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Best Deals in Rental Property Investment: Duplexes

Investing in rental property is a good way to create a long-term income steam in retirement, and Jason Hartman offers sound advice to show you how. But what kind of rental property provides the best return on your investment? Depending on factors such as the market and location, for many new investors, the answer might be a duplex or triplex.

Buying a rental property with a fixed rate mortgage can create a passive income stream with numerous tax breaks. Choices include the traditional single-family home, condos or even, for more ambitious investors, apartment complexes. But often overlooked in this array of choices is the humble duplex –two small independent dwellings joined on the same property. Variants include the triplex or even quadruplex, but the principle is the same.

What makes a duplex superior to a single-family home in terms of investment value? One factor is cost. In some US cities, duplex properties can be purchased for prices comparable to those of single-family houses or condominiums. Although prices for multiplex properties are generally higher, more units mean more income to cover higher monthly mortgage payments.

Compared to a single family home, the duplex or multiplex can ease one investor headache: covering the mortgage in times of rental vacancy. For every month when the single-family property stands vacant, the investor must still cover the mortgage payment normally completely or partially paid by the tenant’s monthly rent. With a multiplex property, unless all units go vacant simultaneously, at least some of the mortgage payment will be offset each month from rents. And, when all units are fully rented, the property will most likely show a positive cash flow after the mortgage payment each month.

Another advantage of investing in a duplex or multiplex rental property is that the investor can also occupy one of the units. If you’re a beginner in real estate investing who wants to save money for retirement, one option might be to downsize from your own single family home and take up residence in the investment property. In some cases, this arrangement might improve your chances for financing, because of the likelihood of regular rental income from the other unit or units on the property.

The tax deductions available to investors in a single family home also obtain for multiplex properties. Repairs, expenditures related to maintenance and even losses from damage can be deducted in the current tax year. Administrative costs such as maintaining a home office may also be deductible.

Although investing in a multiplex rather than a single-family dwelling may offer some substantial advantages, there is a downside. Higher initial investment costs may mean a negative cash flow at the beginning. And while lower vacancy mean more rental income, it may also mean more administrative problems connected to repairs and tenant problems.

Rental investment property in whatever form remains one of the most stable kinds of investments available today, and thanks to the downturn in housing, a number of properties are available in many markets. For the beginning investor, duplex or multiplex properties offer yet another option in a marketplace full of possibilities. (Top image: Flickr | NNECAPA)

The Heroic Investing Team


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