Buying a duplex as your first home can be a way to get in for less, that is if you’re buying both sides of the duplex. Finding that opportunity is the first hurdle.
Lenders typically want 15% down when buying a single-family home plus 6 months of reserves. That’s reduced to 15% when buying a duplex and the buyer is going to occupy one side of the duplex for at least 2 years. Income from the second side lease contributes to the owners’ overall earnings.
Most lenders will apply 70 to 75% of the expected rental payment as stated income. Even with just 70% of the rental payment considered, the numbers can be mic drop-worthy. Assuming one side of the duplex rents for $2,000, a prospective buyer could add $1400/month or $16,800 a year to their stated income.
If you opt to go this route, you’ll be plunged into the role of a landlord, so take a listen:
Make sure you have a solid lease. Don’t just copy one from the internet. Speak to your Realtor. Talk to a Lawyer. It’s worth it in the end. Understand the newest Colorado Renter’s Rights laws that went into effect in August 2023.
Pronounce it yours (and theirs). Do something right away to freshen up the outside of both sides to keep your tenant happy. Take a hint from grandinroad.com or frontgate.com. How about a fresh coat of paint on the front doors, planters and urns flush with boxwoods, and replacement address numbers and new mailboxes? You’ll spend less than $1,000 on materials and give off a $5,000 impression.
Think safety and security. If it snows, shovel it. If the door locks aren’t working, ping the locksmith. If the garage door stalls, call ANKAR. If the porch light is out, replace the bulb. The point is that you as landlord are responsible to provide a safe and secure residence for your tenant. It helps avoid lawsuits and keeps you safe too.
When you get past the initial shock of being a landlord, you might be ready to jump into upgrades. Recommendation: Start on your side of the square footage. It will give you a chance to make the right decisions and learn from the wrong ones before treading into your tenant’s space.
