Would you believe me if I told you there are two different kinds of duplexes?
And no, I’m not referring to a side by side compared to an up/down.
One kind of duplex cash flows.
The other kind helps an owner occupant afford a lifestyle.
Sometimes the difference is hard for people to understand. After all, shouldn’t all duplexes cash flow?
However, there’s one thing that’s radically different about a duplex, triplex or fourplex from any other kind of investment property; it’s eligible for FHA financing.
FHA financing is available only to buyers who intend to live in the property, and it requires just a 3.5 percent down payment.
Many duplex buyers don’t buy the property for the immediate cash flow. Rather, they purchase it for a long term investment that, for the moment, will offset their own living expenses
Rent, believe it or not, has gotten expensive. As a result, many tenants begin looking to purchase a home of their own. Some quickly realize that a house payment isn’t any less expensive; particularly if they want to live in a hot neighborhood.
However, they often realize if they buy a duplex, not only is their portion of the mortgage payment reduced by the amount of rental income, it is quite often even less than they were paying in rent.
This epiphany means an owner occupant buyer is typically willing to pay more for a duplex in a sought after neighborhood than is a duplex investor looking for a specific rate of return. This drives prices up to where they no longer make sense for many real estate investors.
That’s a hard thing to understand if you’ve been watching late night infomercials on how to make millions in real estate.
But in many markets, it’s reality.