Whether you should house hack a duplex or a single-family home depends on various factors, including your financial goals, lifestyle preferences, and market conditions. Here are some considerations to help you make an informed decision:
@Diya Shenme, a very good summary of the two. However several of the points made were related to life style preferences. Take those out of the equation and view this strictly from an investors point of view and it is NO CONTEST. A duplex blows away a SFH as a pure investment and house hack opportunity.
This is an INVESTOR's website. Duplex produces more income, easier to rent, easier to repair and in expensive markets has the potential to appreciate more. Some of you might disagree, so let me enlighten you.
2000 sq ft duplex vs a 2000 sq ft house. Duplex is 1000 sq ft 2 bedrooms 1 bath each side no garage. House is 3 bedrooms 2 baths with garage.
Making average assumptions, will vary from location to location but premise remains the same.
Income: Each side of duplex rent $1500 total rent $3000 per month. House rents for $2100 per month. Even if duplex cost 50k more, the extra $900 a month income offsets additional cost of duplex. Because households are smaller today vs 20 yrs ago due to delay in marriage and child bearing smaller units are in more demand because of need and affordability.
Easier to rent: Two bedrooms attracts fewer occupants (not tenants) vs a 3 bedroom where often that extra bedroom is housing an adult kid, dead beat family or friend. It is easier to find two $1500 tenants vs one $2000 tenant. More tenants only need a 2 bedroom than a 3 bedroom and are not willing to pay an extra $500-600 for the 3rd bedroom. When the economy turns sour, lower rents will have less pressure to downside, therefore increase layoffs will affect higher rents than lower rents. Vacancy will be less affected with lower cost rents. How many McDonald's go out of business due to a down turn. Two young people working at McDonalds can easily afford $1500 in rent not so much at $2100.
Easier to repair: Now this one is debatable only because there are two units vs one, but hear me out. Each duplex unit is 1000 sq ft. Which translates to fewer walls to mess up, fewer rooms to mess up and less repair time per unit than a 2000 sq ft house. You will have a tenant from time to time to mess up your unit/house. You will have more maintenance cost and down time when that happens. A duplex will produce income even when one side is empty, not the case for a house. It is easier to bullet proof a small duplex than a house. When comparing a duplex to a house tenants usually expect a house to be in better condition so your competition is more challenging. It is easy to spend a few extra dollars fixing a duplex up and be the best on the block. Not so much with SFH. When competing on quality; owner occupants vs rental neighbors, owner occupants usually have better properties. Duplexes have more appliances (2 kitchens and two heating/AC units) so that is a disatvantage but a used appliance can be fixed in an hour, a hole in the wall take a lot more time. More likely to fix holes and paint than replace a used appliance. SFH have more wall space.
Appreciation: It is a myth that SFH appreciate faster than a duplex. It is more dependent on location and market. Hear me out. In less housing demand areas a SFH has the potential to appreciate more. However in hot-expensive markets NOT SO MUCH! Why? Because of affordability. I have lived in Austin TX for the last 25 years. 20 years ago Austin was not the hot destination as it is today. 20 years ago duplexes sat on the market, no one was buying them, there were plenty of affordable SFH on the market. NOT TODAY! Homes are not affordable in AUSTIN today! Heck duplexes are problematic too. However a young couple has a better opportunity buying a more expensive duplex vs SFH in Austin because of the income produced from the other unit. More and more owner occupants are considering a duplex purchase than 20 years ago because of affordability. Lastly, owner occupants and investors are realizing that buying a duplex gives them so many more options than a SFH. Let me explain. We live in a fast pace MOBILE society today that ever before. You buy a duplex and then find yourself having to move, you simply get up and go. Rent you side out and probably cash flow even to positive if you have owned 3-5 years. Do that with a SFH and you are probably cash flow negative when you leave and your peace of mind goes away when you have a vacancy!!!!! So many people don't consider buying if they are not sure they will be staying in the area long term. Less of an issue with a duplex.
Lastly one might argue that your tenants will stay longer in a SFH vs a duplex. There is some truth to that under certain conditions. For example, I bought two duplexes in the same cut-de-sac. One had porches at opposite ends and one car garages in the middle separating the units. The other a shared porch and no separation from the garages. Bought both duplexes in 2005. One duplex as had a total of 4 tenants for 19 years and the other probably 8 tenants or more. Still not bad in terms of turnover, mainly due to the quality of my units and the affordability of a duplex over a SFH in the Austin area. My duplexes that have opposite porches act more like a SFH than those with shared porches.
My best advice to INVESTORS: Buy single story DUPLEX, 2 bedroom 2 baths (1 bath is fine), porches separated with one car garage/carport and YOU WILL BE A HAPPY CAMPER! Peace.
My two cents.
The PRO: Location is Nice! Layout and Amenities look enticing! Includes Garage!
Cons: Not much demand for a 4k two bedroom property.
If your property was in a downtown high rise, walking distance to the Action then you would have a demographic willing to pay for it. Your property appeals to neither a growing family (too small) or the young professional still seeking fun (not within walking).
