Buy a Minneapolis Duplex Now and Fix Your Cost of Living for the Rest of Your Life

A coworker recently shared he’d heard if someone bought real estate in their 20s, they’d have a lower cost of living for the rest of their life.

I spent the rest of the day thinking about that.

Let’s see. Rent goes up. Almost every year, and usually somewhere between 3% and 6%. But the mortgage payment on a duplex, house, or any other kind of real estate with fixed rate financing doesn’t go up. That makes a tenant on the losing end of a never-ending equation.

Rent is a cost of living that has no ceiling.

When you buy a duplex with a 30-year fixed-rate loan, the principal and interest payment is locked for the life of the loan. It does not move. Taxes and insurance can rise, but the biggest chunk of your housing payment is frozen the day you close.

Now put a tenant in the other unit. Their rent is not frozen. You raise it in line with the market every year or two, the way any landlord does. That rent check is doing one job: covering more and more of your fixed mortgage payment as the years go by, because the payment isn’t moving and the rent is.

Every year spent waiting to buy, not only results in missing out on today’s prices it also resets the clock on when the fixed payment starts.

Five years from now, a duplex may have a higher price, and if rates have gone up, a higher interest rate. That means a higher fixed payment for the subsequent 30 years. It also means five lost years of principal reduction.

Let’s face it. Most people don’t stay in their duplex forever. They get married, outgrow the space, or want a single-family home in a different neighborhood. When an owner moves out of a duplex and rents their unit, both units are now paying down that same fixed-rate mortgage.

Alternatively, some people sell the duplex because the equity they’ve built can be reinvested in a bigger building to produce greater cash flow. This cash flow helps keep the investor’s cost of living low.

And if investment property ownership no longer suits the owner and they sell? Take the equity (after taxes and depreciation recapture) and apply it to the down payment of a house to live in. That bigger down payment helps make the fixed mortgage payment on that home be lower than it might have been without it, thereby lowering the owner’s cost of living.

So what my friend said is true. The buyer who closes this year locks in this year’s number for three decades. The buyer who waits locks in a higher one, later, for the same three decades.