How to Buy a

Duplex – The
Ultimate Step by
Step Guide

By Brandon Turner
This morning I received a Skype video message from my little brother Chris.

He asked, “I want to buy a duplex, what is the first step? Do I get a real
estate agent? Get pre-approved? What should I do?”
Of course, I gave him a few resources to read that I had previously
written, like How to Buy a Rental Property in the Next 90 Days and How to
Hack Your Housing and Get Paid to Live For Free but then said to
myself “self – (that’s what I call myself)… it’s my brother and I really want
him to succeed. So why not make a blog post directly for him that helps him
get from A-Z?”
After all, my first rental property was a duplex and I’ve purchased
several since that day. I love duplexes and I’m super passionate
about helping others get started with duplex investing as well. So
that’s what I’m going to do today, for the benefit of Chris and the
BiggerPockets audience. In this post, I’ll talk about:

§ Why Buy a Duplex?

§ What’s the First Step?
§ How to Find a Duplex
§ How to Analyze a Duplex?
§ How to Finance a Duplex
§ And a lot more.
Keep in mind, while the focus of this article is on a “duplex” – the
exact same information can be used to buy a single family house, a
duplex, a triplex, or a 4-plex: so don’t limit yourself to just a duplex.
In fact, if you are going to go through all the work of finding a duplex,
you might as well consider the larger properties (3 or 4 unit) in case a
better deal can be found this way.

Furthermore, I’ll be approaching this article from two places:

1. Someone looking to buy a duplex and live in one-half of it

2. Someone looking to just buy a duplex as a full rental.
Whichever of these two positions you find yourself in, I believe this
article can help.

With that, let’s get to the article. The following is “How to Buy a
Duplex.”

Why Buy a Duplex?

In the beginning, I had no idea what I was doing, honestly.

I was 22 years old and had purchased, fixed up, and sold my first
property- my primary residence. Suddenly I found myself facing the
very real possibility that I was going to be homeless. Sure, I could go
find a place to rent but I had been bitten by the real estate bug and
knew that real estate investing was going to be my ticket to financial
freedom. I read a few books (including Larry Loftis’ Investing in
Duplexes, Triplexes, and Quads: The Fastest and Safest Way to Real Estate
Wealth – which is incredible!) so I knew that there was potential in a
small multifamily property. (To see my other favorite books, check
out BiggerPockets Presents : The 21 Best Real Estate Books Ever.)
I called up my agent, found a small duplex that was a bank repo (the
Kurt Cobain duplex that I talk about in How I Accidentally Bought Two
of Kurt Cobain’s Former Homes and Why That’s Not Even The Best Part.),
and purchased it for $80,000. I spent a few weeks cleaning it up,
painting it, and doing small maintenance work and then rented it out.
My total mortgage payment was a little over $600 per month and I
rented the front house out for around that same amount… meaning I
was living almost for free! (Just paying utilities.) A year later I moved
out and rented the other home out, and ever since I have been
receiving significant cash flow each and every month and will
continue to for the rest of my life. This is what started my obsession
with small multifamily properties and duplexes in general.
So why should you buy a duplex?
Well… you shouldn’t.

You should buy a great duplex deal.

Anyone can buy a rental property, but true success is found in a great
deal.(Tweet This!)
Buying a great duplex deal can give you several unique benefits, such
as:

§ Great cash flow

§ Pay rent to yourself, rather than some landlord
 § The ability to gain two units in one transaction
§ The ability to live free or cheap while the other tenant pays your bills
§ A low-risk introduction to the world of landlording
§ Relatively easy, long term financing
§ Relatively easy leasing of the unit(s)
§ And more.
Again: simply buying a duplex is not the secret to success. If you buy
a bad deal, you might as well keep renting! However, if you do your
homework, shop smart, and snag a great deal, a duplex can be a
great springboard to help you build your financially stable future.

