To Duplex Or Not To Duplex?

Posted In Dealing w/ tenants, Landlording Fun, Multi-family rental properties | 35 comments

My husband and I have been on the hunt for a duplex down here in the South Florida area for our next investment property.   This is new territory for us because we’ve only invested in single family homes (and one townhouse).  Phil is completely sold on the idea of buying a duplex, but in the back of my mind I still keep thinking that maybe I want to stick with single family homes.

I thought it would be interesting to share my thoughts on the whole single family vs. multi-family income properties because I bet some of you will have some input and this could lead to interesting and useful discussion for us all.

Arguments for “To Duplex”

  • It is possible to cover most or all of the costs of the entire duplex with the rent received from only one side of the duplex, mitigating the risk of lost income due to vacancy (unless of course both sides end up vacant)
  • Potentially higher net positive cash flow per unit — we currently cashflow a minimum of $400/month on our single family properties so we’re doing pretty good already.  I could argue that I at least need to see $800/month from a duplex to even consider it….but then again, see point #1 above…if we have that, that is pretty valuable!

Arguments for “Not To Duplex”

  • Single family homes will likely be easier to sell down the road.  We could sell it to a retail buyer or to another investor….there’s a larger and more diverse set of potential buyers for them. With a duplex, most likely we’ll need to sell to another investor
  • A duplex may not appreciate in South Florida as quickly as a single family home because there is less demand in the market for them [we keep our properties long term so perhaps not that big of a deal]
  • A duplex may attract very short-term tenants leading to more vacancies and turnover…I just think that a tenant is more likely to fall in love with their single family home and want to stay there for the long term….and long-term tenants are awesome!
  • Most of the duplexes we’re finding are 2/2, 2/1, and 1/1 units and our “comfort zone” is in the 3 bedroom properties which are easy to find tenants for

Ultimately, if we can find what we’re looking for out of a duplex — right location, right price, and right net positive cashflow,  I’m willing to go for it despite my arguments “not to duplex.”   We’re just not going to rush to purchase a duplex “just because.”  In other words, if we find a single family home we like first, we’ll go ahead and purchase it and just wait it out on the duplex.

What are your experiences and thoughts regarding investing in small multi-family (duplex, triplex, fourplex) vs. single family properties?  What do you think about having a mix of both?

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  1. Sharon Vornholt
    372 days ago

    Shae – I have never personally owned a duplex, but I wouldn’t be opposed to it so long as it was in a good area.

    I will tell you this, you often get different types tenants in multi families especially larger ones. My daughter is a professional property manager, and she has challenges that you just don’t get with single family houses. A lot of these folks just have a different mentality than the tenants in single family homes.

    As long as you are OK with this going in, these properties can be a great asset.


    • Shae
      372 days ago

      Sharon, that was my thinking….that it would just be a different type of tenant with the duplex.

      However…we found a really nice duplex in a nice neighborhood a few months back…both sides had a garage and 3 bedrooms! I’d never seen a duplex like that before! It was owned by a hard money lender who took it back from an investor who defaulted on the loan…..but he wasn’t interested enough in getting rid of it :-)

      Would love to find another place like that. Duplexes in pretty nice neighborhoods that have 3 bedrooms (at least on one side).


      • Sharon Vornholt
        372 days ago

        I’ll bet 3 bedroom duplexes are harder to find.


        • Shae
          372 days ago

          For sure…I may have to make a decision to get over that desire for 3 bedrooms and take a solid look at one that has 2/2 on both sides. I just don’t want to deal with any 1/1 or really even 2/1 for that matter….


          • Julie Broad
            371 days ago

            I was about to say the same thing but Sharon beat me to it. The tenants you’ll attract are different AND it will take more effort to manage them. Our single family homes are pretty dreamy to oversee. The ones where we have two or more families in them always seem to have issues … not sure why but things break down more, there are more disagreements and it’s just generally more work. And you’re right about appreciation … typically they go up in value slower. All that said, most of the time to make the numbers work for long term holds we find the second suite is necessary in our area.

