Usually when I meet a new buyer, they are looking to purchase either a single-family home or a condo. Often though, depending on the circumstances, there is a third option they may not be thinking about. Have you considered a duplex? You heard me—a duplex. There are several different ways of measuring the benefits of buying multi-unit property.
Let’s look at scenario number one. Say you’re qualified for a purchase of up to $600,000. That’s a pretty nice purchase! It’ll get you one hell of a nice condo, or a smaller house south of Olympic or maybe in Silver Lake. Let’s say you’re not really into condo living, and you don’t want to be that far from the heart of WeHo/your job/your boyfriend/the 101/whatever. Enter the duplex.
You can buy a duplex valued at much more than what you’d be able to afford in a condo or single-family home. When you qualify for a loan on a duplex, lenders will take into consideration the rental income from the side you aren’t occupying, qualifying you for more. The lender is able to factor 75 percent of the unit’s market rent in qualifying you for a loan. In addition, you get the added bonus of having the income from that unit going towards your mortgage every month. Nothing like having someone else paying a chunk of your mortgage!
If you are considering occupying one half and renting the other half out, you do need to give some long, hard thought to whether you want to be someone’s landlord. It’s not all it’s cracked up to be, and good tenants can be hard to find. They can knock on your door at all times of the night, and they’re heavily protected by landlord/tenant laws. It’s not for everyone, and in West Hollywood, the laws are heavily tilted towards tenant rights, so you have to really watch your step.
Another scenario is that you and a friend purchase a duplex together. Say you can afford up to $600,000, and your friend can afford that amount as well—that’s a $1,200,000 duplex you can buy. You can do quite well for that, trust me.
It gets even better, though. If you were to identify a duplex priced at about $830,000 or less, you could even qualify for an FHA loan, allowing you to put down only 3.5 percent of the purchase price (as opposed to a 20 percent required down payment otherwise).
There can also be some tax benefits to going the duplex route. In many instances, you can write off some or most of your repairs. For example, if you have to replace the roof on your duplex, and one half is a rental property, you can write off half the cost of that roof (as I always say, though, check with your accountant on these things).
Don’t forget about triplexes and quads as well. Many of the same benefits apply. You can use the income from the other units to help you qualify for a loan. On a quad (or “fourplex”), you need to put 25 percent down. If you’re going to go FHA on a fourplex (loan limit of $1,202,925), there has to be positive cash flow (meaning the total of all the rents more than covers the mortgage and expenses), which could be tough.
One of the greatest things about purchasing these types of properties is that, at least in an ideal world, as you grow and become more successful and prepare to make the move up to a single-family home, you would be able to hold onto the duplex and keep it as an investment property—hopefully one that even generates a little cashflow for you.
As always, if you know anyone looking to buy or sell a home, please don’t hesitate to get in touch with me. Referrals are what make my business tick!
Jefferson Hendrick is an L.A.-based Realtor with Keller Williams. Contact him with questions, concerns and real estate inquiries at [email protected] or facebook.com/jeffersonhendrickrealtor.