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Investing in Duplexes & Multi-Family Homes

Real estate investing can be one of the fastest ways to grow your wealth. By investing in duplexes and multi-family homes, you can steadily increase your assets, while also pocketing a net profit each month. Investing in real estate can also have a snowball effect if you stay committed to it. One rental property can turn into four if you take advantage of the various tax credits and lending options available to you. Below is a primer on investing in duplexes and multi-family homes, including the strategies that will make you a successful real estate investor.

What is a Duplex?

A duplex is a home for two different families. Duplexes share a wall side-by-side or share a ceiling/floor. A duplex is known as a multi-family home since more than one family can live in it. But multi-family homes also include quadplexes (four units in one building) or larger.

Benefits of Owning a Duplex

Substantial monthly cash flow is one of the main advantages of owning a duplex. To achieve a high monthly cash flow, you must have done your due diligence and patiently waited for the right opportunity. You must also have strong negotiation skills and have a limit that you are willing to pay for any property.

Calculate all of the monthly expenses of your property and compare that to the expected rent you can charge for both units. The cash you get from your tenants each month should be greater than your mortgage, taxes, insurance, and monthly maintenance costs.

As you generate a robust net cash flow each month, you can begin to improve your property, which allows you to charge higher rents. If you take a substandard property and turn it into an attractive living space, you can eventually sell your property for more than you paid for it. With the proceeds from that sale, you may be able to buy a larger multi-family home or multiple duplexes. The process then starts all over. You will be generating exponentially more cash flow, and if you do things right, you can continue to expand your rental portfolio.

BRRRR Rental Strategy: Buy, Rehab Rent, Refinance, Repeat

The BRRRR strategy is a tried and true method used by successful real estate investors across the country. Here’s how it works.

Buy

Find a rental property that you can improve and add value to by making repairs. Have a set price you’re willing to pay for the property and don’t budge over your budget. A simple rule to follow is that your property should net you a 10% return on your investment. Successfully growing your wealth through real estate investments boils down to accepting nothing less than a minimum cash on cash return. Building your portfolio of investments requires that you stay patient and only pull the trigger on the right deals.

Rehab

Once you’ve bought the property, make improvements that you’ve already planned and budgeted for. By the time you are done rehabbing, you should have a unit that people will want to rent. You’ll also have improved the value of the property.

Refinance

The refinancing part of the method is critical. By doing a cash-out refinancing, you can get the money you put into the house back out and use this money as the down payment for your next property.

Repeat

Now, do it all over again. Find another property that you can buy for cheap that needs improvement and repeat the process. The only way this process will work correctly is by targeting properties that are well below market value. By purchasing a property well below market value, your improvement dollars will be worth even more when it comes time to refinance because the bank will value the property at more than you paid for it.

The key to the BRRRR strategy is staying diligent on your research, property search, and staying within your budget. If done correctly, the BRRRR strategy can lead to a rapidly growing rental portfolio.

How Much Does a Duplex Cost?

Like all real estate, the purchase price is heavily dependent on location. The age of the property and the condition of the property are the other main factors in determining the price. You will need to have a nice nest egg stashed away to buy and operate a duplex or multi-family building. Or you can find other interested investors to help you finance the project.

But financing the property is only the start. Property insurance, maintenance and repairs, landscaping, and management of the property are all expenses you’ll need to be prepared for post-purchase. Even if you plan on managing the property yourself, the time and effort that takes away from other areas of your life is significant.

Qualifying for a Mortgage

To buy a multi-family building, you must have good credit, a low debt-to-income ratio, and you will need to come up with a down payment of around 25% of the purchase price. When buying a property that isn’t your primary residence, the low down payment options disappear.

Owner Occupied

An idea that’s been growing in popularity is buying a multi-family unit and living in it as your primary residence, while you rent out the other units to offset your mortgage payments. Purchasing an owner-occupied building also helps you qualify for a mortgage with the additional revenue.

Put Together a Reliable Team

If you don’t have a real estate license, you’ll need an agent to help you find the home and take the deal from contract to close. And even if you are a licensed real estate agent, you still may want to use an agent who is more familiar with the multi-family market.

Having an investor-friendly mortgage lender is also essential if you want to grow from a duplex into a quadplex or bigger. Due diligence when searching for a lender will be rewarded if you find someone you can work with for an extended period.

The last part of your team is finding a quality real estate attorney that can look over each contract and help you in negotiations.

Becoming a successful real estate investor takes time, a nest egg of cash, and the perseverance to overcome obstacles as they appear. With the right attitude and the right team, you can slowly build your portfolio and grow your net worth exponentially.

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