Duplex Investing: Why Breaking Even Isn’t Bad

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.