Should I Build a Duplex Rather Than Buy?

Question

Hey everyone, me and my fiancé just very recently got engaged!!! We are planning on getting married in about a year and a half and I've somehow convinced her to house-hack for our first home haha.

A big question I've had was if it would make sense to build a duplex as our first home utilizing an FHA construction loan rather than finding one in our area. We plan on living in or right around Oxford, AL where our city's population is only around 22,000 people.
Being in a relatively smaller/medium sized city there's not a ton of residential multi-family properties in the area that aren't in dangerous locations with high amounts of crime nearby, which is leading me to wanting to build.

I can't find too much information online of people taking this approach in comparison to finding a deal on a pre-existing home and I was curious if there were reasons or reg flags for that? I understand that the cost will be higher and there won't be any opportunities to add value through renovation but I wasn't sure if those were big enough reasons to look into a different direction.

Very open to all feedback, I'd love to get any information or knowledge about why this could or could not be a good approach. Please leave any comments you think could help.

Thank you!

Alex Wright · Answer

Congrats on the engagement!

I actually don't think building a duplex is a bad idea at all, especially if there just aren't many decent multifamily options around you.

I’d just be careful not to assume building automatically fixes the problem. I’d want to know what a completed duplex would appraise for in your area and what duplexes are actually renting for nearby. Then compare that against the full cost to build it. Not just construction cost either. land, utilities, permits, site work, contingency etc. building cost has gone WAY up, so can really catch you by surprise. My wife and I remodeled our personal home, and from when we bought the place to when we finished the remodel, prices went up so much we ended up 50k over our estimated cost. Whoops.

Site work alone can end up being way more than people expect.

The other thing is time. Buying something existing and moving in is one thing. Building can turn into delays, cost increases, random surprises, and now you're paying while waiting for the thing to get finished.

But if there really aren't many duplexes around and the numbers work, there are some good things too. You're starting with a new property, maintenance should be lighter early on, and you can build around how you actually want to house hack instead of trying to force an existing property into it.

just run both and see what the numbers say. You might end up finding that building actually makes sense in your area, or you might realize an existing place works better than you expected.

Kyler Wright · Answer

@Alex Wright Thank you so much!

Those are a lot of factors I'll definitely need to consider. Thank you for bringing those to my attention.

Richard Golding · Answer

Kyler congrats on the engagement. Getting your partner on board with house hacking from day one is the smartest move you can make, but building your very first home with an FHA construction loan in a small market is a massive administrative and financial hurdle. There is a very specific reason you do not see this strategy everywhere online.

An FHA construction loan sounds great on paper because of the low down payment, but the red tape is brutal. HUD requires stringent builder approvals, extensive oversight, and independent inspections at every single phase. In a market of 22,000 people, finding a licensed general contractor who is willing to deal with the massive administrative headache and delayed draw schedules of a government-backed construction loan is incredibly difficult. The guys who have the infrastructure to handle that paperwork usually charge a premium, which instantly blows up your budget.

When you build new, you are paying retail for everything. You have to buy the land and pay for plans and engineering and permits and utility taps and site grading and drainage before a framing crew even shows up. If the local market does not have a strong baseline of existing multi-family comps, the completed duplex will likely appraise for less than it cost you to build it. A bank will not close a loan on a property that is instantly underwater.

If existing inventory is rough, look for a single-family house with the right layout or zoning to add an ADU, or find an older property where you can actually build equity through a standard FHA 203k rehab loan instead. Do not take on the risk and stress of a ground-up development project while you are trying to plan a wedding.

Masoud Arouni · Answer

@Kyler Wright congrats on the engagement and smart thinking getting her on board with house hacking from day one.

The question Bill is helping you answer is where to build or buy. The question worth running numbers on first is whether the duplex makes financial sense at all before you commit to either path.

In Oxford AL a duplex renting the second unit at market rate likely $900-1100/m for a 2 bedroom needs to cover enough of your mortgage to make the house hack worthwhile. At FHA construction loan rates today your all-in monthly payment on a newly built duplex could run $2200-2800 depending on total build cost. If the rental unit covers $1000 your effective housing cost is $1200-1800 per month which beats renting in most markets.

Run that math before you spend time finding builders. If the numbers work on paper then the build vs buy question becomes worth your energy. If they don't work even in the best case scenario, the strategy itself needs rethinking first.

What is your estimated all-in build cost coming in at and has a builder given you any preliminary numbers yet?

Bill B. · Answer

You could probably tell Zillow to check for multi-family built after a certain date. Either in a city, zip code, or by drawing a line around the areas you want to check. Otherwise contact a local realtor you’re going to use anyway. Shouldn’t take them 10 minutes.

Bill B. · Answer

If both options are available in the same neighborhood figure out the price difference. In most situations you’ll find new is 10-50% more than existing, sometimes 100% more but rarely if ever less.

The only reason to go new would be location, personal preference, or selection. My example would be the age/condition/neighborhoods and selection of existing Vegas SMF sucks. In MN existing 4plexes in the northern suburbs are nice brick buildings on the bus lines, in established neighborhood that are closer to- the cities than you could afford to build new.

I guess I would search your desired neighborhoods for the newest 4plexes, see if anyone is building in the last 5 years. If not, it probably doesn’t make sense. If there is, find th3 builder and talk it out.  Are there any lots for sale in your desired neighborhood or is it all built out? I think you’ll find the newer is obvious.

Kyler Wright · Answer

@Bill B. Thank you greatly for your response, I appreciate you laying out how I could go about finding if this makes sense or not.

And just to be clear, to find newly built SMF you are saying to drive through my desired neighborhoods looking if I notice any SMF properties? Which could then lead me to the builder for a further conversation correct?

I'll do some looking through these neighborhoods and get in contact with a few builders. Thank you!

Jimmy Lieu · Answer

Hey Kyler, first off congrats on the engagement and honestly getting your fiancé on board with house hacking this early is a huge win haha. I actually think your thought process makes sense given your market. In smaller cities, sometimes building a duplex can be more realistic than waiting around forever for the “perfect” existing one to hit the market, especially if most of the inventory is older, overpriced, or in rougher areas. The biggest reasons more people don’t go the construction route are usually complexity, time, and financing. Construction loans can be a little tougher than standard FHA loans, budgets can creep up fast, and delays with contractors, permits, utilities, weather, etc. happen all the time. You also want to make sure rents in your area actually support the total build cost because sometimes new construction numbers don’t cash flow nearly as well as older properties. One thing I’d definitely recommend is talking to local builders and lenders early before getting too attached to the idea so you can get realistic numbers on all-in costs, timelines, and what FHA construction products are actually available in your area. Also double check zoning because some cities are surprisingly restrictive on duplexes even when the land looks residential-friendly. Overall though, if your market lacks quality multifamily inventory and you plan to live there long term, building could absolutely make sense if the numbers work conservatively.

Kyler Wright · Answer

@Richard Golding

Thank you Richard! Using a 203k is a great idea as well. This will be a potential plan I mention to any GC's I get in touch with for sure.Thank you for the help!

Kyler Wright · Answer

@Masoud Arouni Thank you so much for the feedback! I will definitely run some numbers before any decisions are made and be sure to use conservative estimates while factoring in cost like CapEx, Maintenance, Vacancy, etc. to see if this makes sense at all.

I don't have a true estimate currently but I know housing in AL is cheaper in comparison to the national averages. With that being said the rents are also cheaper so that's definitely a big factor to consider.

Thank you for your feedback, I'll be sure to do some due diligence!

Should I Build a Duplex Rather Than Buy?

Most Popular Reply