A duplex is two homes under one roof, and it’s a popular first investment: you can rent both units, or live in one and rent the other. You analyze it like any rental, with one difference. The income comes from a rent roll, a list of each unit and its rent, and a rent roll can mix what the units earn now with what the seller thinks they could earn.
How do you analyze a duplex?
Work through it in this order:
- Get the rent each unit can get today. Ask for the current leases, not only the seller’s rent roll, and note when each lease ends.
- Set aside what the seller expects the units could earn. That’s a plan for after you buy, not income you’re buying.
- Count the costs of the whole building: taxes, insurance, any utilities you pay, repairs, money for big repairs and management.
- Check the month with one unit empty. In a duplex, one vacancy is half the income.
The seller’s rents against today’s rents
Take a $320,000 duplex. Unit A has a lease at $1,450 a month. Unit B is empty, and similar units nearby rent for about $1,450 too. The seller’s sheet says both units will rent for $1,700 once they’re updated.
Everything else is the same in both columns: 25% down on a 30-year loan at 7%, 5% of rent set aside for empty months, and 20% of rent for repairs, big repairs and management.
| Seller’s rents | Today’s rents | |
|---|---|---|
| Rent for both units | $3,400 | $2,900 |
| Empty months (5% of rent) | −$170 | −$145 |
| Property taxes and insurance | −$600 | −$600 |
| Water, sewer and trash you pay | −$120 | −$120 |
| Repairs, big repairs and management (20% of rent) | −$680 | −$580 |
| Mortgage | −$1,597 | −$1,597 |
| Cash flow each month | +$233 | −$142 |
On the seller’s rents, the duplex pays you $233 a month and passes the 1% rule. On the rents it can get today, it costs you $142 a month and fails it. The building didn’t change. The rent roll did.
What happens with one unit empty?
Right now only Unit A has a tenant. Until Unit B is rented, the building collects $1,450 a month, not $2,900, while the mortgage, taxes, insurance and water bill still come to $2,317. That’s $867 short every month, before any repairs or management.
It’s the risk a percentage hides. A 5% allowance spreads empty months across the year, but a duplex doesn’t lose 5% of its rent at a time. It loses half. You need the cash to carry a half-empty building while you find a tenant.
What should you ask the seller for?
- The current leases, with each unit’s rent, deposit and end date.
- Which utilities the owner pays, and whether each unit has its own meters.
- What’s been updated and what hasn’t, if the higher rents depend on work you’d be paying for.
Should you live in one unit?
Living in one unit and renting out the other is called house hacking. Loans for owner-occupants can need a smaller down payment than investor loans, which changes the numbers above. How much money you need to buy a rental compares the two. Ask a lender what you’d qualify for, then run the duplex both ways.
Duplexes, triplexes and fourplexes can usually be bought with a residential mortgage. From five units up, lenders usually treat the building as commercial, with different loan terms.