Here is the MILLION DOLLAR question: If you were buying an investment property, would this be one you would buy. So many people try to convert a property they originally never considered as a pure investment property into an investment property. Sometimes it can work but this is not one of those times.
Ask yourself first who is the target market? What percent of would be renters make up that market. You have a high end 2 bedroom and although it is nice it is lacking a wow factor that would sway a decision to pay 4k in rent.
Inflation is killing you. New car payments are killing your tenants. Food cost, Insurance cost, Drinking cost, eating out cost are all going up. People are finally looking at ways to cut back on expenses and exorbitant housing cost is one of the first places that can significantly have an affect on one's budget. This scenario doesn't bode well for a 4k, 2 bedroom townhome in a nice location but not the hot spot where the action is walkable.
Sell if you can and look for a better opportunity to invest.
I have 20 rentable units.......all considerable lower cost than yours and I am finding it harder to keep the rents I have now. The environment has changed significantly over the last year. Be ready to hunker down, more crap coming.
Sorry for the blunt message, but I tell it like i see it and as a 69yr old, ol'fart no sense in trying to tell something to someone that just might hurt them more in the long run. I hope the best for you.
@Michael M., I am sorry to give you this advice as so far no one has given you a complete picture of what you are up against.
Before I give you this advice, let me qualify myself so you can judge if my advice is even worth taking.
I am neither a real estate agent or a lender OR a property manager for money.
However, I am an investor with 20 units I own and I manage another 6 for my kids! I manage 26 units in total. I have been doing this since 2003. Yes that is 21 years doing this and I have seen it
all when it comes to property management.
Most of my units are 2 bedrooms (900-1000 sq ft) and most of my rents hover between $1500-$1900 per unit. Big difference from a 5 bedroom 3000 sq ft house.
Here are the cons to renting out your home.
1. Out of state and no experience with rentals............SETUP for DISASTER.
2. Property is built for OWNERS not RENTERS. Large home 5 bedrooms!!!! Lots to tear UP! I have a few 3 bedroom duplexes and they give me the biggest headaches. Most families are smaller these days, extra bedrooms are an invitation to get UNAUTHORIZED people living in your home. Life is tough, but it is tougher for renters and the people they associate with. There will be a time that they will invite others to join them (help pay rent) or take in people hard on their luck to house them. All that does not spell good news for the owner.
3. Property Manager.......no disrespect to the PMs on this sight, but to put it kindly you won't find any PM that will do a better job than yourself and probably dislike after you hire one. Yes there are a few out there but to find them is like a needle in a haystack.
4. Fees that a property manager quotes you are not what you will experience. 8-10% fee is not all the total fees they charge. Every new tenant they acquire you will pay a half month to full month of rent in addition to your management fee. Many PMs charge that on a tenant renewal as well. My vacancy when I used a property manager far exceeded the time it took me to find a client. But with no experience and moving out of state you are locked in to using a PM.
5. Rental market. Here is some good news......Since 2003 I have never lowered rents! Amazing! But my rents have averaged from $725-850 early on; and now average $1500-1900. However, I am renting to lower income people and when they lose their job there are plenty of renters to choose from. However, here is the bad news. When $3000 tenants lose their job due to layoffs it will be VERY hard to replace them, especially at the same rental rate since everyone will be looking for lower mortgage/rents. It is far easier to find two $1500 renters than one $3000 renter.
6. Your vacancy rate, and your maintenance cost will be higher. Renters do not care about the yard. All of my duplex's yards go brown in the summer.......All of them. Renters will not pay for watering the lawn or Plants!!!! Your curb appeal on your house will decline and if you live in an HOA be ready to get some complaints.
7. Pets.......yes pets. 70% of renters have pets. Some disclosed and many non-disclosed pets. Pets, both cats and dogs leave their marks, smell and scratches!!!! If you can't be a hands on landlord you will have issues!!!! Any carpet in your house will be destroyed within two tenants. The nice thing about duplexes, they are only about 1000 sq ft. Mine do not have any carpet. My go-to-flooring was tile, but now luxury vinyl.
8. Renters do not change out air filters! Yes, the do not! Your air ducts and ceiling fans will be full of lint. Cat and dog hair is not your AC friend.
I know it is easier to just rent out your house and Hope For the Best. Don't take the easy way. Take a loss if needed and move on. If you were an investor ask yourself this one question:
Would I buy this house to rent out from the start. If the answer is no then don't do it now. Yes this is not what you wanted in home ownership, but don't let a tough situation become a disaster.
Take emotion out of the decision and point out the areas that my logic is off base.
I wish the best for you.
@Kelly Stanton, you have given more info than your original post.
Yes you can get your taxes lowered at least for one year. Protest your taxes this year. Have your closing statement showing what you paid for the house. You probably won't need pictures to justify your cost but have them just in case.
Don't be over zealous and tell them all the improvements you have done. Your taxes this year is based on the property 31 December 2023. But since you were past the deadline for protesting they should give you the valuation that you purchased the property. Usually without any hesitation.
However, be ready for the valuation to jump back up the following year as you will have to prove next year that the house is not worth what they will adjust the property value. Their software does NOT look at your individual house but they price it by the subdivision/street and adjust for various items, like square footage, permitted improvements ect. If it is not homesteaded it can jump up as much as they like. If you have it homesteaded they cannot jump your property up more than 10% from previous year. Good luck.
