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.
- BUY IN AN AREA THAT IS ON AN UPSWING
I bought my duplex in an area that could be called up-and-coming. About 10 blocks from here there is a newly revitalized pedestrian-friendly shopping area, and two blocks away is another commercial district where the once-empty storefronts are quickly being filled with galleries, shops, and restaurants. The young hipsters, artists, and college students are flocking to the area, and these are people who I’d prefer to rent to — they’re often renting because they’re young, rather than because they can’t afford to buy. Also, as the neighborhood becomes more desirable, my property values will increase.
- TRY TO STAY AWAY FROM THINGS THAT ARE “WEIRD”
It’s best to buy the most “normal” duplex that you can. Things like bedrooms without closets, bathrooms that are split into two rooms (sink in the kitchen, shower in the bathroom), strange parking situations, bedrooms that are only accessible via another bedroom are all things that make a unit harder to rent out, and should be avoided if possible.
- LOOK AT HOUSES IN TERMS OF WHAT YOU CAN EASILY IMPROVE
- BE AWARE OF WHAT MAY NEED REPAIRS
When the furnace goes out, you have to replace it. This can be costly. You’ll want to pay special attention to the age and condition of the appliances, roof, furnace, etc. Old furnaces can have cracks, old appliances may break down soon, and can also use more energy– possibly turning off prospective tenants. A no-name brand washer may indicate that the landlord has cut corners all over the place, always buying the cheapest thing possible. If so, it may have saved him a few bucks, but it will likely cost you in the long run.
- DEFINITELY, DEFINITELY GET AN INSPECTOR
Especially if you’re new at this, and can’t tell the condition of a furnace by looking at it. My inspector found all sorts of things that I wasn’t aware of — I ended up buying the house anyway, because the price was right, but I knew what was on my must-do-right-away list shortly after closing.
- YOU CAN ASK THE CURRENT OWNER TO MAKE IMPROVEMENTS
I’m all for sweat-equity, but in today’s buyer’s market, you may be able to get the current owner to throw in some improvements to close the deal. It never hurts to ask. Things like new tile in the kitchen, new carpet, refinishing hardwood floors are all simple things that they may be willing to throw in.
- DO SOME SLEUTHING
Talk to the current tenants about the current landlord. Asking them how responsive they are to their problems will give you an idea of how well he or she has maintained the house.
- DO SOME RESEARCH TOO
Check the rental ads in the newspaper to see what similar properties in your prospective duplex’s neighborhood rent for. It wouldn’t hurt to actually go and see some of these properties, posing as a prospective renter, to see what they actually look like. Also, when looking at these comparable rentals, think about the kind of people who typically rent them, and if they’re the kind of people you’re looking for to rent yours.
- DO SOME MATH
Make sure that you’ll be able to bring in enough rent money to cover your expenses — mortgage, taxes, insurance, utilities, improvements, etc. You can call local utility companies to find out what the average bills are, and your local municipality should have tax information online. As far as insurance, you’ll want to shop around to find out what rates are likely to run. Also keep in mind that most rentals take a while to actually cash flow — breaking even is a decent starting goal.
- THINK ABOUT DISTANCE
Don’t live too far away from your duplex. Though many people try it, very few people succeed at long-distance landlording. In fact, I know one guy who sold his inner-city rental when he moved to the suburbs, because the “45 minute trips started to add up.” On the other hand, if you’re planning on living in one half of the duplex, you’ll want to be extra careful in screening your tenants, and selecting a good neighborhood.
- CONSIDER THE BENEFITS OF BEING AN OWNER-OCCUPANT
Granted, this isn’t on everyone’s agenda, but there are many benefits to owner-occupancy — you can qualify for “homestead” status (which will lower your property taxes), you can get away with purchasing a normal homeowner’s insurance policy (vs. a commercial policy, which would be required otherwise), and qualify for much better terms in financing (including first time home buyer’s programs). Also, I’ve found that when prospective tenants discover that the landlord lives in the other unit, if this idea turns them off, they’re often not the type of tenant that I’d prefer to rent to anyway.
Unless you’re extremely handy, look for a duplex that is structurally sound, and simply is in need of some cosmetic updates. My duplex had huge overgrown bushes in the front, the foundation needed to be stripped and painted, there was shag carpet and paneling all over the place, but these things were relatively easy and inexpensive for me to update myself. I would have paid more for the duplex, had the previous owner made these updates. Why make these kinds of updates at all? 1) To make the rental more attractive to tenants, and 2) To increase property value for when it comes time to sell.
I hope that helps! If anyone else has any good tips, please leave a comment!