You can live in one side of a duplex and use the other side as a rental property, an office, or a guesthouse.
When most people think about buying their first home, three options typically come to mind: single-family home, townhouse, or condo. But there’s a fourth option to consider: a duplex home. Owning a duplex in Boston, MA, or Seattle, WA, has certain perks, like getting you into homeownership with some mortgage and tax advantages. Plus, if you rent out one side, renters can help pay that mortgage. Here’s five reasons why duplexes may be the hot new home type.
1. You get tax benefits
You might already know that you get a tax write-off when you buy a home — you can deduct the mortgage interest you pay. If you buy a duplex and live in one side, you can write off only that side. But if you rent out the other side, there are additional write-offs. “You can write off all of the costs that take place on your Schedule E form,” says David Hryck, a New York, NY, tax lawyer and personal finance expert. “These could be fees accrued to rent the place out or even manage the property. All are completely tax-deductible.” But wait … there’s more. “The same would apply to any type of repair made to the rented half of the duplex as well as the unit’s utility bill,” Hryck says. “If you share expenses such as internet with your tenant, you can also write those off.”
2. There are mortgage advantages
Mortgage lenders typically classify properties into owner occupied and non-owner occupied, and they tend to give more favorable interest rates to people buying a property they will live in. With a duplex, “A mortgage company considers the two units as one property,” says Lucas Hall, head of industry relations for Cozy.co and founder of Landlordology. “And you can qualify for a lower interest rate if you occupy one of the units.” If you plan to rent out the other side, you might also qualify for a larger mortgage. “Many lenders will allow you to include part of the potential rent into your income when qualifying for a mortgage,” says Eric Bowlin, a Massachusetts real estate investor. “This may allow you to qualify for more than you otherwise may have received.”
3. You learn the landlord business
Being a landlord is a great side business and can provide a way to earn passive income. But there’s a lot to learn, such as how landlord-tenant laws work in your state, how to customize a lease, how to make sure you actually collect rent, and how to screen potential tenants. An excellent way to get started is by buying a duplex, living on one side, and renting out the other. Why? You live close to your rental property. “You will see the place every day and see any repairs that need to be made,” says Joe Polyak, a Northern California agent. “You can keep a close watch on your tenants to make sure they aren’t doing anything illegal or destroying your home — without invading their privacy. If anything goes wrong, you are just next door.”
Before you wade into the duplex and landlord business, however, there are some numbers to consider, such as researching what rents are going for in your area. Jimmy Moncrief, a real estate investor and founder of Real Estate Finance, gives this advice: “Make sure that when buying a duplex, if only one side is rented, the rent will be able to cover the principal and interest payments as well as the insurance and taxes.” And if it seems financially doable, there’s the undeniable advantage of OPM — other people’s money.
4. It has great potential as an Airbnb
You can potentially earn more money renting the other side of your duplex through Airbnb or other vacation rental sites than you could by renting it on a traditional one-year lease. Why? Vacation rentals are for short-term stays, so you can charge more. Vacation renters will also pay more for a full apartment than they would when renting a single room in your home. And with a duplex, you can offer the best of both worlds for renters: They get a full apartment with you available when needed, just as you would be when renting out a room in your home. But you need to make sure you can use your prospective duplex. “Airbnb is case by case,” says Scott Trench, vice president of operations at BiggerPockets.com. “Some areas, like San Francisco, have a very strict set of rules, and some areas are more relaxed. You’ll need to get familiar with your local laws.”
5. A duplex gives you more options
If you don’t need to go into the office every day, a duplex could serve as the perfect work space … and you would beat all your friends when comparing commute times. You also could use the other side as a guesthouse when family or friends come to visit, which is a dream arrangement if you aren’t exactly the entertaining type. The other side of a duplex could also make a convenient place to house elderly parents who need someone checking on them daily — the parents get to remain independent, and everyone gets some privacy.