            By the way – I laughed at your post title because my video was based on a couple who could not agree whether to buy single family or multi-family!!


          • Shae
            371 days ago

            Jules, that’s so funny! We were on the same wavelength this week :-) Thanks for your input!


  2. Anthony Jacobs
    372 days ago

    Hey shae
    I completely understand where your coming from. I have a contract at the moment for a 4/2 duplex in the hollywood area for 110k. Im pretty sure I can get anywhere from 950 to 1050 on each side per month. The water meter is not seperated. I caculated all of the monthly expenses to be around 1200, including water, with a possible net income of between 700 and 800 per month. Do you think this is a good deal?


    • Shae
      372 days ago

      Hi Anthony, IF your numbers are accurate it seems like a pretty solid net income to me. I like to be conservative with my estimated rents and then you want to make sure you have ALL costs considered….cost of debt, taxes, insurance, property management, maintenance, utilities (not covered by tenant), etc. But if I was going to get $800 net positive cashflow from a duplex, I’d buy it if it was in an area that I feel confident about (in terms of securing solid tenants). That’s me… everyone has their own criteria.

      I have family members who are happy to have rooming houses as investment properties where they have people paying them by the week and have 4 people in a house, each with their own room and shared living spaces…. cashflows like a dream, but I would not be interested in that kind of arrangement. LOL!


  3. Bilgefisher
    372 days ago

    Shae,

    Do you have the possibility of selling each unit separately down the road? Might be another exit strategy in the right area.

    My coach loved duplexes for cashflow reasons. Plus duplexes likely still have tenants take care of landscaping where larger multi’s may have this come from your pocket.

    You never know the needs of a tenant though. Have a friend that has a duplex rented to two sets of snowbirds. They have paid off her duplex in the last 15 years of tenancy.

    Least with a duplex, one bad tenant doesn’t cost you the loss of many more tenants.

    Some rambling thoughts from a non duplex owner.

    Jason


    • Shae
      372 days ago

      Hey Jason, that’s always a possibility (to sell each unit separately), but I think it’s a tougher sell. Just as I wouldn’t be willing as an investor to buy half a duplex, I think there is a nice sized segment of investors who feel the same way.

      I can’t really ignore the fact that with a duplex, one bad tenant doesn’t kill your cashflow. That’s pretty powerful…. but I just want to find the right one.

      By the way Jason, we just confirmed another lender today so it’s on like donkey kong ;-)


  4. Steve
    372 days ago

    I have a bunch of SFH rentals, some condos and two duplexes. Some of my points may be specific to my market:

    1. Duplexes attract a different type of tenant than a SFH. They are usually more work to manage, expect to pay less of a deposit and want the landlord to do more maintenance (who mows the lawn, etc).

    2. Usually the landlord ends up paying water and trash (at least in California) on a duplex. For my SFH, the tenant pays everything.

    3. Duplex renters and apartment dwellers move more often (I read a stat that I think said almost twice as much). A SFH tenant (especially when you have a 2 car garage) usually accumulates more junk and hates moving.

    4. Tenants fight and you get to be the middleman. They also talk and know if you drop/raise rent.

    5. Cashflow isn’t much better and the prices haven’t dropped as much as SFH… for both sides by the time you subtract the cost of the utilities the rent for me is about the same as what I’d get for a house that is the size of both units… aka a 700 sq units rent for $800/mo. 1,400 sq ft house would rent for 1,300 + 120/mo in utilities. I am only making an extra $180 but I have two people.

    6. As you mentioned appreciation isn’t as much.

    I would definitely rather own two lower end houses or one nicer house versus a duplex. But I do/would buy them at the right price.

    You are much better off with a duplex then condos in my books.

    Good luck.


    • Shae
      372 days ago

      Steve! Mr. Build Bankroll himself! So glad to get your thoughts on this. I’m going to share all of these points with my husband….considering he is the one dealing with the tenants and not me (I just play the “bad guy” in the background) :-)

      I totally agree re: condos….we avoid them like the plague. The associations are really a pain in the butt….ask me how I know (actually don’t…I’d rather not relive it).

      Are you still doing the property management for all your properties?