How to Buy a Duplex: Step by Step

Before I dive too deep into the process for finding, analyzing, and
financing a duplex, let me give you a broad 30,000 foot overview of
the entire duplex-buying process, beginning to end. Keep in mind:
these steps may change slightly depending on the buyer, but this is
how I treat a purchase:

1.) Get Educated – You are already doing step one, so congrats! It’s
important you gain a solid understanding of how the process works,
how to analyze deals, etc before getting in too deep. This will help
you avoid the risk of getting taken advantage of. I’d also recommend
you read through The Ultimate Beginner’s Guide to Real Estate
Investing to help you gain a solid foundation for your future as a real
estate investor. Also, The BiggerPockets Podcast is, perhaps, the single
greatest resource for real estate investors in the history of mankind.
Seriously. And it’s nothing Josh Dorkin or I do to make it that way; it’s
the honest, brutal truth from our guests. Incredible!
2.) Get Pre-Approved – When you are ready to start the process, it’s
important to get your financing lined up first. Granted, you may want
to switch around step #2 and step #3 because a good agent can refer
you to a good mortgage broker, but either way, it’s important to get
your financing lined up. We’ll talk more about the different financing
options you have in a little bit, but definitely get to a bank or
mortgage company and open up the conversation.
3.) Get in Touch with a Real Estate Agent – If you are buying on the
MLS (this is the list of all properties for sale through other agents –
the most common way to find properties) you’ll want to find a great
real estate agent to work with. Don’t worry: real estate agents are
typically FREE for the buyer, as the seller pays the fee! I’d
recommend finding an agent who has the following traits:
§ Knowledgeable about working with 1st time homebuyers
§ Knowledgeable about duplexes and other small multifamily properties
§ Tech-savvy
§ Quick to respond to questions
§ Patient with you
§ Hungry (they want to help you. You are not a burden – you are their
paycheck!)
For more tips on finding a good agent, see The Epic Guide to Finding an
Investor-Friendly Real Estate Agent or How To Find A Investor-Savvy Real
Estate Agent.
4.) Define What You Are Looking For – It’s important that you let your
real estate agent know exactly what you are looking for. If you want a
duplex, let them know! A good agent can hook you up with automatic
emails that let you know about all the new deals that come up on the
MLS, so be sure you have some defined criteria set. This criteria
should include, at minimum:
§ How much do you want to (or can you) spend?
§ What towns/neighborhoods will you buy in?
§ What property type do you want? (Duplex, triplex, ect)
§ What kind of condition would you prefer? (trashed, move-in ready,
etc.)
Let your agent know about your criteria and have a discussion about
what that might look like. A good agent will know the local market
and can help you know what is possible.

