Why Buy a Duplex for your First Home?
With the middle class shrinking and home ownership becoming more unaffordable for the average American, more aspiring homeowners are looking to housing solutions that make more financial sense (see C.A.R. article below). Many of these first time buyers are finding that duplexes are the solution.
Important note: when we say “Duplexes”, this article actually applies to homes up to 4 units-
We just say “duplex” in the headline because that’s often what most buyers consider at first, but 3 and 4 units also share the same benefits. So keep in mind as you read this that the following 5 reasons apply to all 2-4 unit properties and a 3 or 4 unit property may be just as good a fit for you, maybe even better.
Here are the Top 5 reasons why a duplex (or triplex/fourplex) should be your first home:
1) Income to offset mortgage expense
This is often the primary argument why you may want to consider a duplex for your first home. Rental income can make the mortgage lower than the cost of rent, sometimes even offset the mortgage entirely.
2) It can be easier to qualify for a loan
It sounds counterintuitive, but yes, a duplex, triplex, or fourplex can be easier to qualify for than a single family home. Lenders will usually be able to use the income, or potential income, from the other units to help your debt-to-income ratios when qualifying you for a home loan. Additionally, you may even qualify for a much higher priced property because of the rental income boost.
3) You can use VA and FHA: even up to 4 units.
The benefits of VA and FHA apply on properties up to 4 units. Restrictions apply so it’s important you consult a strong lender that is familiar with dealing with 2-4 unit properties. If you qualify for a VA or FHA loan, you should definitely at least explore the idea of making a duplex for your first home because of your opportunity to maximize leverage.
4) If you want to move out and rent the entire property, it can generate more income than a single family home
It’s very common to see 2-4 units have much stronger GRM and Cap rates than single family homes when rented out. If you’ve ever considered keeping your first home as a rental property when you move out one day, then it’s likely that a duplex will be the better financial move. A duplex can be a great first home and your first step in building a strong real estate investment portfolio, better than a single family home. This brings us to our 5th reason:
5) If you plan on being a real estate investor, this might be the perfect first step for you
Many aspiring investors have reservations about the risks and challenges of being a property manager and investor. With a duplex as your first home, you can be both homeowner and landlord/property manager at the same time. It’s the perfect way to get you feet wet. What better way to keep your eye on your rental property than to live right next door to it? And if you end up hating the management portion of investing, you can still hire a property manager to manage your rental unit(s).
To learn more about how you may purchase a duplex, triplex, or fourplex for your first home,
Call (858) 449-1253 or email Lawrence@DuplexSanDiego.com