A duplex is a type of residential property that consists of two separate homes that share a common wall or floor. The homes can be arranged side by side, like townhouses or condos, or stacked on top of each other, like apartments. A duplex can have one or two land titles and be owned and sold together or separately. A duplex is also a term for a two-way communication system.
A duplex is different from a twin home, which looks like a duplex but has two individual homes on two individual lots that are connected by a wall. A duplex is also different from a multifamily apartment, which has multiple units within a building that are usually owned by a property management company.
A duplex can be a good option for people who want to earn rental income, keep family members close, enjoy tax deductions, or have more security. However, a duplex can also have some drawbacks, such as higher costs, more maintenance, less privacy, and potential conflicts with tenants or neighbors.
A duplex can come in various styles, sizes, layouts, and finishes. The average duplex in the U.S. is around 900 square feet. Duplexes are more common in college towns and densely populated areas like large cities. In some big cities like New York and Chicago, a duplex apartment can refer to a single-family apartment that has rooms on two floors connected by an internal staircase or elevator.
If you are interested in buying or renting a duplex, you should consider the pros and cons of living in one and compare it with other types of homes. You should also research the local market, inspect the property carefully, and consult with a real estate professional before making a decision.
How to buy a duplex
If you are interested in buying a duplex, you should follow these steps:
- Choose your goal and define your vision. The first step in buying a duplex is to decide why you want to buy one and what kind of duplex you are looking for. Do you want to live in one unit and rent out the other, or rent out both units? Do you want a side-by-side or a stacked duplex? Do you want a new or an old duplex? Do you want a duplex in a specific location or neighborhood? These questions will help you narrow down your options and focus on the duplexes that suit your needs and preferences.
- Gain understanding and educate yourself. The second step in buying a duplex is to learn as much as you can about the duplex market, the financing options, the legal aspects, and the potential risks and rewards of owning a duplex. You can read books, blogs, articles, podcasts, and forums about duplex investing. You can also talk to other duplex owners, real estate agents, lenders, lawyers, and accountants who have experience with duplexes. The more you know, the more confident and prepared you will be to make an informed decision.
- Understand owner-occupied vs. investment financing. The third step in buying a duplex is to understand the difference between owner-occupied and investment financing. Owner-occupied financing means that you plan to live in one unit of the duplex and rent out the other. This type of financing allows you to qualify for government-backed loans that offer lower interest rates, lower down payments, and easier approval than conventional loans. However, you will have to meet certain requirements, such as living in the property for at least one year and having good credit and income. Investment financing means that you plan to rent out both units of the duplex and not live in it. This type of financing requires you to get a conventional loan that has higher interest rates, higher down payments, and stricter qualifications than government-backed loans. However, you will have more flexibility and freedom to choose any property and any tenant.
- How to finance a duplex or triplex. The fourth step in buying a duplex is to find the best financing option for your situation. Depending on whether you choose owner-occupied or investment financing, you will have different loan types and requirements to consider. Here are some of the most common loan options for buying a duplex:
- FHA loan: This is a government-backed loan that allows you to buy a duplex with as little as 3.5% down payment and a credit score of 580 or higher. You will have to pay mortgage insurance premiums (MIP) for the life of the loan and live in one unit of the duplex for at least one year.
- VA loan: This is a government-backed loan that allows eligible veterans, service members, and spouses to buy a duplex with no down payment and no mortgage insurance. You will have to pay a VA funding fee and live in one unit of the duplex for at least one year.
- USDA loan: This is a government-backed loan that allows low- to moderate-income borrowers to buy a duplex in rural areas with no down payment and low interest rates. You will have to pay an upfront guarantee fee and an annual fee and live in one unit of the duplex for at least one year.
- Conventional loan: This is a loan that is not backed by the government but by private lenders. You will need at least 15% down payment and a credit score of 620 or higher to buy a duplex with this type of loan. You will also have to pay private mortgage insurance (PMI) until your loan-to-value ratio (LTV) reaches 80%. You can choose to live in or rent out both units of the duplex.
- Hard money loan: This is a short-term loan that is based on the value of the property rather than your credit or income. You can use this type of loan to buy a duplex with no money down or with bad credit, but you will have to pay high interest rates, fees, and points. You will also have to repay the loan within 6 months to 5 years.
- Find a duplex for sale. The fifth step in buying a duplex is to find a suitable property that meets your criteria and budget. You can use various sources to find duplexes for sale, such as:
- Online platforms: You can use websites like Zillow, Realtor.com, BiggerPockets, or LendingTree to search for duplexes for sale by location, price, size, style, features, etc. You can also use online tools like calculators, estimators, analyzers, etc., to evaluate the potential return on investment (ROI) of each property.
- Real estate agents: You can work with a real estate agent who specializes in duplexes or multifamily properties. An agent can help you find properties that match your criteria, negotiate with sellers, handle paperwork, arrange inspections, appraisals, etc., and guide you through the entire buying process.
- Local newspapers: You can check the classified ads section of your local newspapers for listings of duplexes for sale by owners or agents.
- Driving around: You can drive around your target neighborhoods and look for signs of “For Sale” or “For Rent” on duplexes. You can also talk to local residents or landlords and ask them if they know any duplexes for sale in the area.
- Networking: You can network with other real estate investors, wholesalers, contractors, lenders, etc., who may have access to off-market deals or leads on duplexes for sale.
- Make an offer and close the deal. The final step in buying a duplex is to make an offer on the property that you want to buy and close the deal. You should do your due diligence before making an offer by inspecting the property thoroughly, reviewing financial records, verifying rental income and expenses, checking zoning laws and regulations, etc., . You should also compare similar properties in the area and determine the fair market value of the property.
Once you are ready to make an offer, you should submit it in writing along with your preapproval letter from your lender and an earnest money deposit (EMD) that shows your seriousness as a buyer. Your offer should include the price that you are willing to pay for the property as well as any contingencies that protect your interests such as financing contingency, inspection contingency appraisal contingency , etc.
The seller may accept your offer reject it , or counter it with different terms . If you reach an agreement with the seller , you should sign a purchase contract that outlines all the details of the transaction . Then , you should work with your lender , agent , lawyer , title company , etc . , to complete all the necessary steps before closing such as securing final loan approval , ordering title search , obtaining homeowners insurance , conducting final walkthrough , etc .
At closing , you will sign all the paperwork , pay any closing costs , fees , taxes , etc . , receive the keys , deed , title , etc . , and become the proud owner of a duplex . Congratulations !
