As you may know, it is common for retired homeowners and empty-nesters is to eventually downsize their home. The large house needed to raise a family eventually becomes unnecessary as the kids move out, and even a burden to maintain. Lately, we are seeing a growing trend of those looking to downsize express interest in buying a San Diego duplex (or 2-4 unit) property to live in for retirement.
Does buying a duplex for retirement make sense?
We’ll outline the advantages and risks of buying a duplex and perhaps this will help you if you are considering doing the same:
- Additional source of income: By living in one unit and renting the other unit of the duplex (or other units if you purchase a 3 or 4 unit property). This extra income during retirement is usually the primary reason why retirees seek this option. Most retirees are sitting on a substantial amount of equity in their house. The proceeds of selling their house can potentially be enough to purchase 2-4 smaller units.
- Provide a smaller, more manageable space to live in. Often times, the house used to raise a family is too large for retirees and can become a burden to maintain or have physical attributes that are challenging, like stairs. The idea of downsizing to a more manageable sized space in addition to the extra income is a selling point.
- Inheritance for your heirs: Many of our retiree clients are mindful of the assets that they will eventually pass on to their heirs. Buying the right duplex can potentially increase the inheritance passed down to your heirs more than just a single family home. Also, some duplexes can function better when passing down to heirs. For instance, if you purchase a duplex where each unit is very similar, a client with 2 heirs may find that distributing split ownership of the property to these heirs can be a simpler process than a single family home.
- Flexibility: Having a completely separate unit can be used for more than just income. Some may find it very useful to use for guests who want their own space when visiting. These units can be rented as a short term rental (i.e. Airbnb, holiday rental, etc) when guest housing is not necessary.
- Fun project: Sometimes retirees aren’t looking for full retirement. Having a real estate project to maintain and upgrade can be a fun project to do on the side while also enjoying the retirement life. Depending on your goals and your strategy, duplex ownership can be as involved or uninvolved as you like.
- Tenants: as with any rental property, there is always risks that come with having a tenant: potential vacancies, legal risks, damage to property, etc. If you are uncomfortable with the idea of managing tenants, it’s not unusual to still employ a property management company to manage the tenant occupied unit(s). For the experienced real estate investor, this may seem unnecessary; however, we’ve definitely had clients do this and speak positively about the experience. For them, it allows them to reap the benefits of duplex ownership while minimizing effort.
- Repairs and maintenance: Just like owning any rental property, there is the possibility of having to do repairs, upgrades, and maintenance. This may require a physical and/or financial commitment. If the idea of adding potential work and/or stress to your life in retirement is not worth the potential return on investment, you may find that this is not the ideal move for you. The key is to be diligent in your research of the potential duplex to ensure the financial and logistical requirements to maintain the property are tolerable for you and worth the return on investment.
- Acquiring debt for purchase: sometimes the proceeds from selling a single family home isn’t enough to cover the cost of purchasing a duplex. If a buyer needs to get a loan to acquire a duplex, there is a risk of acquiring more debt in your retirement years. You will want to evaluate your financial situation and the potential duplex property to decide if acquiring debt for a purchase makes sense for you.
The above risks and advantages serve as a good starting point for your evaluation process in determining if buying a duplex for retirement is right for you. Each person has their own need and goals so the risks and advantages may vary form one person to the next. If you’d like to discuss further, we’d be happy to chat with you. Please don’t hesitate to get in touch anytime!
Have any questions or would like to discuss further?
Call us for a FREE Consultation! 858-449-1253
You can also email us at Lawrence@DuplexSanDiego.com or write us a message below and we’ll make sure to respond as soon as possible!
We look forward to hearing from you!