Single Family Vs. Duplex
Many first-time investors are attracted to duplex turnkey properties over single family turnkey rentals. They may have heard that duplexes cash flow more than single family homes, or they may just like the idea of owning a larger property. It’s true that duplexes tend to produce higher cash flow—at least on paper—but there’s much more to the story. Both options can make great investments, but before you decide to buy either a single family home rental or a duplex turnkey, here are the differences you need to know about.
Operating expenses comprise things like electricity, water, gas, sewer, waste management and lawn care. When you own a single family turnkey rental, you can easily pass on the operating expenses to the tenant. Tenants of single-family home rentals expect to pay most or all of the utility bills. They also typically expect to be responsible for lawn care and upkeep. Passing these operating expenses on to the tenants ultimately results in higher cash flow for you, the owner.
When you rent out a duplex or fourplex, it becomes harder to pass off all the operating expenses to the tenants. Since there isn’t just one primary tenant, neither will want to bear responsibility for mowing and trimming the lawn. In addition, older duplexes and fourplexes often have only one water valve, making it very complicated to try and split up the water bill. The same thing goes for gas, electricity and sewer and waste expenses. What happens is that the owner ends up carrying most or all of the utilities. This isn’t always the case, but it does happen often enough that you need to be aware of it.
When you choose to buy a duplex turnkey—or any turnkey, for that matter—carefully review the cash flow so you know ahead of time what utilities are paid by the tenants and which will be paid by the owner.
Typically, the rents charged for duplexes, triplexes and fourplexes are lower than for single-family homes. For instance, we sold a triplex in Cleveland that rents out for $1975, but that’s split among three residences. In comparison, a single-family turnkey property in Cleveland, which we also recently sold, rents out for $925 for one tenant family.
The trick when looking at the numbers for both duplexes and single family home rentals is to make sure you’re comparing duplexes to duplexes, triplexes to triplexes and single family homes to single family homes.
There are even more differences between duplexes and single family home rentals to be aware of; even the type of tenants you get will be different. As you might imagine, you’re going to get a different kind of tenant in a duplex when the rent is only around $600 or $650 per unit. Generally speaking, a duplex tenant might be a college student, a young unmarried couple, someone who is struggling financially or a person who is trying to get back on their feet after a divorce or some other setback. It’s typically not going to be someone who wants to stay long-term and make a home.
A single family home rental tenant is more likely to be a family with kids or a committed couple who are looking for stability and community connections. This makes them a) willing to pay a little more for rent and b) more likely to stay multiple years. Both of these characteristics make them more desirable tenants from a landlord’s perspective.
One thing that balances out this difference is that duplex owners have a much greater pool of prospective tenants to choose from. You might have less desirable tenants, but you’ll never be short of applicants.
That brings us to the next big difference between duplex turnkey rentals and single family rentals, which is vacancy rates. Because you get more single tenants and fewer family tenants, you’re going to encounter higher vacancy rates with duplexes. That’s not to say that duplex tenants will run out on their leases, but generally speaking, they may be less likely to stay longer than one year.
On the flip side, a happy tenant in a single family turnkey rental is much more likely to renew their lease again and again. They may have kids in school, a career rather than just a “job,” and other ties to the area that make them want to stay right where they are.
One easy way to get around this is to have your duplex tenants sign two-year leases instead of one-year leases. This simple practice can drastically cut down on your vacancy rates.
Duplexes, triplexes and fourplexes are still very desirable in terms of real estate investing. It’s just that there are definitely differences between them and single family rentals that you want to be aware of ahead of time. If you’d like more information about investing in duplexes or single family turnkey rentals, please contact us. We’re always happy to answer all of your questions.