A Big Question for New Home Buyers: Duplex or Single-Family Home?
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As a first-time home buyer, the idea of choosing a duplex over a single home seems like a no-brainer. You get a tenant who will at least offset if not fully cover your mortgage payment, which means you may be able to build equity fast and pay your home loan before your mortgage term. Better yet – if this purchase is a “starter” home, you can start accruing money toward your next slice of the American Dream. But, there are serious things to consider before taking the duplex leap.
What to Consider
Here are some questions to ask yourself when deciding if a duplex is right for you:
- A duplex is usually more expensive than a single-family home. Can you afford the up-front costs?
- Your rental unit may not generate income each and every month. Will you be able to cover the mortgage without the income? Do you have the financial resources to cover repairs for both units?
- Being a homeowner is a big step for a first-time buyer. Are you ready to take the extra plunge into being a landlord?
- Is your purchase meant to be for the long run? Or is this going to be the launch pad for something bigger in the short term?
Why a Duplex May Not Be the Road for You
Becoming a homeowner is a commitment, and becoming a landlord is a bigger commitment. Are you seriously ready for it? Duplexes are not in all locations, so your buying options will be more limited. Are you open to being connected to your tenants via a wall or floor? As you are responsible for all repairs you need to make sure you can afford it. Can you pay someone else or are you handy? If this is a starter home, be aware that there is less market demand for multi-unit dwellings, their appreciation is lower, and they also have higher property insurance rates. They also tend to cost more and entail higher up-front costs. And just because you have a place to rent does not ensure you will have a renter.
What to Know If You Are Ready to Take the Leap
Should you decide to take the plunge and become a homeowner and landlord in one fell swoop – there are lots of perks. Your tenant income could reduce, if not cover, your monthly mortgage payment, meaning you could build equity faster and pay off your loan faster. You get tax benefits, including write-offs on mortgage interest and for repairs. Depending on the local regulations, you could even rent your income unit as a short-term vacation spot and earn more money than you would as a year-round rental. Experience as a landlord will give you a sense if it appeals to you enough to expand your future property holdings.
But perhaps the most attractive part of buying a duplex is it can get you closer to your dream home in a shorter time span.
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