Buying a duplex: Knowing the ropes
Published on October 12, 2023
Buying a duplex is a real estate investment with many advantages, whether you plan to live there with loved ones or earn rental income.
Here’s what you need to know before buying a duplex so you can make an informed decision.
Contents:
- Why buy a duplex?
- What is the down payment required to buy a duplex?
- Advantages of buying a duplex
- 3 things to consider when buying a duplex
- First property purchase: Prepare your finances
Why buy a duplex?
There are many reasons why it’s a great idea—some of the most common are a desire to:
- Share your principal residence with a family member while preserving a certain degree of privacy.
- Give one or more of your children the opportunity to be homeowners.
- Earn a rental income that will help pay your.
- Take advantage of owning a rental property which is less work than a multiplex.
What is the down payment required to buy a duplex?
Unlike triplexes and larger rental properties, duplexes can be purchased with a down payment of only 5% of the purchase price if you live in one of the units and take out mortgage insurance. It’s the same percentage as a single-family home or a condo of $500,000 or less. Your down payment would have to be 20% of the purchase price to be exempt from these conditions.
See the rates in effect at Desjardins
To illustrate, for a duplex purchased (and evaluated) at $450,000, you need to make a minimum down payment of $22,500 to purchase.
Advantages of buying a duplex
The most significant advantage of buying a duplex is if you rent out the unit you’re not living in, additional revenue is generated and can be used to cover part of your mortgage payments. This way, you benefit from a stable source of income on top of your salary.
A duplex allows you to live close to one or more of your loved ones. The financial burden is shared rather than yours alone. Homeownership becomes more accessible when you split the down payment, transfer fees, mortgage payments and maintenance costs.
It’s also an excellent first step towards building a portfolio of rental properties if that’s your plan. A duplex can generate attractive income, increase in value over time, and is easier to manage and less costly than a multi-unit building. These types of rental units are often snapped up very quickly!
In summary, here are three undeniable advantages of buying a duplex:
- Generate rental income
- Share costs with loved ones
- Invest in real-estate at a low cost
3 things to consider when buying a duplex
1. Live in or rent out
Do you want to be an owner-occupant or just rent out both units? In either case, you must think about who your tenants will be. If you decide to rent to someone unknown, you’ll have to write an ad, do a credit check, sign a lease, and fulfill your obligations as the property owner. Moreover, it is possible to advertise a rental for free1 on DuProprio.com.
2. Potential income
What is the income generated by the duplex at the time of purchase? Do existing tenants have long-term leases, or are the units empty? To better estimate your property’s income potential and the rent you should charge, ask about rent for similar properties in the neighbourhood.
3. Acquisition and maintenance costs
You’ll need to factor in the initial purchase price plus fees and taxes, home and title insurance, closing costs, tenant screening fees, and regular maintenance and repair costs over time. Does this fit your budget? If not, go for a less expensive property.
Buy a duplex for two or with family members
The best way to buy a duplex—on your own or with family? Family members can pool their financial capacities and resources to purchase a home together. This helps reduce individual risk and requires less cash upfront. All parties must agree on the division of tasks—who will be responsible for the day-to-day management of the property and tenants and who will handle financial matters.
Before making any commitment, it’s essential to discuss issues such as improvements to be done, resale and profit distribution. Taking these things into consideration allows you to make a more informed decision about whether to buy a duplex as a family or on your own.
Profitability of investing in a duplex
The first step to determine the profitability of a duplex is comparing the rental income with the total expenses related to owning and maintaining the property. You need to know the monthly costs, such as maintenance, property taxes, utilities, repairs, and other operational and maintenance costs. And don’t forget about the future appreciation potential of the duplex, as well as vacancy or repair costs.
It’s essential to fully comprehend the time and money needed to invest in the property at the beginning and on an ongoing basis. You can assess whether the duplex is profitable and will deliver a good return on your investment by taking the time to do the research.
First property purchase: Prepare your finances
Before you start the buying process, you must ensure your financial affairs are in order. Here’s what you need to do to be a future buyer:
- Assess your borrowing capacity.
- Pay off your debts.
- Draw up a balanced budget.
- Save for your down payment.
- Use your credit card judiciously and limit your expenses.
The Canadian government launched a program called, The First-Time Home Buyer Incentive, to help people purchase their first property. A loan, equivalent to 5% of the property value, can be granted to owner-occupiers to make saving for a down payment easier and facilitate the purchase process.
First-time buyers can also use the Home Buyers' Plan (HBP), a government program that allows them to withdraw up to $35,0002 per person from their Registered Retirement Savings Plans (RRSPs), without being taxed on the amounts withdrawn.
Another option is to contribute to a Tax-Free Savings Account for First-Time Home Buyers (TFSA). This allows you to save $8,000 a year tax-free for a down payment on a qualifying first home. The maximum lifetime contribution is $40,000.
Whether to buy a duplex or a triplex
Should I buy a duplex or a triplex? The question is worth asking. A duplex is more accessible, with only 5% down, whereas purchasing a triplex requires a minimum down payment of 10%.
Besides being cheaper to buy, a duplex requires less maintenance and management due to the smaller number of occupants. That means fewer kitchens and bathrooms to repair! However, if you plan to rent out all the units, a triplex will generate more income for you.
With this information in hand, you can make an informed decision. Thanks to the advantages that duplexes offer, they appeal to many buyers and investors. There are lots of them on the market, new and existing—something for everyone. See if the duplex of your dreams is among the many properties for sale on the DuProprio website.
Do you need to sell real estate before purchasing a duplex? Trust our team to help you save commission! Learn more about our professional support and our exceptional visibility by scheduling a free consultation or by watching our explanatory videos
