What Is a Duplex or a Triplex and How to Make Money Investing In Them?
Once you have decided to buy a property and have determined your ideal price range and location, the next important step is to figure out the specific type of property that best suits you.
Aside from the usual single-family houses, townhomes, and condominiums, duplexes, triplexes, and fourplexes are residential properties that have become popular over the past few years.
What Is a Duplex House?
A duplex house is a single building featuring two units that can be stacked side by side or vertically. It can be listed as a multi-family dwelling because it offers space for one family or more.
Every unit in a duplex house has separate entrances, and there are times when there are also separate outdoor spaces and garages.
A duplex house is often confused with twin house, but these are not the same kind of real estate. Twin houses may resemble duplexes in appearance but have two different houses sharing one wall.
In a twin house, the lot line is running through the common wall, which means that on every side, there is an individual house on individual lots even if they are connected.
With a duplex, you will be the proud and happy owner of two houses instead of owning a single house. This is why a duplex is initially more expensive than a single-family house.
But if the other apartment is rented out, the revenue you will earn can significantly offset your expenses and mortgage and possibly make it cheaper to live in a duplex than what you will spend as the owner of a free-standing home.
Duplex houses are popular options for those who wish to keep the members of their family nearby or who wish to have a steady flow of income from the rental property located nearby for easy management.
This can be a creative option or great investment in real estate for first-time homebuyers under the correct circumstances.
What Is the Difference Between a Duplex and a Town House?
Duplexes and town houses differ in their construction. A town home or town house is a row of homes attached to other homes. Duplexes are buildings with two units attached to each other with separate entrances.
Town houses are also referred to as terraced construction because they have terraces. Duplexes, on the other hand, don’t feature terraces.
Duplexes are two-story buildings right next to each other with a common wall separating them. Duplexes can also be buildings with two different apartments with the one on top of the other. What is important in a duplex is that it has two entrances for the two families.
In duplexes, there can be two families, but in town houses, row houses or town homes, there can be several families.
One more difference between a town house and a duplex is in the land ownership. With town houses, each unit’s owner owns the land where the structure is built. With duplexes, there is just a single ownership.
Although a duplex is formed by two units, it is sold as one piece. A town house is sold individually.
Why Should You Buy a Duplex Instead of a Personal Home?
If you ever considered buying a duplex instead of a personal home, you might be in for a big surprise because you are making a good decision. Duplexes can now be found everywhere, and they are a wise and practical investment in some instances.
While you might have second thoughts in buying a duplex if you have a family with children, this is a great choice for those who are single, young, or newly married. Below are the top reasons why you might want to buy a duplex instead of a personal house.
The first and most obvious benefit of investing in a duplex has to do with an opportunity to generate an income stream. Unlike a personal home, a duplex can bring in a significant amount of cash flow in the marketplace today.
Faster way to build your portfolio
Building your portfolio can become more efficient if all acquisitions are composed of several units instead of one. Getting multiple units in one transaction, investors significantly lower the amount of time they have to spend to find and acquire assets.
Also, the amount of time that can be saved during the closing table can make it possible to develop your portfolio faster with no need to carry out an individual closing for each property.
Financing is easier
Largely due to being more averse to risks, lenders more willingly take the chance on a borrower who needs funding for a duplex. Single vacancies are less threatening to duplex owners than those who want to invest in a single personal home unit.
If a personal home sits vacant, it loses 100% of its profit potential. However, duplexes that have single vacancy still generate cash flow. The result is that the lenders are more comfortable in providing funds to a borrower with more inclination to simplify requirements in lending.
Mitigation of risks
Investments in duplexes have been known to mitigate risks. Since these are multi-unit assets, duplexes have lesser chances of hurting investors with single vacancy.
Lesser overhead expenses
Maintenance expenses are lesser since duplexes share several amenities such as roofs, units, yards, and HVAC, making them generate more cash flow compared to their personal home counterparts.
