When it comes to determining value, what’s the difference between an apartment building and a duplex?
The value and ability to finance an apartment value is determined by how much revenue the property generates, what the expenses are, and its cash flow.
While rental income and expenses certainly pay a part in a value of a duplex, values are also influenced by location and comparable properties that have sold.
For example, a six bedroom duplex on the west side of Lake Harriet recently sold for $435,000. The units were not rented, but likely have a market rent of somewhere around $1500 a month.
As annual figure, times two units, leaves the property with annual gross income of $36,000.
Meanwhile, a side by side duplex with three bedrooms in each unit recently sold in the Kenny neighborhood for $180,000. It should generate the same amount in rent and expenses.
If cash flow is what’s most valuable, clearly the second property would be the better investment.
However, when it comes to duplexes in the Twin Cities, a vast population of them are located in neighborhoods with sought-after ammenities appealing to owner occupants; things like walking trails, shops and restaurants.
Duplexes aren’t as expensive for owner occupants as buying a comparable single family home. As a result, if a buyer wants to live in a specific area, but the payments on a single family home would be uncomfortable, a duplex is an affordable option.
Making the idea of duplex ownership even more attractive are the easy down payment options; after all, you only need 3.5 percent down. An apartment building, on the other hand, usually needs a 20 or 25 percent down payment.
The relative ease of financing, coupled with higher demand for duplexes, often pushes their values up to a point where they no longer cash flow.
Meanwhile, banks that will lend money on apartment buildings that don’t cash flow are few and far between.