I just closed on this duplex in Washington DC, and in this video, I'm going to be
going over the pros and cons of investing in duplexes or two units. So let's jump into it.
So the first pro is that even though a duplex is kind of considered multifamily, I mean, it's
one step above single family, you can still get a residential loan.
So it's only when a property is five units or more that you need to get into commercial financing.
Pretty much every single bank will lend on a duplex because some people will
live there as a principal residence. Some people might have it as an investment property. But
you're still going to get a residential type of loan. And not only that, but if you're purchasing
a duplex with somebody currently in there, or even two people occupying both units, the bank
will actually look at that favorably because it will decrease the amount, the DTI ratios.
So if you're buying a duplex that's completely vacant, the bank is going to say, well,
you're going to have to bring X amount to the table to cover the mortgage.
But if there's people that are occupying both units or just one unit, they're going to use,
let's say it's a thousand dollars a month for each unit, they're going to use usually about 75%
of that income to help you qualify for the loan. So it's actually going to be easier to qualify
a lot of times for a two unit type of property. The second pro is that buying a duplex
triggers the law of the first deal. And you may or may not have heard this concept before. It's
from an investor, a really well known investor named Michael BlanK. He's got a great book, great
YouTube channel, definitely check him out. Who do you need to become
to become a better investor? But basically he says, if you purchase
a small multifamily of any size, even a duplex, within a few years, I believe is what he says,
you'll be financially free through apartment investing. So if you want to get started
in multifamily investing, a duplex is a great way to do. And once you purchase that duplex,
all of a sudden a four unit seems possible, a five unit, even a 10 unit seems possible.
And not only that, but because you just purchased that two unit, other investors,
other real estate agents, they might look you up in the tax records. It happened to me, actually,
this is how I found this deal. And they'll just know that you can close on multifamily,
even though it's small multifamily, and they'll start bringing you more deals. So duplexes are
a great way to get started in apartment investing and to become financially free.
The guys that own hundreds and thousands of units, most of them started with duplexes
or really small multifamily. No one just goes out there and buys a 100 unit property. I mean,
there's exceptions here and there, but for the most part, start small and build your way up.
The third pro for buying a duplex is that if you purchase the property right,
you can essentially live for free. Oh my God. Wow.
Your other unit is going to be completely covering your mortgage.
Sometimes you might even be making a little bit. And if it doesn't cover the mortgage entirely,
obviously it's going to take a huge chunk out of your payments so that you can
save up and maybe over the course of six months, 12 months, or even a year or two, you'll have
another down payment for another small multifamily property, or anything for the most part.
The fourth pro to duplexes is that it's going to be less risky than single family rental
properties. For me, from my standpoint, from being in real estate for really about 10 years now,
I would almost never purchase a single family rental property again, unless the flip potential
is there or unless it's just an amazing buy and hold opportunity. And the reason's that
if somebody stops paying or somebody moves out or whatever it is, that property is just sitting
there vacant, you're not collecting anything on it. Whereas a duplex, it's a little bit less
risky because if one person moves out, the other person theoretically is still paying their part
and covering your mortgage, or taking a good chunk out of it. So it's going to be a little bit less
risky when you get into more of the smaller multifamily versus a single family rental.
The next pro to duplexes is the Airbnb potential. So this is obviously going to vary from city
to city, but a lot of cities have regulations where if you're not living in the property, then
it's very restrictive, or sometimes it's not allowed to actually have an Airbnb there. However,
with a duplex, if you have two units and you're living in one and it's your principal residence,
a lot of times cities are much more flexible with that. So instead of putting a long term
renter into the basement unit or side unit, whatever it is, you can make that an amazing
Airbnb suite and probably get significantly more than if it was a long term renter.
Airbnb announcing new service features and new products on its platform.
Obviously there's a whole lot of things that go along with Airbnb in terms of
management and that type of thing, but your cashflow could drastically increase.
All right, so let's talk about the cons now. So the most obvious one is that because it's two
separate units, you're going to have two different groups of people or two people. So you're going to
have twice as many residents, theoretically, as a single family property, which means you could have
twice as many complaints, twice as much property management to do. That being said, though,
because everything's under one roof, it's going to be a little bit more effective for
you as a landlord, as opposed to driving to one house over there and then one house over there.
