's time to make an offer. Your real estate agent can help you determine an appropriate offer price based on market analysis and property condition.

Prepare to negotiate with the seller, considering factors such as repairs, closing costs, down payment and contingencies. Stay flexible but ensure your offer aligns with your financial goals and the rental property will bring in cash flow.


Important Questions to Ask When Buying a Duplex

The next critical step in how to buy a duplex is performing due diligence, ensuring that you’re getting a great investment. You’ll want to analyze every aspect of the property and ask yourself some hard questions to ensure that it’s going to be a profitable choice. Do your research, using these inquiries to guide you.

1. Is the Duplex Prone to Natural Disasters?

Many duplex owners focus almost entirely on the property without considering the environmental factors that may put their investment at risk. This exposes them to unnecessary danger and enormous losses if something happens.

Every area of the world is prone to different natural disasters, whether that is flooding in coastal Florida or mudslides in California. Every real estate investor should familiarize themselves with their area's most common natural occurrences.

Websites like Risk Factor can prove a great asset here — you can plug in a property and get a report that tells you the likelihood of several different types of natural disasters, including flooding, wildfires, excessive heat, and wind-related damage.

With this in mind, you can decide whether the danger is more serious than you’re willing to accept. If you decide to go ahead, you can begin to shop for insurance that will cover at least some or all of the cost of repairs.

2. Are There Any Major Renovations?

When you buy a duplex, you want to ensure you have to put in as little money as possible on repairs. Taking a look at home improvement history can tell you how long it has been since there were major updates to things like the roof, windows, HVAC units, and plumbing.

Each of these home elements has a natural lifespan. For example, windows are generally only good for 15 to 30 years, and, depending on the material, roofs last between 20 and 30 years. If it’s been a while since these were replaced, you may have to take care of them, which would significantly reduce your rental income.

3. Are There Any Safety Hazards?

Every real estate investor should conduct a home inspection before closing on the sale to ensure that there are no major issues lurking in the house. This will give you a clear idea as to whether the property needs such extensive repairs that it won’t be profitable, which will let you back out of the deal before you lose thousands of dollars.

Common red flags that may show up on a home inspection include:

  • Termite damage
  • Water damage
  • Mold infestations
  • Foundation issues
  • Sewer issues
  • Faulty wiring
  • Roof damage
  • Drainage and plumbing problems


    If you still want to go through with the sale after identifying any of these problems, you can often negotiate to make the seller pay for the cost of repairs. 

4. What’s Included in the Sale?

Just as with a single-family home, you need to ask what appliances and installations will be staying with the property and if they are included in the sales price.

High-end appliances like washing machines and dishwashers can cost thousands of dollars, but they are also major attractants to potential tenants, so you’ll want to negotiate these into the deal if possible. Many times, sellers will let you pay a discounted sales price on the appliances and wrap them up into the overall cost. 

5. How Long Has It Been for Sale?

Lastly, consider how long the property has been on sale in relation to comparable rental properties. If it’s been on the market for at least a year where other duplexes have sold in half that time, it may mean unforeseen issues have made other investors shy away.

If you conduct your due diligence and find that this investment property has potential, you can use the extended time on the market as a negotiation point, bringing down the price significantly.


What to Keep in Mind When Managing a Duplex

Now that you've added a duplex to your real estate portfolio, it's time to talk about management duties.

Property Management and Rental Income

Once you've closed on the duplex, establish a comprehensive property management plan. Determine whether you will self-manage or hire a property manager and whether you want to find your own tenants or hire a real estate agent. Screen and select reliable tenants, establish lease agreements, and maintain regular communication.

Other property management duties include collecting rent and overseeing repairs. Regularly review the rental market to ensure your rental rates remain competitive and maximize your income potential.

Ongoing Maintenance and Monitoring

As a duplex owner, ongoing maintenance and monitoring are essential for the long-term success of your investment. Set aside funds for repairs, upgrades, and routine maintenance. Conduct periodic inspections to address any issues promptly.

Mortgage Insurance and Property Taxes

Landlord insurance is different than standard homeowner's insurance, so make sure you have the proper coverage for multi-family housing. Also consider fighting your property taxes annually to lower your mortgage payments.

Diligent Records

Document all income and expenses related to your rental property. For expenses, include mortgage payments, repairs, advertising costs, mileage, etc. Also document rental income and security deposits.


How to Finance a Duplex

When buying a duplex, you have three loan options: a conventional loan, an FHA loan, or an investment loan. Each has benefits and drawbacks, including documentation requirements, down payment requirements, and loan limits. 

Conventional Loan

Conventional loans are similar to one you would get for a single-family home at a local bank, with many of the same requirements. You’ll need to provide financial documentation like pay stubs, tax returns, bank statements, and your credit history.

Usually, the minimum down payment is 15% for a duplex, but it may be significantly more than this, depending on your credit profile.

