Should I build duplex or 2 single units?

Question

Would it be better for tax and insurance purposes to build a duplex or 2 separate units for rental income? Thanks for your input.

Nicholas Ruscio · Answer

Hi @Brittany Wilkerson. A duplex typically shares certain expenses such as property taxes, insurance, and potentially utility costs, which can help reduce individual costs for each unit.Also maintenance and repairs might be more cost-effective when dealing with a single structure, as contractors can handle both units.Like William mentioned its important to think of your exit strategy. Are you planning to build and hold onto these properties?We specialize in ground up construction loans. Please feel free to reach out. Thanks,

Pete Harper · Answer

Duplex wins hands down! If you look at cost/sqrft a duplex will be cheaper.  If you intend to scale it is much easier to pay one insurance policy, one tax bill, one mortgage, etc.  The other advantage is you spread your risk.  If one side is empty you still have the other side paying the mortgage.  If you are buying a property that needs work you can renovate one side at a time while the other side remains rented.  Once the first side done you rent it at a higher price and use the income to renovate the second side.  We've used this strategy to self-fund all our renovations.

Alecia Loveless · Answer

@Brittany Wilkerson I vote for the duplex and definitely figure out how to get the tenants to pay for their own heat even if it means you get a slightly lower rent. I live in a cold climate and my tenants where I was paying the heat were setting their thermostats at 78 degrees and leaving their windows open when it was 10 degrees outside and wearing shorts and tshirts and going barefoot.

So this year I’m converting three of my buildings over to the tenants paying the heat. I’ll get my money back in a little over two years but I won’t have to regulate their heat, if they want it at 78 degrees they can pay for it!!!

Lucas Miles · Answer

@Brittany Wilkerson lot of pros for the duplex (which I would mostly agree with), I'll add in a couple negatives. With a SFR (or 2 in this case), often tenants are responsible for lawn/snow care. With a duplex owner is likely responsible.Utilities with a SFR are typically 100% covered by the tenant, in the duplex you likely (market dependent) paying for at least the water bill, potentially the heat also.

In my market, I'd rather have a SFR than a duplex for those reasons, however I would much rather have a 8+ unit building than a SFR or a duplex, economics of scale start to play in with more units under one roof.

William Sing · Answer

Hey @Brittany Wilkerson! Insurance-wise, it is going to probably be similar in terms of cost. The taxes will probably be higher if you are looking to build two separate units depending on how your county calculates taxes. I think it would also be a good idea to look at the long-term play as well. Usually, individual units are easier to sell, but this is also location dependent. Hope that helps!

John Mocker · Answer

Brittany,

Without know the exact rebuilding costs of each option you could not say for certainty which would be cheaper insurance wise.  However, assuming the same living space in total, the Rebuilding cost of the duplex should be less than the two single units.  Based on that, I would expect the cost to insure to be lower for the duplex.

Should I build duplex or 2 single units?

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