      I need to get back over to your blog….it’s been awhile and I like your style. Thanks so much for stopping by and commenting. I really appreciate it!


      • Steve
        372 days ago

        Yea, I still do all the management. The hardest part is consistency filling the new ones, once you I find quality tenant property management has proven to be really easy.

        The other point I forgot to mention is my model revolves around buying and fixing at 70% of ARV or less. Since duplexes are such a small percentage of the available inventory and more investors are willing to pay a premium for them I have found it more difficult to buy them at a discount too.


        • Shae
          372 days ago

          Steve, that last point is a good one…..we’re willing to buy at slightly higher ARV than you but honestly we’re yet to find a duplex that fits all of our other criteria outside of the price! We’re still stuck at right location :-)

          Thanks again! (By the way, just added Build Bankroll to my REI Blogs page AND to my RSS reader LOL!)


  5. mobilehomegurl
    372 days ago

    Interesting discussion, Shae!

    Yes, I’ve heard many cases for and against multi-family properties such as duplexes. I’m sure you’ve heard of others who have bought a duplex, lived in one side and rented the other side out getting an owner occupant interest rate (over an investor rate).

    Conceptually, it sounds good. And, there are a lot of positives being that you have 2 streams of income under one roof (as opposed to one with single family).

    I guess it all depends on you and your comfort level. I find many investors in multi-family to have thick skins. I agree with Sharon, there may be more challenges in this area. It seems to be a business with more turn over.

    Overall, it would depend on your goals, the area, and the type of clientele that particular property attracts. Most likely if you decide to sell down the road, it could be a challenge to sell depending on the market as opposed to single family.

    If you’ve got some time, you may want to talk to a couple of property managers in the area (NARPM.org is a great resource) and get their thoughts on multi-family properties in terms of clientele, vacancy rates, areas they prefer/don’t prefer, etc. I find seasoned property managers to be a wealth of information and the good ones are most times willing to talk shop should you decide you need a good one down the road.

    Hope that helps! :)


    • Shae
      372 days ago

      Yes, it does help Rachel! The area and the type of clientele is important to us which is why we still to date have not pulled the trigger on buying one.

      I was just telling Sharon above how we ran into a super nice duplex that had two 3 bedroom units with garages….I’d never seen that before! Couldn’t snag it for the right price and I haven’t seen any more on that street for sale yet.

      Now I’ll tell you that we have some lower end properties (not in the ghetto…but shy of a “middle class” neighborhood) with a mix of Section 8 and non-Section 8 tenants….so we don’t shy away from that BUT I still think a lower end duplex is a totally different game than a lower end single family property.

      Really great input – thanks! I’m glad I did this post :-)


  6. Darren
    371 days ago

    Hi Shae,

    I’ve been following you for a while and I like your posts. Thought I’d share my thoughts about SFR VS Multifamily. I am here in Salt Lake City Utah, so my market is going to be vastly different than that in Florida.

    I own duplexes rather than SFR because of the economies of scale. Rather than forking out funds to replace one roof for one tenant, my funds go towards the roof for multiple tenants. Same goes for income, more income compared to costs with multi compared to single family. However, I know a very successful investor here in Utah who ONLY owns SFR.

    I think that if your intent is to hold the property long term, go for it. Regardless of who your end buyer will be, because your not buying it to sell you are buying it for the cash flow. I look at duplexes with less risk then SFR. If a renter is out, I still cash flow with one unit. If you buy right and rent right, your concern for long term tenants shouldn’t be too great, my tenants average 5-7 years.

    Hope my thoughts give you guidance, success is upon you in every way. Keep up the great work and hope to meet you in person some day.

    Take Care,

    Darren Workman


    • Shae
      371 days ago

      Darren, I appreciate you taking time to share your experience with me. The fact that your duplex tenants average 5-7 years is pretty awesome (and surprising to me)!


  7. Tom
    371 days ago

    “I totally agree re: condos….we avoid them like the plague. The associations are really a pain in the butt….ask me how I know (actually don’t…I’d rather not relive it).”

