As a Millennial myself, I'm familiar with the trends that we are seeing from my generation: crippling student loan debt, an interest in remaining mobile/flexible, and almost one third of young adults living with their parents. For many, merely finding employment is the first task after graduating college--and buying real estate is squarely on the back burner, often times as they are living at home with Mom and Dad. This is understandable, as moving out of their parents' basement is a crucial step toward becoming an adult. However, what I'm finding is many of the Millennials I talk to who do have jobs--seem to see their housing options as one of two choices:

• Either rent an apartment and not gain any equity (making their land lord rich, etc.) but remain flexible with how mobile they can be.

Or...

• Decide to buy a single family home or condo because they are "sick of throwing money away" and wanted to realize the magic of equity while paying down that mortgage.

But there is a third option that very few consider: buying a duplex.

Living in one half and renting out the other half is a fantastic starting point for a first-time home buyer who is looking to build wealth and pay down a mortgage while maintaining a relatively conservative monthly payment.

Let me break down two properties for sale in Wauwatosa--a suburb of Milwaukee, that can be attractive to Millennials because of its schools, bars, restaurants, and charming architecture. For this example we will assume that both can be purchased for $250,000.
Property A: A duplex with 1,000 square ft., two bedrooms and a bathroom per unit

• Purchase Price: $250,000

• Taxes: $5,057

• Rent per unit is $750

• Down Payment: $8,750 (assuming 3.5% for an FHA loan)

• Estimated monthly payment after deducting taxes, insurance, private mortgage insurance, principal, interest (assuming 4.375%), and rent of other side: $1,140

Property B: 3 bed, 1.5 bath single family home. 1,625 square feet

• Purchase Price: $250,000

• Taxes: $5,048

• Down Payment: $8,750 (assuming 3.5% for an FHA loan)

• Estimated monthly payment after deducting taxes, insurance, private mortgage insurance, principle, interest (assuming 4.375%): $1,891

...

It's important to note that a duplex at this price and area often can get rents well above $1,000 per month for a two bedroom unit if it is updated. So if the buyer has enough money to renovate a unit and get it into a nice clean condition, that would put their monthly payment in the neighborhood of $900 or so--HALF of what the single family owner pays.

The magic of a duplex is the owner can make updates to the property to increase the rent, as well as add other revenue streams such as coin-operated laundry, storage units, parking, etc. that will put money in the owner's pocket.

FHA loans are great for those who are cash-strapped and want to get into a property at minimal cost. But many Millennials value the mobility aspect as we mentioned earlier, and the beauty of a duplex is you can always move out and rent both halves for extra income and cash flow!

Once moved out, now two tenants are paying that mortgage down. Every month, the owner has more and more equity. Eventually when it's paid off they will have $250,000 toward their net worth, not including the appreciation that property will realize over the years. But while FHA loans are fantastic to utilize to buy a duplex initially, they might not be great financing for those looking to cash flow the duplex long-term after they've moved out. Because of this, I recommend the loan officer you work with put together a two-pronged strategy. First you want your Move-In Plan. That, in this case is, FHA because of the low barrier to entry and lower down payment. Your Move-Out Strategy could be a FHA to Conventional 15% down refinance. This will chew up hundreds of dollars per month on your loan amount due to more down/less of the property financed (85% mortgaged instead of 96.5% mortgaged)--as well as a reduction in your private mortgage insurance which would go from approximately $170 per month to $40 per month. Chat with a loan officer for a concrete plan similar to this since I'm using these numbers as an example and I am not a loan officer. I know several great ones you should talk to! 

At the end of the day, the duplex option is a great fit for Millennials because, first and foremost, it gets them in an asset for cheap, while having someone help them pay that loan down. All the while, they're tackling their other debt and other expenses as if they were still in that apartment! And they can always move out after a year and move somewhere else if they decide duplex living isn't for them.

This anecdote is just scratching the surface of what is possible with buying a duplex. Do you want to have a conversation about how to get you into a duplex in 2020? Send me an email at zachary.hicks@exprealty.com