Owning a Duplex: Pros and Cons

Buying a duplex and living in one half while renting out the other half seems like a smart idea — and it can be a very good investment! However, like all investments, there are always some downfalls to take into account. Let’s explore the pros and cons of having an owner-occupied duplex and see if it’s the right fit for you.

Pros of Buying a Duplex

Income on your property. The dream is to live for free — and that just might be possible. But even if it isn’t, if you did the math right, you’ll still be earning some income on the rental half.

Rent helps you qualify. You get to include the rent potential when you apply for a home loan. This means that the potential income will be figured into the lender’s qualifying ratios.

Close to your tenants. There’s nothing like living next door to your tenants for property checks and maintenance issues.

Beginning of a real estate portfolio. A duplex is a great stepping stone for anyone looking to invest in real estate. While you live in half you can pay down your mortgage. Then, when you move out, you can rent both sides — doubling your rental income.

Rent goes up. In general, rent goes up over time, but a fixed, 30-year mortgage stays the same. This makes the future look a little rosier.

Tax benefits. Not only do you get your standard deductions for being a homeowner, but you can also deduct the expenses you incur while renting and maintaining your rental unit. Selling an owner occupied duplex may also give you some exclusions from capital gains taxes since it’s treated as two properties.

Cons of Owning a Duplex

Twice the expenses. There are many financial benefits to a duplex but some of the expenses double — maintenance is one of the biggest considerations. Make sure you do the math at the outset to see how the finances line up.

Tenants have expectations. When your tenants are next door they may expect you to deal with any issue they encounter immediately.

The landlord business. Once you rent out the other half, you become a landlord. Whether you love being a landlord or could leave it, it’s a business and needs special attention.

Live-in requirements. Some mortgages require you live in your half for a year. Are you able to commit to staying put for a year? Or do you need more flexibility?

Location limitations. Your region may have zoning limits on where multiple family units can be located, which could restrict your location options.

One last consideration when buying a duplex is your homeowners insurance. In most situations, if you have an owner occupied duplex, you can insure both sides through a traditional homeowner’s policy. But, if you decide to move and rent both units you may need to look into business insurance. Your American Family Insurance agent will be happy to navigate these policy options with you so you can find the best option for your unique situation.


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