Is Purchasing a Duplex or Multiunit Property Right for You?

Buying a multiunit property, and either living in one of the units or renting out the entire property, has numerous advantages. However, there are many factors that you should consider before making a decision.

This topic is so complex that we’re dedication two blog posts to the subject. The first article will discuss whether buying a multiunit property and becoming a landlord is right for you. Then, if you decide to move forward, the second will provide information on financing options available for these properties.

Multiunit Properties, Part 1: Making the Decision

The Difference Between Multiunit Properties and Simply Renting a Room

While they can be similar, it’s important to understand the differences between owning a multiunit property and simply renting out a room in your house. For legal and tax purposes (as well as the daily life of your family and your tenants) you should understand that they are vastly different and should be considered under distinct terms.

With a spare room, or a basement with a kitchenette, the tenant is basically living in your unit. However, with a multiunit property, each unit will have a separate entrance, kitchen, bathrooms, and utilities. Generally speaking, each unit will have all the same facilities as a single-family home. You can, however, convert large single-family homes into multiple units. This is not uncommon, especially in densely-populated areas, college towns, and other locations with many renters.

Although some principles will overlap, for the purpose of this series, we are discussing multiunit properties only, not renting a room in your home.

Is Being a Landlord Right for You?

Being a landlord has a lot of benefits, including financial independence and the chance to make money off your property. However, it’s not for everyone. To be a landlord, you have to be comfortable with collecting rent from tenants on a monthly basis. If your tenant doesn’t pay, you may have to be assertive, even pushy, in order to get your money; not everyone can handle that. Also, the time may come when you have to evict a tenant, which is never easy. You certainly don’t have to be ruthless, but to be a landlord you do have to be firm and decisive.

As the landlord, you are also responsible for everything that goes wrong in the unit. Whether the garbage disposal leaks or the air conditioning won’t run, you are the one that is responsible for any repairs. You can fix it yourself or hire a handyman, but you are liable for ensuring a comfortable, livable unit.

How Much Money Could Your Make?

It’s the bottom-line question for becoming a landlord, but there’s certainly no easy answer. How much money you may will depend on many factors, including how much you pay monthly for the property (your mortgage payment), local property taxes, and how much you charge for rent. Other factors include the cost of upkeep, repairs, and advertising the unit’s availability.

The easiest way to find out how much you can charge for rent is to simply do a search of rental websites and listings. If you have a specific property in mind for a purchase, search for rental units that have similar amenities, floor plans, and are in the same area. This will give you an indication of how much your property will bring.

You’ll also need to do the math on your monthly mortgage payments and compare that to the potential income. If you discover that the outgoing mortgage payment is significantly lower than the incoming rent payment, you likely have the financial cushion to make a profit. However, if the mortgage is close to the rent cost, there may not be enough room for profit, especially when you factor in taxes, upkeep, and other expenses.

Things to Consider When Buying a Multiunit Property

Location Options Will Be Limited

If you are looking for a duplex or a property with three or four units, and you plan on living in one of the units, you will have to accept that property locations will be limited. Think about the area where you live; no matter which direction you go, you can likely find single-family homes. However, can you think of many duplexes in the surrounding neighborhoods?

Multiunit properties are fairly rare, so finding one in the location where you want to live could be difficult. If you are not planning to live in the unit, this may not be a problem, but if you want to occupy half of your duplex, you may need to be open to living further from work or outside of your preferred neighborhood.

Owning a duplex could bring a steady boost to your monthly income.

Taxes are More Complex

Another issue to renting out part of your duplex is the complexities with taxes. While federal and state tax codes are always changing, there are layers of complexity that make income predictions more difficult. The IRS has pages upon pages of tax rules affecting landlords, so be sure to speak with a qualified tax professional before you purchase a multiunit property.

If You Live Onsite, You’ll Live Next to Your Tenant

The upside of occupying a unit at your rental property is that you live next to your tenants. The downside…you live next to your tenants!

Being close to your rental property certainly has advantages, as you can constantly check on the quality and care of the property; your mere presence could deter tenants from outright destroying and damaging the property. However, if the tenant needs anything, you’re just across the wall. Of course, you won’t have to drive across town (and it is your responsibility anyhow), but your tenants will always know where to find you, which can have some obvious downsides.

When the Time Comes, Selling Can be Difficult

Possibly the biggest issue with purchasing a multiunit home comes years or even decades later. When it’s time to sell, you could have difficulty finding a buyer. As we’ll discuss in part two, finding financing for a multiunit home can be more difficult, so fewer buyers will qualify. And quite frankly, there are less people willing to buy duplexes compared to people looking for single family homes. Finding a buyer is certainly not impossible, but it could take longer.

Click here to read Part 2: Finding the Right Loan for Your Multiunit Property

If you have decided that buying a multiunit property is right for you, congratulations! You’re giving yourself and your family an opportunity for financial independence and stability, so to get started, check our blog for Part 2 of this series!

If you have further questions, contact the team at San Diego Purchase Loans today. We’d love to discuss the benefits and drawbacks of owning a multiunit property!


Outstanding experience

I was referred to Chad by my Realtor for a purchase of a new house. The experience with Chad and the team (I mainly worked with Juliann) was nothing short of outstanding. From start to finish there were always quick to respond and when needed, notify me of any new documentation that was required. There were very helpful explaining to me the pros and cons of different financing options as well as some other loan related issues, such as termite clearance outside the purchase contact and septic tank certification process. Overall, very knowledgeable and processional team. Loan preapproval was done in a single day and loan documents were ready for signing in 21 days, which was 9 days ahead of schedule. That never happened to me before.

“This is the second time that I have worked with Chad (home purchase & refinance). He has become my subject matter expert and someone I depend on for all finance needs related to our home and real estate investments. My favorite things about Chad are his depth of knowledge, responsiveness, honesty and the great service he provides. I have referred countless friends and family of mine to work with him for no other reason than I know that he will treat them well and equip them for the best possible outcome. Chad will add tremendous value to any real estate transaction that you have and I am grateful to have him as a resource.”

“Hi Juliann and Chad, I wanted to take a moment and thank you guys for what would have been impossible for us to do without you. We wouldn’t have our keys in hand if it had not been for your help in navigating the financing, and Juliann’s perseverance in getting the rest of the players in the transaction to deliver. Out of everything, our interaction with your office has been a highlight – and your customer service has been beyond everything we’ve experienced in the real estate industry. Is there a way we can provide any reviews, ratings, testimonials, or other statements that can express to your potential future customers how much you guys do to make the customer’s life easy? Please let us know how we can share our great experience with you to the rest of the public. Whether we refinance this under a VA, or get in a bigger/better house in a few years, we’re not going to go anywhere else for financing. We are customers of yours as long as you are in business. Thanks again for getting us in a house!”