In case the investor wants to live in one unit and rent the other one, it is possible to pay the mortgage using the rent earned from the rented unit.
How You Can House Hack into Real Estate Investing with a Duplex
Have you always wanted to get real estate investing a try but feel discouraged since you haven’t even bought your own house yet? Do you want to earn passive income but have no idea how to begin?
If yes, then, house hacking in real estate with a duplex might be the best option to help you get started.
House hacking is a strategy in real estate investing wherein in the investor earns rental income through renting out their main residence. For instance, you can choose to live in one unit of your duplex and rent out the other one.
House hacking single family houses is also a famous option for people who don’t like to purchase a multi-family property. Other valid house hacking examples include renting out one bedroom or more, placing a tiny house on the premises, or hacking the garage into a living space.
There are several steps you need to take to begin your journey to house hacking:
1. Identify your source of funds.
Being an owner-occupant, conventional loans and homebuyer-assistance programs are accessible. Provided that you live in one unit of your duplex, you can qualify for a loan offering options for a low down payment and attractive terms.
There are also others who go for the Buy, Rehab, Rent, and Refinance (BRRR) method.
2. Find an ideal property.
When you buy a duplex, your mindset should be that of an owner of a rental property business. It means that location is an essential factor to consider since this determines the desirability, rent price, and purchase price.
Accessibility of local amenities, job growth, and population growth are all indicators of the growth and stability of a rental market.
3. Check the numbers.
After identifying several properties that suit your criteria, you have to run a deal analysis to know if the investment is worth it or not. You have to make a few calculations in running your analysis.
You first need to estimate your property expenses and rental income to know your Net Operating Income (NOI). Some of the line items you need to include in the calculation are property taxes, rental income, repairs and maintenance, insurance, operating expenses, utilities, and vacancy reserve.
You have to ensure that all the numbers are working for you as well as your financial goals. It is paramount to run an accurate deal analysis to ensure that you reach the wisest investment decision as much as possible.
Is a Duplex Considered an Apartment for Rent or a Single-Family Home?
Duplexes can be considered an apartment for rent or a single-family home, depending on how the owner chooses to use it.
A duplex is the nearest you could get to the ownership structure and layout of a single-family home. Usually, you are just sharing one wall with the neighboring unit, and you will retain the ownership of the entire land and structure together with maintenance responsibilities.
When you are the owner-occupant, you can choose to live in one unit and then rent out the second unit as a great way to offset your expenses for the mortgage. You can also choose to buy the entire duplex as real estate and have the two sides as apartments for rent.
What Is a Triplex House?
A triplex is composed of three individual units for dwelling combined into a single building, and these individual units share one or two common walls. All units have their own kitchens, living rooms, bathrooms, separate doors leading outside, and their own unit number.
This is a favorite among families because of the three-story layout and size that allows separation of the public parts of the house from those that are more private.
The three floors of a triplex house must be connected to each other from inside the unit instead of existing as three different apartments on the different floors that have access to a certain floor from another via a public elevator or staircase.
Most triplex houses in condominium or co-op buildings are the result of owners purchasing the units above or below their house and then renovating them to form connected floors. To make this possible, you need to get the permission of the condo or co-op board of directors, which might not be an easy feat.
Stairways of triplex houses differ in width and designs, but unless the house is large, most of them are often designed a way that doesn’t take up a lot of space. A spiral staircase is the most common design to save space, and other famous designs are the switch-back and floating staircases.
Triplexes are sold as a single building with the owner usually living in one unit and renting the other two, or the owner may rent out all of the three units.
Triplexes are less common compared to duplexes, so those who want to buy one might have a hard time finding these on the market.
The Bottom Line
Knowing what is a duplex, triplex, or fourplex can be a great way to find a good investment for residential home buyers and investors alike.
Buying a small multi-unit property will require a basic understanding and knowledge on how to locate, finance, and supervise multiple units.
These activities are more involved compared to buying a single-family property, but the difference is that this can lead to profitable multi-unit investments.
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