Duplex Investing: Why Breaking Even Isn’t Bad

said on January 20th, 2014 categorized under: Buying A Duplex

Front RightDepressed duplex values of the last few years have spoiled us. In fact, we’ve become so accustomed to double digit cash on cash returns that when a property produces anything less, we almost view it as a “bad investment”.

And yet, as long as a property carries its own weight, is it really?

Duplexes only have two units contributing to the income stream. Therefore, it’s more difficult to have the $400-500 a month returns many dream of.

Most of the duplex buyers I talk to view their investment as a long term strategy for retirement.  As such, a property that simply breaks even — one that doesn’t cost you anything after the mortgage and all expenses are paid, might not be such a bad thing.

After all, in that case, the only money you’ve essentially invested in your “duplex retirement account” is the down payment. Over time, your tenants will pay it off.

I recently pointed this out to a buyer who was looking to owner occupy a $250,000 duplex, using FHA financing, which requires just a 3.5 percent ($8750) down payment.

While she intends to live there, she couldn’t see herself doing so forever. She did, however, hope to keep the property long term as a means to help fund her retirement.

Even if the property  never goes up in value (which is unlikely), at the end of 30 years, she will have $250,000. And, except for her down payment and the months during which she lives there, that money will have come entirely from other people: her tenants.

I asked if there was any other retirement account she could do this with. Was there, for example, any way she could persuade her co-workers to fund her IRA?

She didn’t think so and neither did I. It made the break-even duplex seem like an awfully good investment.