5.) Start Looking – Next, it’s time to start looking for a good deal.
There are several methods you can use to find good deals, which
we’ll talk about in a moment, but most likely your real estate agent
will supply you with a list of potential properties. It’s also a good idea
to look online for properties yourself, in case your agent missed any.
Websites like Zillow.com, Trulia.com, and Redfin.com can be great for
scanning through potential deals, but keep in mind: these sites never
contain all the information and may also contain faulty data. Your
agent will ultimately have the best data.
6.) Do the Math – Once you find some potential deals, it’s time to get
out your pen and paper and start analyzing the deals. We’ll talk more
about analyzing deals in a moment, but I’d recommend that you use
the BiggerPockets Rental Property Calculator to analyze potential deals.
Just yesterday, I looked at a duplex deal that appeared to be
awesome… but after running it through the calculator, was a terrible
deal! Again, we’ll talk about the analysis side of things in just a
moment.
7.) Make an Offer – Once you find a deal that pencils out, it’s time to
make the offer. Your agent will do the bulk of the heavy lifting with
this and will fill out the paperwork for you. If you are not using an
agent, you may have to find the correct forms yourself – which you
can usually obtain for free from a local title company. At this point,
your offer will either be:
§ Accepted (yay!)
§ Rejected (boo!)
§ Countered (most likely.)
You will need to engage in some negotiation with the seller until you
either come to an agreement or part ways. Keep in mind: negotiating
can force you to get emotionally involved and encourage you to pay
more than you should for a property. Stick with your math and don’t
pay more than you should!
8.) Do Your Due Diligence – Once you and the seller agree to all terms
(known as “mutual acceptance”) it’s time to do your due diligence.
This is the time when you will inspect the property and make sure it
has everything it is suppose to have. I’d HIGHLY recommend hiring a
professional home inspector (usually under $500) to look at the
property and give you a detailed report of what needs to be
fixed. After the inspection, you can either choose to accept or reject
the property – or make the seller pay for all/some of the repairs. It’s
all up to negotiation. During this time you will also finalize all the loan
documents (which can be annoying!) and review any leases on the
property.
9.) Close on the Property – Next, it’s time to make the property your
own. Depending on what state you live in, you will either close at a
title company or an attorney’s office. Your agent should help you
walk through any difficult spots up to this point.
10.) Rent The Unit(s) Out – Finally, it’s yours! However, the fun is just
beginning. Now it’s time to manage the property (or hire a property
manager to do it for you.) This is when BiggerPockets comes
in really handy. BiggerPockets.com (this site) is here to help you
become a successful real estate investor, and everything on the site
(from the Podcasts, Blog, Forums, Calculators, and more) is geared
toward this end! Take advantage of this incredible social network!
Now that you have a broad overview of how this all works, let’s move
on and get into the nitty-gritty of buying a duplex, beginning with
finding the best deal!
How to Find a Great Duplex Deal

There are a lot of different ways to find good deals, some easy and
some hard.

We talked about using a real estate agent to find deals The MLS, and
we also talked about using online portals like Zillow, Trulia, Realtor,
and Redfin. But let’s talk about some more “creative” methods for
finding duplex deals, for those who either need the extra push
(because deals are too hard to find on the MLS in your area) or those
who want the extra push (because they want an even better deal!)

Keep in mind: The following techniques are outside the realm of

what a real estate agent will do, simply because there is little chance
that they can make money off it. Therefore, if you pursue any of
these options, understand that you may be slightly alone!

1. Driving for Dollars – The art of driving around potential

neighborhoods, looking for signs of “motivation” (long grass, boarded
up windows, etc) and tracking down the owners via the public record.
For more info, see “The Driving for Dollars Bible” by Chris Feltus.)
2. Craigslist – You can actively look for potential deals in the for-sale
section of Craigslist of course… but you can also look for potential
deals by contacting landlords who are listing properties for rent on
Craigslist. Furthermore, you can actually place ads on Craigslist, telling
 the world that you are looking to buy a duplex. For a great strategy on
automating your Craigslist deal sourcing, see Jaren Barnes’ epic article
“5 Simple Strategies For Real Estate Acquisition Domination!.
3. Direct Mail – Direct mail is the process of sending out hundreds or
even thousands of letters to specific property owners with the
assumption that a small number will contact you about the letter and
an even smaller percentage will be a good enough deal to buy. Many
wholesalers and other real estate investors find the bulk of their deals
this way. For more information on direct mail, don’t miss my article,
“The Ultimate Guide to Using Direct Mail Advertising to Grow Your
Real Estate Business.”
4. Networking – A lot of landlords are tired of owning their rental
properties, so by networking with those individuals you can often find
incredible deals through the power of conversation. A great place to
do this is in the BiggerPockets Forums, where you can meet investors
from all across the US and in your backyard. Use
BiggerPockets.com/meet to locate members in your town and grab
coffee or lunch with them. Also, attend (or start) a local real estate
meetup where you can get to know the movers and shakers in your
local real estate investment community.
5. The Marketplace – Definitely be sure to check out The BiggerPockets
Marketplace for potential deals as well, and be sure to set up Keyword
Alertsfor your local city name so you’ll be notified when new listings
from your area are mentioned!
There are many more strategies to find good deals than just what I’ve
mentioned here, but hopefully this gives you a good place to start.
Let’s move on and talk about the process of analyzing duplex deals.

