A duplex just might fit the bill
By and large, two options come to mind when a buyer enters the real estate market looking for a new place to live: single family homes and condos. However, there is a third option that deserves careful consideration; especially when it comes to financial decisions.
Purchasing a duplex just may be the perfect choice. A side-by-side or above-and-below unit offers the buyer multiple options including: the ability to reap tax advantages, help with paying the overall mortgage from rent, conversely having a guest house to use for company, or the luxury of owning a property to house extended family that can be cared for when the need arises.
The following contains a short list of reasons why duplexes should be considered among other residential options when searching for a new residence.
The potential for overall financial savings
Though by definition a duplex may offer two separate living arrangements, mortgage lenders will consider the purchase as an owner occupied dwelling and thereby be able to offer a more favorable interest rate. Living in one side and renting out the other may also entitle a borrower to finance a greater loan amount (adding the rental value to overall income) – though that reality will no doubt require certain lender assurances.
The big consideration: tax savings
As any homeowner knows, the interest paid on your home loan as well as the property taxes are deductible when an IRS long form is filed. These deductions are often cited as the biggest reason why owning a home outweighs renting – in a financial sense. The benefit of owning two connected units is the additional tax savings that are deductible if the second housing arrangement is rented out. Like any other landlord-tenant agreement, any costs associated with property management and maintenance are deductible on tax forms at the appropriate amounts.
Wade into a landlord role
Living in one side of the property and renting out the other also allows a buyer to be a landlord without the added expense of having to retain a property management company (since you are literally right next door). If you choose to “go it alone,” do the required homework to decide on an appropriate rental amount and the sometimes complex, local laws governing rentals. The owner-tenant relationship can give a buyer the knowledge needed to expand and build a legitimate real estate empire or simply “stay small” and keep a vigilant eye out for any external or internal (with permission) needs that the rental side made require – before issues become large and expensive. Being so close also lets owners keep attention for illegal or unethical behavior and the ability to get the conduct corrected post haste.
Long term or short term
Being a landlord also means that you decide how long you want to rent out of the other half of the property. If you are looking for long-term consistency and commitment, then by all means rent with multi-year agreements that build in annual rent increases. If you will need the unit for family or relatives in the future, then make that known to tenants as well. If on the other hand you want to keep the unit open for more casual renting – and you can afford it – then use an Internet rental site as a vacation-type of arrangement. Two main things to remember about short-term rentals, each market may be bound by varying levels of restrictions and the more desirable the area in which you own, the greater demand and accompanying fee that may be appropriately charged.