Buying a Duplex Has Clear Advantages

Besides receiving rent payments from a tenant to help pay the mortgage, there are tax benefits for duplex owner-occupants.
By: Susan E. Peterson: REALTOR® Magazine Online
Buying a duplex has long been a way for people with modest incomes to become homeowners.

Besides having rent from a tenant to help pay the mortgage, there are tax benefits for duplex owner-occupants. They can homestead the entire property, cutting the tax bill. And they can deduct the cost of repairs, improvements, and other expenses for the tenant’s half.

The price of duplexes has risen in the last several years, but the numbers still add up for many prospective duplex buyers.

"For the individual buyer — an owner-occupant — it's hard to go wrong with a duplex, especially when the rental market is strong," says Todd Shipman, president of the Minneapolis Area Association of REALTORS®. "For investors, it becomes a bigger challenge” because rising prices cut into an investor’s return.

Here’s how the numbers add up for one of Shipman’s clients:

    • List price: $359,900
    • Down payment (5 percent): $17,995
    • Mortgage amount (95 percent): $341,905
    • 30-year fixed mortgage: 6.75 percent
    • Principle and interest per month: $2,218
    • Insurance per month: $107
    • Property taxes per month: $275
    • Mortgage insurance per month: $222
    • Monthly payment: $2,822
    • Monthly rental income: $1,000
    • Total monthly owner liability: $1,822