If you’re interested in buying your first investment property, you’re probably feeling a little intimidated by the process. After all, it’s hard enough to pour money into a home you’re actually going to live in, not to mention one you’ll be renting to someone else. How do you justify that kind of financial investment when you’re just starting out?
The answer is to invest in a duplex because, as Brandon Turner writes, you can’t live under a bridge. In other words, you need somewhere to live while you set up shop as a property owner. If you buy a duplex (or a triplex), you can stabilize your own living situation while also turning a profit and gaining property management experience.
Financing A Duplex
To get into the real estate investment game, you’ll need a nest egg. How much you’ll need, however, depends on how you finance the property – because if you had enough money to buy it without financing, you wouldn’t need to start your investing career with a duplex. Typically it’s recommended that you have a significant amount in hand for the down payment, because that will reduce both the interest rate and length of your mortgage.
FHA loans, which are meant for owner-occupied housing, are perfect for investing in a duplex because you are, in fact, going to live there. The only catch is that you have to stay in the home for at least a year after you take out the loan. You can, of course, start renting the other half immediately; you just can’t rent out the whole thing. That’s okay, though, because you’ll need time to rake in some income and climb the property ladder.
Another benefit of buying a duplex, as your first real estate investment, is that it gives you several different options for making income. First, you can opt for a traditional rental setup where you have a long-term tenant for a year or more. This is a stable situation and can teach you a lot about what it means to be a landlord, to troubleshoot resident issues, and gain experience being on call. Long-term rentals are also the most predictable source of income.
One very modern option, and one that can be especially lucrative, is to rent out your duplex on AirBnB. AirBnB income isn’t as predictable, especially in areas with fluctuating tourism seasons, but you only have to rent an AirBnB out for a week or two per month to make as much as you would in an entire month on an annual lease.
Once you’ve earned enough to move out of your duplex – and waited out the FHA residency period – renting half of your property through a stable lease and putting the other half up on a month-to-month or AirBnB model can ultimately be the most profitable method. But that’s the beauty of owning a duplex; you’re investing in flexibility, not just a property.
From The Ground Up
Not only are duplexes perfect for first time real estate investors in terms of price and learning the ropes of being a landlord, but they’re also more profitable than single-family homes. Single-family properties leave you in a precarious position, don’t rent as reliably or for as much money compared to the purchase price, and require more maintenance. Keep single-family properties on the back burner until you’ve got some experience (and dollars) tucked away.
Being a landlord is an exciting experience and turning a profit through buying a home you’re going to live in anyway may be the most exciting part of all. Are you ready to buy your first investment property? The profits from becoming a landlord may put you closer to that goal than you realize.