Serious investors pay little attention to all of the hype over crypto and other new investments you hear about every day. Even today, most millionaire investors agree that real estate is the best investment available at all levels.
One of the best parts of real estate investing is how many options you have to choose from that come with the same level of profitability and security. However, there are two options that are equally popular for investors but for different reasons.
Let’s settle the score on duplex vs. condo and see which is right for your investment strategy!
What Is a Duplex?
Depending on where you buy, these could be twin buildings side by side or a two-story home with units on different floors. Either way, they are considered a duplex. Each unit will have its own kitchen, bathroom, and living spaces with limited or no shared spaces (hallway, outdoor space, etc.).
Buying a duplex is one of the most popular and affordable ways to start building a real estate portfolio. The idea is to buy a two-unit home, known as a duplex, and rent out the units to tenants for a monthly fee.
You may live in one of the units, or it could be an investment property entirely. The benefits of renting out a duplex are fairly simple; steady, predictable income. If you have a longer lease, you can expect at least a year from each tenant, providing a stable income for you throughout retirement or as a supplement to your job or other investments.
On top of that, you’ll always have the house to sell if you choose, meaning that the rental income is mostly profit. However, it doesn’t always work out as planned. For more information about how these investments work, let’s go over a brief duplex guide.
Buying the Right Property
If you’re buying a property to rent out, you have a couple of options; turnkey properties or fixer-uppers. Buying a home that needs work can help you get a good deal and maximize the profitability of your investment, but it comes with many risks.
On the other hand, a turnkey property is one that’s ready to rent, and that may have existing tenants occupying the units. These are less risky, but they are also far more expensive to purchase on average. Either way, buying in the right neighborhood and a manageable building is essential for this strategy to work.
Finding the Right Tenants
One challenge with renting out units is the unpredictability of tenants. One bad tenant could cause significant harm to your investment property, even beyond a security deposit. Your only defense is to have policies clearly stated in your lease, screen tenants thoroughly, and require a security deposit.
When screening tenants, your best bet is to look into their previous rental histories, criminal background, and credit history. If you can verify their income on top of that, then you can consider a tenant to be reasonably safe for your investment property.
Crunching the Numbers
Choosing the wrong property could easily sink your investment. If the neighborhood goes downhill, you have major structural repairs in the early days, or if you have too many bad tenants, you could lose a lot of money. Before making a decision, always use a rental property calculator to see the building’s potential.
Check out the local rent prices, compare them to your expenses (keep them on the high end), and see how the numbers work out in your favor. If they do, just remember that things don’t always work out how they do on paper!
If you plan to live on the property, you’ll ideally want the income from the other unit to cover your mortgage payments and home insurance. After that, you’ll still have to worry about property taxes and maintenance, but this could be a great way to save money on your living space, build equity, and grow your savings!
What Is a Condo?
If those who were occupying the building rent duplexes, then they own condo units. That’s the primary difference between a duplex and a condo building. A single owner will own both units of a duplex, but each unit will be separately owned in a condo complex.
The benefits of condos are fairly straightforward. First, you can get a lot of money on the backend after development. If you’re looking for a one-time, large payout, then developing condos could be your best bet!
Moreover, there are potential opportunities to make a continuous income with condo buildings, especially if you offer maintenance services, control the HOA, or manage the property in one way or another. Then, you could collect monthly fees.
Also, generally speaking, condos aren’t as much of a long-term hassle for the investor. Landlords essentially buy a job, whereas condo developers can forget about it once each unit is sold!
However, they are expensive to develop. Without other investors or loans, it won’t be feasible for most investors to acquire the funding needed to build a condo complex. On top of that, you won’t get the same continuous income stream as you would with a rental.
Of course, smaller projects may be feasible, but the same principles of wholesale and retail apply to condos! The more you can build at a time, and the more profitable each unit will be. Let’s talk about how to maximize profits when investing in condos.
When it comes to investing in condos, the more, the merrier. Assuming you can’t afford to pay out of pocket for a large condo complex, we’d recommend finding investors to join you. Even if you’ll have to share the profits, your share is likely to be larger than it would be if you went your own way.
Essentially, to maximize profits, try to maximize scale. Building 30 units is a lot cheaper per unit than building three units, but it doesn’t necessarily take value away from any particular unit, allowing for a higher profit margin.
If you’re building a rental property like a duplex, this isn’t as important. You’ll still have plenty of time to generate income and still have the house to liquidate as you choose. However, if you’re only making one return on the backend, you’ll need to make it count.
From there, some type of shared facilities maintenance is essential for maximizing profits. Yes, it’s great to get some money on the backend, but long-term income is even better, especially with the limited liability that comes with condos. Offer services through the condo association and charge monthly fees for sustainable income.
Duplex vs. Condo: Which Is Right for You?
To put it simply, duplexes you rent, condos you sell. That’s the primary difference between duplexes and condos, but they come with many more nuanced ones.
For example, you’ll typically have to build condos to make money instead of buying them turnkey unless you intend to flip individual units and learn all about the different HOAs. Otherwise, it’s unlikely you can convince every owner in one complex to sell their units to you for a good deal.
That’s why you never hear about investors flipping condo units. It’s simply not as worthwhile as other real estate investments. Again, this is the same principle as buying wholesale and selling retail.
If you have the available funding or a network of investors, then condos could be a great way to generate some profit. However, this depends largely on your circumstances and goals.
For a duplex, there are hundreds of different strategies you can choose from, from turnkey properties to the BRRRR method. The monthly income can be a great way to secure your retirement, and if you buy in the right area, it’s a fairly safe investment.
Everybody needs somewhere to live! If you want a sustainable income and an asset that you can liquidate later on (and improve upon over time), then this is the option for you. You can find good deals or sell your old ones at UrbChicago.com
Start Investing Today
Now that we’ve settled the score on the duplex vs. condo debate, you can make an informed decision as to which type of investment is right for you. When you take your time and make the right decisions, real estate can be one of the safest and most lucrative investments in the world!
Get started with your strategy today and stay up to date with our latest investment news for more information!