The Benefits and Drawbacks of Buying Both Sides of a Duplex
Posted on: 2020-10-15
Are you tired of living the rental life?
For most people living in the Edmonton area, renting a place to live is just a short-term step to the ultimate goal of owning a home.
However, with the cost of rent ever increasing, it may be difficult to save the money necessary to purchase a house.
There may be a best-of-both-worlds solution: Buying both sides of a duplex. Not only do you own a property and your own personal space, but you reap the benefits of earning rental income as well.
However, no investment situation is a perfect one, so there are some considerations to make before heading down this path.
To help you figure out if buying a duplex is right for you, here are some benefits and drawbacks of purchasing a duplex in Edmonton:
The Benefits of Buying Both Sides of a Duplex
Multi-Family Financing Options
When you purchase a multi-family home in Edmonton, such as a duplex, you may be eligible for certain loans and lending products.
For example, if your duplex generates a rental income, this will help you qualify for a mortgage. If you decide to live in the building, you may benefit from competitive interest rates and a lower down payment.
The Canada Mortgage and Housing Corporation (CMHC) Income Property program provides investors and buyers with more housing financing choices when purchasing a rental property.
Owning a rental property means that you are eligible to claim deductions against the upkeep and maintenance of the property.
Any repair or improvement to your tenant’s spaces qualify as a tax write-off. However, most deductions do not apply to your personal space if you live in the building – although you may be able to claim 50% of repairs and maintenance performed on common areas.
It’s a great way to keep the duplex in excellent shape, which increases its value and paves the way for charging higher rent.
No matter at what cost you purchase a duplex in Edmonton, any rental income you receive can be applied to the monthly mortgage. Investment properties almost pay for themselves!
Depending on the cost of the mortgage versus the rental income, you may be able to make extra payments on your mortgage and pay off the property faster.
Likewise, if the rental income exceeds the mortgage payments, you can use the extra money as a personal income – or invest it in another rental property.
Purchasing a duplex may seem like a great short-term solution to eventually buying your dream home in Edmonton, but the building does hold future potential.
For instance, one half of the duplex can become a living option for an aging relative or grown children.
You may also want to consider converting the duplex into a single-family home and increase your space.
It’s possible that, after purchasing a duplex, you decide to convert the property into the house of your dreams instead of selling and purchasing another one.
Our professionals at Parabola Developments would be more than happy to make your dream home a reality! Contact us today for more information.
The Drawbacks of Buying Both Sides of a Duplex
Ownership is Considered a Small Business
Because owning a rental property generates a rental income, the entire venture becomes akin to running a small business.
From processes to paperwork, you will have to deal with rental applications, lease agreements and filing a profit-and-loss statement, as well as qualifying deductions, at tax time.
For some, this may be a cumbersome and confusing endeavour. If you do decide to delve into the world of rental properties, you may want to consider hiring an experienced accountant to handle the administrative side of things.
The Responsibilities of a Landlord
Once you enter a rental agreement with a tenant, you become a landlord and this makes you responsible for everything that happens on and within your property.
You may find yourself dealing with tenant damage, noise complaints and late rent.
You can reduce the stress of being a landlord by hiring a property management company to handle these issues, but this will inevitably cut into the profit you make from the rental income.
Another solution is to screen potential tenants before entering a rental agreement. Check your local rental laws to see if you are able to request criminal record checks and credit checks from applying tenants.
The Property is Your Liability
Owning a duplex in Edmonton means that you are responsible for the condition of the building. This creates a liability, since any personal injury suffered by anyone on your property becomes your responsibility and can result in legal litigation.
This could include injuries caused by a broken step or even those resulting from ice on the property.
This is why it’s important to work closely with your home insurance company to ensure your coverage is adequate for these situations. Insurance companies will offer liability coverage that will prevent your personal assets from being affected.
Rental Investments in Edmonton
Renting is quickly becoming the way of life in bigger cities, so now may just be the time to invest in a rental property.
Owning a duplex, despite the extra work and considerations, is possibly the best solution when you are looking to both own a home and earn rental income.
If the numbers work out to your favor, you may want to consider purchasing a duplex as your next Edmonton home!