The world of real estate investments is vast. Apartments, land, office, industrial, mobile home parks, single family homes, storage, RV parks, marinas, flex space . . . and those are just broad sectors. With all the options out there how does one decide? Well, my personal, longtime favorite ain't sexy to look at, but the returns sure are. The humble duplex. A duplex is essentially a two unit apartment complex. It usually looks like a normal house with two front doors on the outside. Each door goes to a separate unit, and the units typically mirror each other. Below are the reasons why I believe the duplex might just be the best investment out there right now.
1. Duplexes have a value proposition.
Duplexes offer a strong value proposition to tenants. Duplexes have all of the amenities and qualities of being in a nice, single family home, at a lower price. Tenants have a front yard, a back yard, a side yard, natural light, a house-style floor plan, separate parking and a separate mailbox. It's all theirs, and it is not shared. No apartment can offer all of those things. Single family homes offer those things, but they are more expensive to rent (because single family homes cost more to buy and more to maintain per rental unit).
2. Duplexes aren't competing against large apartment complexes.
It was always my dream to purchase a small apartment complex. When I did, I realized my duplexes out performed it. Why? I had NO value proposition to tenants. I was now competing directly with larger apartment complexes. Apartment complexes that had dog parks, exercise rooms, swimming pools, move in specials and multiple floor plans. I couldn't offer tenants anything that my competition didn't have. I couldn't outspend the big guys on marketing. I will never lower my tenant screening standards. My only way to attract tenants is a lower price. I never want to be the low price guy.
3. Duplexes offer you, the investor, economies of scale
It is the best of both worlds. You offer your tenant the qualities of living in a nice single family home, but you only have to pay for one roof, one tax bill and one insurance policy. You can renovate one unit and still have the other unit rented, thus offsetting your costs. You can even live in one unit, rent the other and live for free. You have economies of scope because you can advertise both at the same time, and tenants LOVE to pick their neighbor. About 25% of my tenants come from referrals, as people want to have friends or family as neighbors.
4. No one is bragging about investing in duplexes
Your uber driver may tell you about his crazy crypto currency investments or how he is flipping houses. I have heard people talk about big apartment deals and developing commercial strips. I've never heard someone tell me about duplexes. I don't like investments with hype. Investments with hype inherently are overbought. Things that are off others radars are likely not over priced, and therefore can offer outsized returns.
5. Duplexes share the qualities of all under the radar real estate investments.
The qualities of under the radar real estate investments is outside of the scope of this article, however a list some of the most important qualities is as follows:
A. The market is inefficient. You can gain specialized knowledge that is available to very few, possibly only you.
B. It is highly leverageable. You can borrow 100% or more of the purchase price.
C. Most have value-add potential. You can immediately increase the value either operationally i.e. increase the rents, or by capital expenditures.
D. 99% of retail investor won't buy it, 99% of large investors won't buy it. It is too big for the little guys, and too little for the big guys. Basically, you have very limited competition.
E. It is relatively liquid. A duplex can be turned in to cash in as little as 2 weeks. Most commercial deals take 90-120 days or more.
F. It is inflation resistant. Leases are at most 2 years, but almost always 1 year. If prices go up, your revenue can be adjusted quickly.
G. It is tax advantaged. Depreciation, deductions and tax-free exchanges.
6. Duplex investors aren't fighting against owner occupier home buyers like with single family homes.
In addition to taking small and large investors out of the equation, you have also taken out 99% of residential buyers. Again, less competition. The prices are not influenced by someone who has to buy a house for a job, someone who can get a crazy loan through a government sponsored program, or someone who is buying because the kitchen is their dream kitchen (or other emotional factors). Your competition is limited to other investors who are buying for one reason - to make money.
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