A duplex falls into a weird position in real estate, toeing the line between single-family residences and larger multifamily properties. As a rental property owner, you would most likely want to identify where this property type fits in so that you can make more lucrative rental decisions. In this blog, we will be tackling the question of “Is a Duplex considered multi-family” and shedding some light on this matter.
What is considered to be a Duplex property?
A duplex is generally referred to as a residential building that has been divided up into two separate units. Each unit will have its own entrance, kitchen, bathroom, and living facilities. These units are typically mirror images of each other, set at opposite ends of the property. The only thing separating the two units would be a common wall.
But, when it comes to multifamily properties, they are considered to be residential buildings that contain two or more units. And this is where the confusion sets in. If two units can be considered as a multi-family property, then wouldn’t the same apply to a duplex?
In the same way, “multi-family” indicates that the residential property would be able to accommodate multiple families, so would two families count?
And so, it boils down to the definition of the two properties. The confusion occurs due to a misunderstanding of these definitions. Just based on what defines a duplex, it should be considered a multi-family property from a legal standpoint.
Factors to consider with a duplex rental property
As a real estate investor, your next question would be whether or not a duplex is a better real estate investment than a larger property. There are some factors to consider here and it will come down to your unique circumstances.
- Zoning Regulations
Whether a duplex can be classified as a multifamily property will depend on regional zoning regulations, as well as the definition of a multifamily property in that region. This is why in some areas, duplexes might be considered multi-family homes, while it isn’t in others.
To avoid such confusion, it’s best to consult with local authorities or seek legal advice to understand how your local area classifies and defines these terms. This would be the most direct way to identify if your property is considered multifamily.
- Opportunities for Investment
Did you know that a duplex can offer similar benefits to those that can be obtained with a larger multifamily property? Let’s start with the most obvious, a duplex allows you to become a homeowner while simultaneously being able to generate rental income from the second unit.
This gives you the option to purchase not just a rental property, but a home for yourself as well. You can make some income on the side to help with cash flow or simply add another property to your portfolio as an investor.
This makes it a great investment for newcomers in the real estate market as they can choose to live in one unit and rent out the other, effectively covering a significant portion of their mortgage.
On the other hand, as an investor, they can rent out both units, maximizing their rental income potential. This versatility makes duplexes a more favorable purchase than a large multifamily property or smaller single-family property for a new investor.
- Income Potential
Duplexes generally offer lower rental income potential compared to larger multifamily properties. While this may seem like a disadvantage at first, we need to look at it from a contextual basis. For most new investors or homeowners, owning a duplex is still quite lucrative.
On top of that, the reduced scale of two units will also mean that you have lower maintenance costs and management responsibilities. Larger properties will be more difficult to take care of, so if you’re looking to manage a property, but want more earning potential than a single-family home, a duplex is the way to go.
- Financing the investment
When it comes to financing a duplex, you may be wondering if there are any complications you may come across. The good news is that financing a duplex is the same as any other property. When lenders are evaluating your financing request, they will see that the rental income from the two units can be used to qualify you for a larger mortgage.
This gives you the opportunity to secure financing with more favorable terms, making your investment in a duplex even more enticing. However, keep in mind that each financial institution will have its own criteria, so it’s best to approach multiple before selecting one institution.
- Rental Regulations
There may be specific rules and regulations that can vary by location, but the rental guidelines for duplexes are generally similar to those for multifamily properties. As a landlord, you will be required to follow the local landlord-tenant laws, which will govern certain areas such as lease agreements, security deposits, maintenance, and eviction processes.
The only difference is that you would only be managing two units, meaning lesser work than a much larger property.
The fact of the matter is that the definition of a duplex will depend on where the property is located. In general terms, a duplex is considered multi-family, but make sure of this with your local authorities first.
As for real estate investors, duplexes offer many of the same advantages and investment opportunities that are associated with larger multifamily properties, making it a worthwhile investment.