PATIENCE PAYS – BUYING A DUPLEX IS A TRIPLE WIN INVESTMENT STRATEGY
Disclaimer: Good Day, Readers. WealthBuildingPowers blog is a financial literacy/competency blog and does not provide specific investment recommendations.
If you are considering buying a home, make sure your search includes the option of a duplex/multi-family unit. I guarantee you by the time you retire; you will be glad you did.
A duplex can be a triple WIN!
- You purchase your first property and cease paying a landlord’s rent. WIN
- You simultaneously purchase your first rental property. WIN
- When ready, you rent out the unit you live in and buy another property. WIN
- WIN -WIN – WIN! Wining so much you get tired of winning! Nah!
A duplex is a single property with two separate living units and is an excellent first investment, providing a home as well as your first rental investment. You live in one unit and rent the second unit.
SOME OF THE ADVANTAGES
YOUR TENANT PAYS THE MAJORITY, MAYBE 100% OF THE MORTGAGE
If you purchased a $500,000 duplex at today’s rate of ~2.25 percent and put down $60,000, your monthly mortgage payment is $1,682.00. You likely can rent the second portion of your duplex for the entire mortgage amount! Now you still will have to pay other costs such as taxes, insurance, and your utilities. However, this plan will put you in your own home for less than you were paying rent! A WINING solution! And in 30 years, your $80,000 down payment is now worth ~$1.6 Million or 10.5% annually over 30 years.
Mortgage companies consider a duplex as one property and will normally finance the property at the same rate as home property. Mortgage companies typically charge at least one percentage point more for an investment property. Also, when qualifying for a mortgage, the mortgage company often allows you to include part of the potential rent into your income. For those doing their homework, your tenant may pay the majority of the mortgage.
Investing in a duplex as an investment property qualifies you for several additional tax deductions? Whereas single-family homes don’t offer the same tax breaks, duplex owners can deduct most expenses for maintenance, yard work, repairs, utilities, etc.
- It’s easier to keep an eye on your property and tenant
- Duplexes for sale are typically located in affordable areas primed for growth, making this an excellent investment for a first-time real estate investor.Cost-wise, you will also benefit from having two units in one transaction. Your building and landscaping costs will be lower per unit compared to two single-family rental units.
- Property taxes will be lower per unit than compared to two single-family homes of similar square footage.
- Renting out both units will produce more monthly free cash flow, making owning a duplex potentially very lucrative.
When you are on the market for a multifamily unit, ensure your real estate agent has experience locating those units. Most real estate agents will claim they can sell you the London Bridge. Find agents who have successfully located and sold multifamily units. Purchasing a multi-family as your first property is a WIN x 3 scenario. Do your homework and remember real estate is ALWAYS about location. You need a safe community and good schools to grow your investment. You should not be thinking about whether a property type is a good investment or not. Instead, you want to think about how well a specific property type will do compared to other properties. It’s all about quality investments, not quantity.
If you are ever confused about which property seems right for you, just remember that the key is to figure out which property will generate a better long-term return.
Keep purchasing duplexes or multifamily homes. At the end of 30 years, 2051, your duplex is worth ~$1.6 million in equity after paying off the loan. Years later, you repeat the process. As the value of your next multi-family appreciates, at the end of the next 30 years or less, you have another $1.6 + million. So far, you are up to $3.2 million at about the time you are ready to retire. How many times can you repeat this simple formula?
Patience and the Power of Compounding!
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I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with aN.C.C. State, Chemical Engineering, University Rutgers, MM.B.A.and Harvard University, Advanced Management education.
I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life. It is my time to serve and give back.
I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate and am happy to share my finance and investment lessons. I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog as recommendations for your situation. As an investor, you must establish your risk/loss tolerance. Investment in any asset involves risk, including complete loss.
Please seek your licensed CC.P.A.or fiduciary financial advisors for individual financial advice.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.