    You’re right the association fees are a pain. My condo in Hawaii is great except for the association fee. Just when I think I’m about to break even the association raises their monthly fee so I’m back to zero.

    I wanted to buy a duplex when I was in Texas but the duplexes barely made any money unless I bought a dump. I didn’t want to deal with that.

    My two cents from a duplex owner wannabe. :)


    • Shae
      371 days ago

      LOL! I hear you on the condos….the association fees are totally unpredictable. And don’t get me started on the assessments that can happen. All of a sudden you can end up with a $2000 bill to pay because there was a vote passed to pave roads and all kinds of other things that added up.


  8. B0BB
    371 days ago

    Thanks for the “two-sided ” viewpoints .Invaluable content !!!Thanks for sharing.Keep up the great blog/info and continue to be BLESSED.All love and respect to you.


    • Shae
      371 days ago

      Thank you Bobb :-)


  9. Bilgefisher
    371 days ago

    Its interesting that condo’s were brought up. Just went to a seminar that covered that very topic. The investor is doing very well on cashflow with these condos because he really digs deep into the HOA’s. Are they operating efficiently, do they have reserves, are there any special assessments coming up, etc etc. He spends 4-8 hours looking over the financials, meeting notes, and rules before he buys each property.

    Its a tougher road than most are willing to take, which is exactly why he is very successful at it.

    Jason


    • Shae
      369 days ago

      Jason, that’s interesting….I can see how he’d do well considering the diligence in looking at the condo associations. Of course, new people are voted in all the time so there’s still some uncertainty there but like you said the fact that he’s willing to do more than the average person in terms of due diligence means success.

      Good stuff – thanks for sharing!


  10. Kaye
    371 days ago

    Very interesting points raised here. Darren made the point of long term tenants and I beleive that if you take the time to find the right mix that is possible. 2/1 or 2/2 are great for those in the late 50′s heading into retirement who want less ground and security of living. Yeh, they don’t want to live in the tougher end of town but they don’t necessarily want to live in the upper end either.

    I have found this age bracket look after properties well too.


    • Shae
      370 days ago

      Hi Kaye, thanks for stopping by! That’s a good point regarding the tenant age bracket. In South Florida we actually have a huge retirement population…good food for thought, thanks!


  11. Sharon Vornholt
    370 days ago

    Hey guys –

    I have been following all the comments. I have a good friend Mike Butler (a retired police detective) that is a long time real estate investor,educator and author. Mike normally has about a 100 houses or so in his inventory.

    The one thing he says over and over is that you have to “train your tenants” right from the day of lease signing to do what you want them to do. He has systems and procedures for everything. For many years he managed his entire empire with just one office person because he is so good at systems. His book is called “Landlording On Autopilot”.

    You should check out his site at MikeButler.com. He has a free lunchtime training everday around noon and hosts an investor cruise every December that draws in a lot of the big gurus. He’s a regular guy that is just brilliant when it comes to his real estate investing business.


    • Shae
      369 days ago

      Thanks for sharing Sharon! I’ll have to check that out… he obviously has found something that works for him. I have no aspirations to own 100 houses, but I bet there is a ton to learn from someone like that!


      • Bilgefisher
        367 days ago

        Ive read the book. I’d strongly recommend it to anyone who has rental properties. There are some very helpful tips in there.

        Jason


  12. Luis
    369 days ago

    Goodness, a 100 houses!! I cannot fathom handling that many tenants no matter how much “training” you give them


    • Sharon Vornholt
      367 days ago

      Luis –

      Mike really amazing. On top of the rentals, he is constantly developing new programs and is traveling all over the country to teach and speak at REIA meeings, conventions etc. And, if anyone is intersted, he has an investor cruise every December.


  13. AnotherSteph
    363 days ago

    Shae, did you decide what you are going to do?


    • Shae
      362 days ago

      Hey Steph, we remain open to a multi-family unit if it fits our criteria….but at this *very* moment we are seeking a single family due to the amount of funding we have readily available from our newest private money partner.


  14. AnotherSteph
    362 days ago

    Sounds like an excellent plan! :-)

    Steph