How to Analyze a Duplex

If you order a bad hamburger from McDonalds, you can throw it

away. If you buy a bad stock, you can sell it. If you get a bad dog you
can train it. However… if you buy a bad deal, you might be stuck with
it for YEARS.

This is why I’m so passionate about learning how to analyze a deal.

The fact is: if you don’t have the right math going into a deal, you’ll
never get the right profit coming out of it. You make your money
when you buy. This is why a thorough analysis is SO important. So
let’s walk through how I analyze a potential duplex.
First, whether you plan on living in the duplex or not, I think it’s
important to do the analysis as if you were not, because chances are:
you won’t live there forever, so it HAS to make sense as a rental, in
my opinion. Therefore, that’s what we’ll be focused on today.

When analyzing a duplex, we’re going to be looking primarily at

the cash flow, which is the extra money left at the end of the day. The
concept of cash flow is fairly simple (Income minus Expenses) but in
reality, it can be difficult. There are numerous expenses that no one
ever thinks of but MUST be accounted for. Things like:
§ The Mortgage
§ Mortgage insurance (PMI or MIP)
§ Property Taxes
§ Property Hazard Insurance
§ Flood Insurance
§ Earthquake Insurance
§ Water
§ Sewer
§ Garbage
§ Electricity
§ Natural Gas
§ Propane
§ General Maintenance Upkeep
§ Landscaping
§ Repairs
§ New Appliances
§ Capital Expenditures
§ Office Supplies (stamps, envelopes)
§ Software
§ Gas/Mileage
§ HOA (Home Owner’s Association) Dues and Fees and Assessments
§ City Taxes
§ Advertising
 § Payroll
§ Property Management
§ Vacancy Rate
§ Probably a lot more I’m not thinking of…
If you forget one of these things, you are going to end up with less
money that you originally thought. That’s not good! So when you are
looking at potential cash flow be sure you are taking into account all
these expenses.

It’s for this reason, we created the Rental Property Calculator, so you
can simply plug in the numbers on a potential deal and see how it
pencils out. Let’s go ahead and do the analysis on a property that I
looked at the other day:
(this was a duplex in my town that actually met the 2% Rule, which
indicates it should be a great deal:
Where I thought this was going to be a good deal, in the end, it looks
like the total cash flow would be just $20.88 per month! With the
$20,000+ investment this property would take, that’s a miserable
1.19% return on investment! Yikes! I could do better than that with a
bank CD!

Before I move on, let me just emphasize this one more time: you
need to know how to do the math, and the best way to do this is with
the Rental Property Calculator. So head over there, try it out (you can
try it 3 times for free!) and sign up for BiggerPockets Pro to get
unlimited use.
How to Finance a Duplex

I’m not a mortgage professional, but I’ve purchased a few duplexes in

my day so I’m happy to share what has worked for me and others.

When deciding how you want to finance your duplex, you have a few
good options. I’d recommend researching each of these in a bit more
detail to decide if it’s really what you want to do – then pull the
trigger and make some phone calls. Below are the 5 most common
methods for financing a duplex:
1.) Cash – If you have the cash, then this one should be easy.
However, most people don’t so I’m not going to spend a lot of time
on this.
2.) Conventional Loans – Conventional loans are the traditional, run-
of-the-mill loans that you can get at pretty much any bank or credit
union. Typically you will need to put down 20% to obtain these loans
(depending on the bank, of course) and they are usually (not always)
fixed rate (meaning the rate will never change) and carry a low
interest rate. If you can get a conventional loan, and you have the
20%-or-so down payment, this is a great option because of the
stability that comes with a conventional loan.
To find a conventional loan, just head into your bank and talk to the
banker. These are the most popular loans on the planet, so they are
easy to find; but here’s a word of wisdom: Nearly every bank has the
same rules and can do the same loan- BUT, while the bank loans may
be almost identical the BANKER is the important piece of the puzzle.
A good banker can get loans closed that no one else can – because
they are smart, creative, and persistent. So talk with 4-6 different
banks and find a banker who appears to be exceptional. Or more
importantly – get recommendations from others to find the best
bank/banker to work with.

