Property Types – What Should I Buy?

The Duplex – the Perfect Central Texas Investment?

Investors often ask us after viewing the inventory on our website or taking one of our property tours, "why are you guys so fond of duplexes?

We believe we can make a strong case that duplexes are the best investments in the area, particularly for first time, out of state investors. Here´s why:

• 12,000 to choose from – most of Central Texas´ duplex stock was developed between 1974 and 1985 (representing 85% or more of area duplexes) when a wave of capital spurred an unprecedented building boom in the area. As developers plotted new subdivisions in every direction outward (N, E, W, and S), they planned for between two and four streets of each new subdivision to consist mostly or entirely of duplexes. Therefore, when one looks at a map of Austin, duplexes are in every corner and in every desirable investment zone in the city.
• Appreciation correlates with single family – there is far less stigma in the Austin market to living in a duplex unit than there is in some markets. Therefore, if a local resident wishes to live in a certain desirable area, purchasing a duplex to live in one side and have the other side´s tenant pay rent is an excellent strategy. In fact, 40% of duplex buyers are owner occupants. This leads to a similar appreciation rate for duplexes as for single family homes in any given neighborhood (this is confirmed by statistics showing often stronger appreciation for duplexes than single family). (This is also one of the key differences in residential investment property investing over strictly commercial real estate investment – the wildcard of residential single family home appreciation raising values instead of just cash flow.)
• Yet, cash flow is superior to single family – in almost every case, duplexes cash flow better than single family homes for obvious reasons – you have 2 residential units garnering rent instead of one. For example in the Barton Hills area in 2007, one might achieve $1000 per month each for two 2 bedroom rental units in a duplex, whereas a 2 bedroom single family home might only generate $1400/mo total for its one unit. Therefore – all other things being equal – a duplex generates better cash flow and has similar appreciation rates; making it a superior investment to a single family home in the same neighborhood.
• Two tenants instead of one – When the inevitable vacancy (can and will) occurs, there is still likely another rent paying tenant. It´s not "all or nothing" on the rental income.
• Rental experience more similar to single family than 4+ units – finally, most tenants will tell you that living in a duplex is an experience more similar to living in a single family house than living in a fourplex. Fourplexes in Central Texas tend to have all of the negatives of an apartment complex (shared walls, no privacy) but none of the positives (amenities like pools and fitness centers). We occasionally sell fourplexes in strong neighborhoods, but they generally don´t pass our list of requirements for strong investments.

Long story short – we´re firm believers in duplexes, and most of us own some (Robert owns 20). With some careful planning and research, a duplex can be one of the best investments available in the real estate business.

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