OK, so based on the title of this site, you can guess that I’m in the pro-duplex camp. I already bought one, so if anyone tells me it’s a poor investment, I’m not likely to want to hear what they have to say. I ran across an article today, however, that points out that the duplex is a unique (and relatively scarce) investment and place to live..
So, I read this article on yahoo news today, talking about how a house is actually (contrary to popular thinking) not so much an investment as a liability, or at best, not a very good investment.
Naysayers!
So, I’ve been biding my time, not really thinking too seriously about buying the duplex next door (but thinking about it, nonetheless). It went up for sale a month ago, and the sign is still there. I haven’t seen a great deal of activity there (both units are currently vacant), although they do periodically mow the grass (not really as often as they should when trying to sell the place, however.). All of this cashflow 101 playing has gotten me wondering a little more seriously about it…. and doing the math over again.
So, a friend’s sister wants to buy a duplex, and has friends lined up to live in the other half. A great idea? Probably not…
OK, so this is technically old news, (the article I’m quoting below is from 7/30/06), but I still find news about the movement of the housing market interesting. I’m happy that the current swing of the housing market is making the rental market more in my favor (even though I just signed my tenants into another year lease). Owning a duplex kind of puts me in a good place regardless of which way the housing market swings — if appreciation goes way up, and it’s a seller’s market, I’m in a good position to cash out and sell my duplex. If prices slow down, and so does appreciation, it becomes more attractive to rent than to buy, and my rental market goes up (lower vacancy rate = higher rents and more tenants to choose from).
I just paid my property taxes this morning. I’ve chosen not to escrow my taxes and insurance with my mortgage payment, so that I can save the money up in a bank account through the year, and earn interest on it. (5% in an Emigrant account is nothing to sneeze at). So that means that twice a year I need to log into the county assessor’s website and send a payment via e-check (of course, if I planned ahead, I could also snail-mail it). They do keep going up, though. I’ve chosen not to raise the rent on my tenants if they signed another year lease, so the increased property tax bill just cuts into my profits. At least, though, the money that I pay in property taxes is deductible (on my 1040 for my personal half, on my schedule E for my rental unit).
Since the duplex next door went up for sale, I’ve been running a lot of ideas through my head. Could I buy it? Should I buy it?
Turns out there’s more to the story about the duplex next door — A few days after I saw the older gentlemen curiously trimming the tree branches of their daughter’s purportedly “trashed” duplex, I came home from work to see the the front yard meticulously mowed, and sporting a new addition — a for sale sign.
The neighbors in the duplex next door seem to have disappeared. In an all-at-once, in the middle-of-the-night sort of way. Actually, the kind of way where THEY are gone, but the inordinately large amount of junk that they had in the yard was left behind. I suspect that they treated the inside of the duplex in much the same way.
My Uncle, a real estate agent, recently inherited some money, and decided to use it to purchase my duplex’s big sister, “the fourplex.” Not sure exactly if they purchased it out-right, most likely they just used it for a 20% or larger down payment.
How is buying a fourplex, or four-flat different than buying a duplex?
I showed a loss of several thousand dollars on my schedule E this year, from expenses related to my duplex - many of which would be nondeductible expenses that I would have as a homeowner…
Filling out the actual paper forms to do your taxes (yes, I do it the old-fashioned way, on actual paper), isn’t hard. What is hard, is keeping track of your expenses throughout the year, so that you know what to put on those forms.
Throughout the year, I keep track of the following for my duplex expenses…
Tax benefits are one of the biggest reasons that buying a duplex is a good idea. Yes, the tax benefits of owning a duplex are pretty nice, especially that whole depreciation thing. However, the catch here is that your taxes get a LOT harder to do, once you own a duplex. I went from being an apartment dweller who filed a simple 1040EZ to having a bunch of (fairly) detailed schedules to fill out every year. And while the schedules themselves aren’t actually that hard, once you figure out what you’re doing (or find someone to pay to figure them out for you), the biggest part is something that only you can do: Keeping track of your expenses. Well. In an organized fashion. Preferably throughout the year.
I’ve owned my duplex for a little more than three years, and have lived relatively peacefully on the first floor, with my tenants above me. While not an ideal lifestyle for everyone, being an owner-occupant has allowed me not only to become a homeowner much earlier than otherwise possible, but it’s gotten my foot into the real estate business at a time when it’s booming.
PROS OF BEING AN OWNER-OCCUPANT….
I recently received a comment on this blog, asking if I had any top tips for buying a duplex. Here’s my best shot:
CHECK OUT THE NEIGHBORS
Buy in the best neighborhood you can afford. If you do this, even if your house isn’t the nicest one on the block, the values of the houses around you prop up your property value — and rental value. It’s tempting to look at the house as an island, but when you’re trying to find renters, they’ll be looking at the duplex, and also the context that it’s in. They’lll be checking out the houses to the left and right of it, the other side of the alley, across the street, and all around the block…
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