Buying Rental Duplexes – A Quickstart Guide.

So you think a rental duplex is something you want to invest in. Well this is a short and concise guide of some things to consider. Duplexes are great investments but with any investment you need to do your due diligence and be honest with your capabilities.

Step #1 : Scope out the Market Area.

Where do you want to invest in? It’s a simple question but with layers. Ask yourself the following:

  • What are the local tax rates?
  • Would i be comfortable collecting rents?
  • Would i want to live here even temporarily?
  • Is the area growing?

Step #2 : Do your Financial Homework.

Before you search for duplex listings, you need to know where you stand financially. There are ways to creatively finance any property but if this is going to be your first investment property, base your buying ability on more traditional methods. Some variables to sort out:

  • Get Your Credit Score
  • Determine Your Max Down Payment
  • Determine your Cash Reserve
  • Look at local Rental Rates

Your credit score is your a lender’s measure of how fit your are as a borrower. Whatever the imperfections to this system, it is a core component to getting attractive interest rates. Get a 3 Bureau credit score and see what each one scores you at. If you have a low score, you may want to boost that number and invest when you can get a better rate.

Figure you out your max down payment and see if you can afford the cash outlay starting at your base price range. Make sure you accurately determine what the minimum down payment for duplexes in your projected area are.

With any investment property, numbers tell the story. Find vacancy and credit lose rates in the area you want to buy. If you experience that rate of vacancy or worse, will your cash reserve allow you to pay your mortgage?

Estimating the vacancy rates are important but so are the local rental rates. This rental income rate should be based on recent history and should be the average rate. There are outliers in rental income in any market, but base your estimate on conservative rent figures.

Step #3 : Get your Duplex Mortgage Options.

Call and get rates. Duplexes are considered Multi-Family 2 but still considered residential real estate so financing is similar to a single family home. The major financing difference depends if you are going to be a owner occupant or a pure landlord. The other variable to ask about is if a lender will take into the consideration the potential rental  income on the property.

  • If you are a “unseasoned” investor, they may give your potential rental income zero consideration and will simply finance you based on your ability pay the whole mortgage with your current financial means.
  • If you are a “seasoned” investor then they may take into consideration a certain percentage of potential rental income. Almost no lender will speculate 100% occupancy, most likely it will be somewhere near 75% from a lender’s perspective. What percentage also relates to your owner occupancy status on the property.

The down payment on the property is affected by your owner occupancy. For example a lender may allow 10% down if your are buying as a owner occupant and want 20% down if you are a buying as pure investment property.

One thing you will want to ask any lender is what the occupancy period is before you can leave the property as an owner occupant and turn that unit into a rental.  It may be a year, it may be more. Verify this outside of your lender per your state rules.

Step #4 : Have a Tenant Marketing Plan.

Once you know your financing options, think about your duplex marketing plan. How do you intend to get a renter? Ask other investors what works, and research what publications or methods that are used most often in your market area. Then define your plan.

Step #5 : Duplex Shop and Narrow Possibilities.

With the assistance of a real estate broker or agent look at several options that meet your criteria. Look at the core functionality of the property and get a home inspection on your top prospects. A good place to start your search is check the website and look at the recent duplex listings and check back here for updated duplex information.

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