Everything's under the same roof, which is good. And as a landlord, myself personally, I like to
nip everything in the bud, so to speak. So if I even see something that could be a potential
issue, I'll try to over improve it, knowing that a potential tenant could have a problem with it,
because some tenants are going to be better than others. And that's why it's also
massively important to screen your tenants as much as possible, both financially, but also to
try to get maybe recommendations from the other landlord. Hey, this person's not a pain in the
you know what. Because you want to have a really nice property that doesn't have any issues, but
you also want to have a tenant that's not going to bring up just little things here and there.
The next con is that because you're living basically attached to somebody or on top of
somebody or below somebody, depending on how your two unit or duplex is set up, the potential for
noise is going to be there. So if you're one of those people that can't stand hearing different
things and you want your peace and quiet, a duplex might not be for you. It's not to say you're
going to get some crazy loud, noisy neighbor, but you'll probably hear them stomping around
a little bit, or making noises here and there. And if you're living in the property as your
principal residence, obviously you're the landlord and property manager. So
if you get the wrong tenant, they could be knocking on your door all the time to say,
"Hey, fix this leaky sink, fix this, fix that." So you've got to keep that in mind.
The next con to duplexes is that even though you're house [inaudible 00:06:19], and even though
it's multifamily, it is about the smallest multifamily that you can potentially get.
So I would much prefer to have obviously like a four unit or a 20 unit, or obviously
like a hundred units, as opposed to a duplex, because with a duplex, kind of like I mentioned,
if one person stops paying the rent, you're probably still okay, but that's still like half
of your rent. Whereas if you had a four unit or an eight unit and one person stopped paying the rent,
it would be much less of an issue. So it's something to keep in mind.
I mean, a lot of the top investors, they're not even going to look at a duplex
just because in terms of economies of scale, it's just not there. Because the most cashflow
you're going to get from a two unit is, let's say, $3,000 per month. Whereas if
you're looking at 20 units, 30 units, a hundred units, the numbers are just exponentially larger.
And I actually almost passed on this deal because honestly, it was almost too small for me. I was
looking for more of a minimum four units, eight units, 10 units, something in that ballpark.
However, what I liked about this deal is that if I were to completely renovate this property,
put it on the market as a two unit or even a single family house, it worked out very
well from a flip standpoint, in addition to the potential cashflow. So that's why I did the deal.
The fourth con with duplexes is that they're a little bit harder to find. So you might have to
go into areas that you're not too familiar with, or maybe a little bit outside your neighborhood.
So you might have to drive 15, 20, 30 minutes away to actually find the neighborhoods where they have
duplexes. Now, the best way to find out where all the duplexes are, and this is exactly how
I did it, I have a video below that you can watch after this video's over. It's called PropStream.
You can use PropStream. You can literally just search whatever zip code, whatever city.
And you can look up properties that are two units or four units, or just multifamily properties. And
then you can start marketing to them and you can get an idea of where they actually are located.
And then another way to find duplexes is just look in the MLS. And sometimes they're not
listed correctly. Sometimes they might be under residential. Sometimes they might be
under commercial, multifamily. So you really want to set up several different searches,
and you can just put in the keywords like two units, or you can actually search on the MLS
by two unit properties. But sometimes, like I said, they might be in residential. They might
be in different sections. So you can also have searches set up for keywords, such as two units,
duplexes, small multifamily, that type of thing. And you'll be able to see the
off market properties with PropStream, as well as the listed properties with the MLS.
The next con is that comparable sales are a little bit tougher to come by for duplexes, two units,
than they are for just your traditional like Cape Cod type of house. So what you want to do,
instead of going back just six months, maybe you go back 12 months, maybe you expand your radius a
little bit. And just to be on the safe side, this is what I did with this property, and I've done
this with other properties as well, because a two unit is basically almost a single family house,
you should run your after renovated values with single family houses, as well as with two units.
And then kind of keep both those values in mind. And if you want to be extra conservative, just go
with the lower value, even if it's more of the residential type of property, because sometimes
people, they just sell it as a residential house. Sometimes they sell it as a two unit. So just try
to be on the safe side, but look at comps for both single family houses, as well as two units.
So thanks for watching this video. And like I said, if you're looking to find duplexes or small
multifamily in your area, be sure to watch this video right here. And if you have any questions,
drop them in the comments section below, and I'll see you in the next one. Bye.