Duplex

What it is

A duplex is two units. A triplex is three. A fourplex is four. Up to four units, the property is still classified as residential — and that’s the important part. Go to five units and you’re in commercial territory. Different loans, different valuation math, different everything.

I bought a triplex in Denver in 2013 for around $500,000. Added a 203k loan for the rehab — $50,000 on top of the purchase — wrapped into the same 3.5% FHA down payment. Lived in one of the three units. Rented the other two. After the renovation and leasing it out, it was appraised at around $600,000. Loan was $525K. Net worth on that one property went to $75K. Biggest lesson from that one was house hacking — buy with a primary residence loan, live in one unit while you renovate and monetize the others. Works for any 2-4 unit.

Why it matters

The 2-4 unit loan treatment is residential. You get 30-year amortization, fixed rates, FHA with 3.5% down if you’re owner-occupying. A five-unit property is a different loan product — commercial terms, higher down payment, balloon options. The jump from four to five units is a cliff, not a step.

House hacking is the move for the person who doesn’t have 25% saved for a full investment property down payment. Buy an owner-occupied duplex. Tenant covers most or all of the mortgage. You’re building equity while living for free or close to it.

On the valuation side, duplexes sit in a gray zone. Single-family comps won’t quite fit them, and the income approach math can undersell them in a lot of B-class neighborhoods. For the duplex deal formula, you need to run both: what would a comparable property sell for, and what’s the income approach say? A duplex that rents for $2,400/month total ($1,200 per side) is worth around $240,000 on the 1% rule / income approach. If comps say $280K, the comps win. Run both and use whichever tells you more about what buyers in that market actually pay.

How it shows up

The young single path is where duplexes shine. Buy a barely bankable duplex with 3.5% FHA down. Live in one unit while you renovate it. Run the other unit as a rental. Season it. Refinance out of the FHA into a conventional loan in 12-24 months to free up the FHA slot for the next one. Fannie allows one owner-occupied FHA at a time, but once you refinance into conventional, you can go back and do it again on the next one.

One thing to watch on older duplexes: the party wall. The fire separation between units in most jurisdictions has to run from ground through roof. When you pull permits on an older building, the inspector will often call for a full party-wall upgrade. I talked about this in the seven nightmares video. It’s not going to break you, but price it in because it’s the kind of thing that gets discovered at rough framing inspection when it’s too late to add it to the budget without grinding.

Related

house hacking, fha loan, brrrr, 1 percent rule, rental income, cash flow, buy box