The New Frugal You
Dear New Frugal You,
Why is it
that so-called financial planners like yourself never mention buying a duplex
house that provides tax and expense benefits plus income? Is it because
financial planners can't see beyond the products that they sell? If a person's
income were increased by owning the duplex, might they have more money to invest
in other products? Or is that too tough for financial planners to figure out?
First, let me
begin by saying that I haven't earned a fee or commission for selling any
financial product for a number of years. Nor can I collect any real estate
commissions. So I have no financial stake either for or against real estate investments.
Next, let me
point out that fee-only financial planners (the type that I recommend) don't
collect a commission on sales, either. They charge either an hourly fee or a
percentage of assets under their control. So their advice isn't biased by any
you choose to use a professional who is paid by commission, then you would
expect them to show you the products that they know best and that would earn them a
commission. That's true of stock brokers, insurance salespeople, financial planners
and real estate agents. It's also the reason why you want to know how any adviser
that we've gotten the hostilities out of the way, let's look at both sides of
investing in a duplex. As you say, there are some good reasons to own a duplex.
But there's also a downside that prospective buyers need to consider before
they sign a purchase contract.
the good stuff.
duplex could appreciate in value, and perhaps more than a single family home.
There is no guarantee, but in the long, run real estate values do trend upward.
A duplex is more expensive than a comparable house and likely would appreciate
tenant will help pay your mortgage. Rental income should cover a large part of
your monthly mortgage payments.
as you point out, unlike the situation with a single-family home, with a duplex
you'll be able to deduct certain home expenses. That can make upkeep easier to
you'll be living in the building, it's easy to protect your investment. If the
tenant's lifestyle is putting your investment at risk you'll know quickly.
also easy to check out renter problems. You won't have to guess how bad a
plumbing problem is. You can walk next door and inspect the situation
Disgusted, there are also some potential problems to consider before buying and
moving into a duplex.
could have times when the rental unit is empty and won't be bringing in any
income. During those times you'll need to cover all the mortgage and other
can be an issue in a duplex, whether you're a landlord or not. You share a
common wall. Sometimes that becomes a problem.
living next door to your tenants makes complaining very easy for them. Some
landlords duck calls from tenants who constantly complain. That's hard to do when they can see you pull in the driveway.
renters may damage your property. Even if you're very careful selecting
tenants, you'll need to freshen up the unit before showing it to new potential
are some other things to consider that aren't necessarily pluses or minuses,
but which could help you to decide whether to move forward.
talking with people who have owned rental properties for awhile, especially if
you know them well. They'll be able to share insights that will be most
relevant for you.
important to know your temperament. Do you have a "landlording
temperament"? Some of us handle unexpected surprises well. That can be an
important personality trait when you're dealing with renters.
also need what it takes to protect your investment. It's not easy demanding
past due rent or forcing a tenant to leave.
a plan for handling repairs. How much will you try to do yourself? How many
hours per week or per month are you willing to devote to repairs/maintenance?
Know who you'll call when you need to pay for repairs, and how you'll cover the
maintenance when you're on vacation. Remember, too, that while a
repair service is probably a deductible expense, your time is not.
how you'll screen prospective tenants. You will want to screen them for
financial reasons, and you may want to include some rules in the lease about
smoking, noise and pets.
out what property insurance will cost. Having a renter under your roof could
make a big difference in rates. You'll need to include that cost in your profit
with an accountant. Some of your expenses will be deductible on your federal
income taxes. You'll need to know which ones qualify and how to keep track of
you may be right that not enough financial planners consider or advise owning a
duplex to build wealth. But that decision isn't a slam dunk. It should be
carefully considered before any purchase agreements are signed.
See related: Tips for owning a duplex, Credit card cash advance for a down payment? Don't
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