3.) FHA Loans – The FHA (Federal Housing Administration) is a

government agency that exists to help America become homeowners
through a loan program that allows banks and other lenders to
finance to offer extremely low-down payment loans to homeowners.
An FHA loan requires just 3.5% down payment, which means on a
$100,000 property, you only need to pay $3,500 (plus closing costs.)
In comparison to the conventional loan, which usually requires 20%
or more down, this can be a life-saver to homebuyers. Keep in mind,
the FHA loan does have a few extra costs that can make your
payment a bit higher (known as MPI or PMI) so be sure to calculate
that when doing your analysis.
Keep in mind, and FHA loan is ONLY for individuals who plan on
living in the unit for at least one year, so you will have to move into
the duplex to use this option. The cool thing is, however, is that an
FHA loan is good for single family houses as well as duplexes,
triplexes, and fourplexes.

For more information on FHA loans, don’t miss this article and to find
an FHA loan, just ask any local bank, credit union, or mortgage
professional if they do FHA Loans. Most of them do.
4.) 203k Loans – One of my favorite loan products on the market, the
203k Loan is actually part of the FHA loan program – but with an
interesting twist: you can incorporate the repairs into the loan. In
other words, if your proposed duplex was $100,000 but needed
$30,000 worth of work, you can get an FHA loan that requires just
3.5% of the total cost ($130,000) and finance the repairs into the
loan. Like the FHA, the 203k loan requires you to live in the property
for a year but is applicable for duplexes, triplexes, and fourplexes.
5.) VA Loans – If you are a US Veteran, you can obtain a VA loan that
requires $0 down. Yep, nothing, nada, nilche! To learn more about VA
Loans, see What is a VA Loan.
Hopefully this list has given you a few places to start looking for a
loan. As I mentioned earlier, referrals from good professionals are
the best way to find other good professionals, so ask around! New
loans and new loan products are being produced all the time, so
you’ll never know what is out there until you pick up the phone and
start calling.

Conclusion: Buying a Duplex

At almost 4,000 words, it’s about time I wrapped this post up.
However, this may be the end of the article but it’s just the beginning
for you… now is when you need to take action!

Go out and find that killer good duplex deal and change your life
forever!
Now it’s your turn. Leave me a comment below and let me know
what you thought of this article. Anything you’d like to add? Anything
you’d take away? Any additional questions? Leave your comments
below!

——-
I want to end this article with a personal note to my brother and
since you are all eavesdropping on my blog post to him anyways, I’ll
let you tag along on this!

Hey Chris,
I’m so excited you are looking to buy a duplex! I know buying my duplex was
the springboard to all the adventures in real estate I’ve had so far and I’d
highly recommend it to you to get started. The experience you’ll gain will
change your life, and the financial freedom it can bring will be so
rewarding! If you can find a good enough deal, you’ll be able to save so much
money each month while getting some great “on the job training” for the rest
of your life and a real estate investor.
I’d encourage you to re-read this article a few times and create a game plan.
Yep – actually grab a pencil and paper and write down what your steps are
going to be. (Hint: I’ve outlined them above!) Then, figure out what your Next
Actionable Step is.(What’s the one small next step you can do to get moving
forward?) I’m guessing it’s picking up the phone and calling your bank. Or
maybe it’s calling a real estate agent and setting up some appointments.
Either way – I just want you to know I’m proud of you and I’m here for you!
Let me know how I can help
Love,
Brandon
(That goes for the rest of you as well. How can I help?)