With the U.S. housing market 2020 clearly a seller’s market, many investors are looking ahead to 2021. No investor likes to buy when properties are being bid up to above the asking price. Every investor wants to buy when market prices are down, not up. Just like investors in single-family homes or larger multi-family homes, those considering buying a duplex may be waiting out the remaining months of 2020 to see what 2021 will look like.
The good news is that almost every expert agrees that 2021 will see a cooling off of the hot seller’s market. Curbed says that home prices may be dropping soon. National Mortgage News says that the result of the changes in 2020 could lead to an increase in distressed property sales. Mashvisor’s expert predictions for the US housing market 2021 included the finding that the market could shift to a buyer’s market. This is good news for investors who are considering buying a duplex in 2021.
Besides the possibility of landing deals, is buying a duplex a good investment for next year? We won’t keep you hanging – we conclude that buying a duplex in 2021 is looking like a smart move. Actually, there are always good reasons to buy a duplex. Let’s look at some of them.
Investing in Duplexes Means You Can House Hack
You may be wondering why so many real estate investors look to duplexes for sale as a first property. The answer is simple. A duplex is the most affordable way to buy a rental property. This is because you can buy a duplex using an FHA loan. These special loans are intended to be used by homeowners, not investors. However, there is a clause that allows a real estate investor to use an FHA loan when buying a duplex.
Known as “house hacking,” the trick is to use an FHA loan to buy a property and live in half of it as one’s primary residence for a period of time before moving on to a single-family home. Buying a duplex and living on one side allows this scheme to be entirely legal. Just be sure you follow a few simple rules, and you can obtain a low-interest loan with a very low down payment.
Related: A Guide to Investing in an Owner-Occupied Duplex
There is another reason why a duplex in 2021 makes sense. As more and more American regions look to rent control measures, duplex properties are often spared. The idea is that smaller investors are somehow more deserving of their investment profits. While you may disagree with that logic, those who live in a part of a rental often find they are excluded from the most extreme rent control measures. Investors would be wise to take note of pending rent control changes.
The same can be true of Airbnb rental rules – many locations that prohibit non-owner occupied Airbnbs allow you to rent out if you use the property as a primary residence. So house hacking a duplex opens up the door to Airbnb renting in locations like Las Vegas or Los Angeles.
You Should Buy a Duplex Even If You Won’t Live in Half – Here’s Why
Buying a duplex and renting out half is a great strategy. But, many investors covet duplex homes for reasons other than the owner-occupied house hack. Duplexes are great investments. As a single property with two rentable units in one package, the duplex lends itself to easy management and economies of scale. Duplex units also don’t usually have condo or HOA fees. Your return on investment is better in general with a duplex home.
Related: Townhouse vs. Duplex: Which Is the Better Real Estate Investment?
There is one roof to replace, one yard to maintain, and your vendor list has double the impact when you buy a duplex home. Maintaining two individual rental units is much more complicated and expensive than managing one duplex. Every time you visit the unit, you can also see how your other rental unit is doing (at least from the outside). Your drive-by time, inspections, and any work you handle yourself are all minimized.
Cash Flow and Vacancy Rates Are Better with Duplex Rental Units
Buying a duplex in 2021 means good occupancy rates and cash flow.
Imagine having $600K to invest in the outer ring of a metro area or first ring of suburbs. In most big-name areas like the Boston real estate market, you won’t get much of a single-family house for that much money. You can certainly get a condo, but condos have their own set of issues, such as the aforementioned condo fees. Why invest in a single $600K property with one large loan, when you can have two smaller rental units?
$600K will buy a duplex home in many outer metro areas and the first ring of suburbs. With that volume of investment, you can have two units instead of one. This helps make your vacancy rate more stable. If one of your units is empty waiting to be filled, or if one of your tenants has a COVID-19-related rent delay, the other can still help you maintain your cash flow and profitability. By contrast, if your more expensive-to-rent single-family is empty, you are on the hook for the mortgage and all the other associated cost-side burdens.
Related: How to Find Positive Cash Flow Properties
Finding Duplex Homes in Which to Invest Does Not Have to Be Difficult
We won’t sugar-coat the challenge of finding a good duplex to rent. Like you, other real estate investors are already looking for duplex units to buy. In some areas, the former investors have converted the two sides into individual units. Half of a condo complex is one way to think of that scenario. You need to avoid buying half a duplex. It is too risky. You cannot control the other side at all. If they let the property go downhill, you will only be able to watch in dismay as your better-kept side suffers depreciation. If you spot half a duplex for sale, walk away.
That said, Mashvisor has the search and rental property analysis tools you need to identify the best duplex rental units for sale quickly. Our site can allow you to sort by location, price, property type, and other parameters to home-in on your perfect duplex quickly and easily. Our real estate investment software is easy to use, and you can get started in your search for the ideal duplex home for sale today.
Summary – Buying a Duplex in 2021 Makes Sense for Many Reasons
As we have discussed, 2021 is shaping up to be a good year in which to invest. With mortgage moratoriums and rental delay mandates striking hard at many investors, some may sell their best units in 2021. You can be the buyer.
One type of duplex investing is to “house-hack” your way into an owner-occupied, FHA-loan property. However, many investors, including your author, have invested successfully in duplex homes because they offer a better return on your invested dollar—particularly when compared to one pricey single-family unit.
And remember, Mashvisor won’t just help you locate a great duplex rental unit. We also have rental property calculators and the tools you need to do return on investment and cash flow analysis.
To get access to our real estate investment tools, sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.