The Gardner Group Blog

 A first time home buyer recently asked whether he should consider a duplex over a single family home and what was meant by saying location, location, location.  My answer follows:

In Austin I believe there are only a few scenarios where a duplex makes sense, and the following are a some examples:

 

• * The buyer needs a tenant to share in the payment to make a monthly payment comfortable when a condominium is not suitable for the buyer's lifestyle. 

 

• * The buyer has parents who need to be near for health reasons, and the family  cannot afford separate residences near one another. 

 

• *The buyer picks up a duplex in a predominantly single family area - usually in an older part of town and with single family on both sides of the duplex- and holds on to hold the land as an investment using the dual rents of the duplex to pay for it because the dirt in that area is appreciating at a minimum of 15% annually across period of time.  In this example, the owner  would eventually be looking for a buyer who wants to convert the duplex to single family at sale or possibly demolish the structure and build a single family home.

 

The downside to duplexes, at least in Austin, is the appreciation differential when compared with single family.  Duplex appreciation is for the most part tied to the rents it can bring, while single family areas will go up based on other considerations that are not constrained by income production potential.  I have seen duplexes appreciate at 1%-2% annually from a bust to boom cycle - say a 5 year period - where single family in the same area appreciated at an average of  8%-10%.  Even when you take into account the rental income and tax implications of both properties, were you to live in one side of the duplex, the single family comes out ahead as an investment, albeit in some cases only marginally, and was probably a more enjoyable place to live.  In that same cycle, keep in mind there would have been single family areas that went up as much as 16%-18%, in which case the single family would FAR outpace the duplex in appreciation.  The tough part is finding that area...which brings me to location.

The old location, location, location axiom simply means you can always change the house - from a cosmetic remodel to a demolition and re-build - but you can't change where the house is.  Location is always paramount in a purchase.  This is true when considering one neighborhood over another - you may only be able to  afford a fixer upper in what would be considered a great location in a given city, where in an average or poor location in town you can buy a home that has everything you want.  For example, a home  in a cul-de-sac, backing to greenbelt on a large lot that comes with laminate counter tops, cheap carpet and linoleum flooring but is the same price as a home in the neighborhood that backs to a busy road where noise is a significant issue but that comes remodeled with granite counters, plush carpet and tile flooring at the wet areas may be the more desirable purchase.

Brandon Gardner