@Shwetha Pindikuri Hello Newbie wannabe passive INVESTOR.
Got your attention. Ok if you want to be an INVESTOR, you need to start THINKING how an investor thinks. Since I don't know much about you and since you have not utilized your profile that might've given me some insight to you, your goals, and experience, I am going to have to make some assumptions.
1. Obvious your new to investing
2. Goal is Cash Flow over Appreciation (if not I can easily explain why it should)
3. Limited $$$ to start.
4. Single or married with one child or less.
5. Currently renting now.
Realize you live in Texas, not California. In California most investors HAVE TO INVEST for APPRECIATION. They don't have the option to invest for Cash Flow, like you do in TEXAS. Now, Austin is now becoming California, but if you live here and are renting then you have better options as an owner occupant, than as a pure investor in Austin.
If my Assumptions are fairly accurate, then listen up, if not disregard.
Buying a new built house in Austin on limited funds, hoping to sell it in two years so that you can make a tax-free profit, is NOT A GOOD STRATEGY!
Most people who KNOW me already know what I am about to tell you. But since you don't know me here we go.
Consider buying your first INVESTMENT property.......A DUPLEX. It can serve two purposes, provide a roof over your head and still provide some income to OFFSET your LARGE MORTGAGE payment, since you are considering putting 5% down. Becoming an investor involves developing your buying strategy/skills AND learning how to manage your investment (property management).
Living in a duplex will help you learn how to do both, buying and managing. Buying a duplex will give you more options several years down the road. Should you need to move, you simply rent out your side and with the hope of any rental appreciation you have a good chance that you might be breaking even or slight profit. However, buying a house and having to leave in a couple years will either force you to sale or take on negative cash flow because a SFH will not cash flow positive by putting 5%. With a duplex, you can do STR, MTR, or long term rental on the unit you don't occupy and those options might give you a substantial boost in CASH FLOW.
Yeah living in that duplex might not be as nice as that newly constructed SFH but the VERY small sacrifice now will pay HUGE dividend down the road. Investors are usually willing to let lifestyle living take a back seat while they begin their investment journey so that in the not to distant future they can be living the life style they desire with less stress.
If you want some more of my hard hitting advice, hit me up with a DM and we can do coffee.
BTW, I'm neither a real estate agent, nor lender, just an O'ld Fart who loves discussing real estate. Cheers!
@Benjamin P. First and foremost do NOT pay for any training or Mentorship!!!!!!!
Go to meet ups meet a grey old person who has experience and ask to buy him a cup of coffee or lunch and establish a relationship.
I mentor a few in Austin and I love to share my knowledge.
For starters forget about buying HOMES. Think small multi-family that cash flows. I like duplexes they seem to do well. Think CASH FLOW is KING! Cheers!
@Bond Dan, I would say welcome to BP but as I look up at your profile, I see you joined in 2017.
You should utilize your profile page. Update it with your goals, desires and maybe your Why as it relates to real estate. That will go a long way in getting good advice from investors. My advice to you might vary if you are currently renting vs owning now. Whether you have a family or not, and whether your seek appreciation over cash flow.
I see you are in Round Rock. I have several duplexes in Round Rock as well as several more properties throughout the Austin Metro. If you are interesting in getting some more information about investing hit me up with a DM and I will give you my contact information. Cheers. Joe
Thanks @Joe Scaparra. Yah, as you can see i created the profile back in 2017 ,but the fear of losing money ( meaning unable to rent the property if i buy etc..) kept me off real-estate investment . Now, i am motivated to take the next step of learning on ideally "single family rental home investments" with a long-term rental view to help me with financial freedom , still have the fear of "what-if i am unable to rent the property i buy" and hence looking for more guidance around "how to invest in rental properties mainly single family homes " in general :) . I will hit you up via DM as well. Thank you
@Bond Dan, I don't understand the affection for SFH. In your situation, I would recommend against a SFH!!!!!!!!! A duplex will server your needs so much better!!!!!!!!!!!!!!!!!!
I understand your fear of finding a renter but if you invest in duplexes that is the least of your risk. I have 19 rentals and it NEVER crosses my mind "Can I find a Renter". I sent you a message, call be lets discuss. Joe
@Bond Dan, I would say welcome to BP but as I look up at your profile, I see you joined in 2017.
You should utilize your profile page. Update it with your goals, desires and maybe your Why as it relates to real estate. That will go a long way in getting good advice from investors. My advice to you might vary if you are currently renting vs owning now. Whether you have a family or not, and whether your seek appreciation over cash flow.
I see you are in Round Rock. I have several duplexes in Round Rock as well as several more properties throughout the Austin Metro. If you are interesting in getting some more information about investing hit me up with a DM and I will give you my contact information. Cheers. Joe
Thanks Joe. Good points.
In answer to your questions, investing to be have passive income. Austin has been a tricky market in the last two years with predictions of decreasing (or not growing) prop value.
I don't have a better opportunity (better return) but should one come by I want to be thinking ahead.