Many conventional lenders, such as banks and credit unions, will issue loans for duplexes, though these loans may have stricter credit scores than loans for single-family houses. Expect to have a score of at least 660 if you want a great rate. 

FHA Loan

FHA loans are government-backed loans, similar to VA loans. With these, the Federal Housing Administration will pay the lender back if you default, which makes them more willing to lend to riskier borrowers. They’re available from most banks or credit unions.

For the FHA loan program or a VA loan, you need to have detailed financial documentation, as you would with a conventional loan, including credit history, tax returns, bank statements, and pay stubs.

One of the main reasons that people may choose FHA loans is because they require a very low down payment — 3.5% if you have a credit score of 580 or more, or just 10% if you have a score between 500 and 579. For VA loans, you don’t need a down payment at all.

However, the catch is you need to use the duplex as your primary residence for at least a year. This means that for the first year, you have to live in one side and only rent out the other half.


DSCR loans are specialized products made for investment property, especially multifamily property. Many investors find success with DSCR loan lenders like Visio because we recognize that investment property works differently than a single-family home.

Therefore, we have developed metrics that better reflect what commercial real estate is intended to do — make money.

Instead of requesting exhaustive financial documentation, lenders like Visio will qualify the mortgage on projected rental income using the debt service coverage ratio, which divides the rental income by the monthly mortgage payment.

This streamlines the process and makes it much easier to qualify, especially for those who have unique income streams, like self-employed borrowers.

It is important to note that DSCR loans tend to require a larger down payment than FHA or conventional loans. The highest loan-to-value ratio is generally 80%, meaning that you have to put 20% down. Interest rates also tend to be slightly higher, as this investment loan type is riskier loans for the lender.

However, there are plenty of benefits to DSCR loans, including the ability to roll more properties into the same mortgage and higher loan limits, typically up to $2 million. Seasoned investors tend to prefer DSCR loans because of the ease of qualification and the ability to quickly grow their portfolio without juggling multiple loans.



Q: Is owning a duplex profitable?

A: Yes, a duplex can be very profitable. Firstly, you’ll get more income than you would with a single-family home because there are two units, so you’re essentially getting twice the rent from the same location. You’ll also still be able to generate income even if one unit remains vacant.

Many find success with “house hacking,” where they live on one side and rent the other half out. This essentially provides you with both housing and an income stream that pays for your mortgage.

As it’s only one building, there are fewer maintenance costs than there would be if you had two separate properties. It’s cheaper to get a mortgage loan for a duplex than to buy two properties because this way, you’ll only be paying the mortgage interest once. You can also enjoy certain tax benefits, and if you choose to live on one side, you can also get a government-backed loan. 

Q: What credit score do I need to buy a duplex?

A: For conventional lenders, you need at least a 620 score as the bare minimum. However, for the best rates, try to have a 680 score or higher. DSCR loans generally need at least a 680 score.

If you have a lower score than this, you may still be able to qualify through some loan programs, including an FHA loan, VA loan, or USDA loan. These generally accept as low as 500, though you will need a higher down payment.

Q: What are the two types of duplexes?

A: The two types are side-by-side and stacked (also known as “one up, one down”).

With a side-by-side, the two units sit right next to each other and share an adjoining wall, typically with two separate entrances. It’s common to put either the garage or the entrances on the adjoining wall so as to reduce noise transfer. They are usually mirror images of each other, and they may be one or two stories.

Stacked duplexes are just as it sounds — one unit on one floor, one unit on the second floor. The second-floor unit will have a separate entryway with a staircase, usually to one side. As in apartments, the main noise transfer is through the floors, making well-insulated flooring a must for tenant satisfaction. 

Q: Is buying a duplex different from buying a single-family house? 

A: From a mortgage loan aspect, buying duplexes isn’t much different than single-family homes. In terms of your credit score and down payment, loans for duplexes and single-family housing have about the same requirements.

If you want government-backed loans, you need to use half of the duplex as your primary home for at least one year, just as you would for a single-unit property.

However, there are some key differences. Firstly, you get tax breaks for multifamily housing that aren’t available for single units, which you’ll need to investigate to ensure you’re getting all the benefits you’re entitled to.

The second difference is that if you’re going to rent out one or both sides, you need both landlord and homeowners insurance to protect your interests. Lastly, duplexes are a bit rarer, meaning you’ll probably spend longer hunting for the perfect property. 


The Bottom Line

Buying a duplex can provide financial stability and wealth-building opportunities. Remember to define your goals, conduct thorough research, secure appropriate financing, and work with experienced professionals throughout the process.

With careful planning and diligent management, your duplex investment can generate consistent rental income and potentially appreciate in value over time. Don't forget to consult your counsel before purchasing any rental property or real estate investment.

If you’re ready to get started earning rental income, get in touch with Visio Lending and learn about our convenient rental property loans. We offer competitive rates, flexible loan terms, and a seamless application process that gets you approved fast.


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