Thoughts on duplex home?

Question

I currently live in California. Currently, Single-Family homes are in great demand. Houses are getting sold 50-60k (sometimes 100k) above the market price.

Since I cannot bid higher than the market rate, I'm thinking of buying a duplex house. With such a home, I can get both privacy and rental income too. Any thoughts on buying duplex homes?

I heard that duplex homes are old style and currently there is no demand at all. So, they do appreciate slower. Is it worth buying?

I really don't know how my life changes in terms of the job (moving to a different state) etc. so I can't really decide if it's worth buying a duplex home. If I move to a different state for work and the duplex isn't worth selling, how do I manage the property if I don't live there?

Will the bank interest rate be higher for duplex homes?

Brian Garlington · Answer

@Vijay Chadalavada

As a Realtor here in the East Bay, I tell people all the time that house hacking is a great way to start, especially here in the Bay Area. You are describing exactly that.

Some of what you are saying is a bit confusing by the way. If a duplex in this market out here is still on the market after 57 days it is either;

1. Way overpriced.

2. The rental income they are able to prove is very unsatisfactory to potential investors

3. The tenants are very uncooperative when it comes to letting inspectors, appraisers and/or potential buyers in.

A listing agent telling you that things fell apart a couple of times because of "loan contingencies" falling through sounds very suspect. Nobody in their right mind is even accepting offers on properties out here that have loan contingencies in them. Appraisal contingency and/or inspection contingency, absolutely. Loan contingency? Don't even waste time writing up the offer because there are too many people that already have pre-approval letters and proof of funds that are being presented with the offer.

Also....small multifamily residential properties do not generally appreciate as fast in the Bay Area as SFHs. You not wanting to buy a duplex that has more than doubled in value since 2005 is certainly your choice, but I would bet that most investors here on BP would take that deal all day long, six days a week and twice on Sunday my friend.

A couple of other questions you have regarding the type of loan you should be getting can be answered with a conversation with a good solid, investor friendly mortgage professional. You should reach out to @Chris Mason here on BP. He is top notch.

Account Closed · Answer

@Vijay Chadalavada, a duplex may be a good option since it would take care of your living situation plus provide income which will offset your mortgage. Depending on what part of CA you're in, duplexes may not be common, and if there are some, I would be surprised to hear that "there is no demand at all." A quick search on Realtor or zillow would tell you if small multis are available in your area and recent sales to get an idea if they are common.

Raju Balakrishnan · Answer

1. Multiplexes are  generally gives more CoC but appreciate slowly. So in general safer option than SFR, but returns are lower. This is in bay area.

2. If you move out of town either you can manage remotely in many cases, or get a property manger. Generally costs 8%. or sell the asset.

3. Regarding financing, give a call to a broker.

For investments, think more about guarding downside than the upside. Duplexes appreciating less is less of a problem than SFRs losing money on a monthly basis.

Vijay Chadalavada · Answer

@Jon Schwartz I'm in Northern California (near SF-Oakland) area. I found a duplex in Hayward city. It looks great but it is on market for 57+ days which is quite unusual for a typical listing in the bay area. The property fell through a couple of times and the seller agent told that it was because of loan contingency and nothing to worry about. Didn't know the exact reasons. There are few more duplexes that are also on higher DOM.

I'm in dilemma and didn't make a decision faster because of the following reasons:

1. One of the duplex houses that I saw, didn't appreciate enough ($500k in 2005 to $1.1m in 2020) while other SFHs in the bay area almost quadrupled.

2. Getting the loan approval can still be a problem for me. The property is technically considered SFH but it's a duplex. So, I don't know how the bank appraises. Interest rates are a different story.

3. If the house doesn't appreciate enough then I'm cannot sell it in few years say (5-7 years by taking ARM) and I need to hold. I don't know my future plans. So, I should follow your suggestion by hiring a property manager to take care of even if I move out-of-state.

4. One property where I almost put an offer (but too late), has a considerable amount of repairs to be done, min. of $40k maybe more. Perhaps the owner didn't live in this place and mostly rented out.

I'm still looking for both SFH and duplexes at the moment.

Jon Schwartz · Answer

Vijay,

What you're talking about is house hacking, and it's a great strategy! I explore it extensively in my YouTube videos.

Duplexes in CA come in all shapes and sizes. I live in a 1923 duplex in LA; a duplex four parcels away just sold for $2M. There are also new construction duplexes all over LA.

Technically, duplexes appreciate in lock-step with single-family homes because they are in the same property class.

If you move out-of-state, you can hire a property manager to manage the duplex. In big city like LA, property managers charge around 6%. In smaller markets, that might tick up to 10%.

Your interest rate on a duplex with be identical to your interest rate on a single-family home.

Where is CA are you?

Best!

Jon

Thoughts on duplex home?

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