Welcome Back to Powerful Homes Housing Literacy with Matt Guarino- the Mindset and Tactics to empower your dreams through Real Estate. In this episode, Matt goes over the benefits of owning a duplex and the differences between the type of real estate you can own and what those properties can do FOR YOU.
T: Total Leverage
W: Write off more expenses
O: Own a Home & Business
F: Financial Freedom
E: Exit Strategies
R: Return on Investment (ROI)
https://amzn.to/3baf0a1 - Rich Dad Poor Dad
https://amzn.to/3evokrc - Money Master the Game: 7 Simple Steps to Financial Freedom
Welcome to the Housing Literacy Podcast with host Matt Guarino, founder of Powerful Homes. Matt's mission is to empower dreams through home ownership. We're here to help. We're going to do this together and now Matt Guarino.
Hi, my name is Matt Guarino and I'm the founder of Powerful Homes. Our vision is to empower dreams through real estate. Our mission is to help 10,000 people in the next 10 years by, and also sell their first time home or investment property, because we believe that everyone should have the opportunity to purchase a home regardless of their age, their education level, their race, or any of the other ways that our current systems may block them out.
So how do we do this? How do we help everyone buy a home? And what we do here is a thing called housing literacy. If you look that up you won't find anything on the internet. You'll find tons of things for financial literacy, but not housing literacy. And what we look at housing literacy as being is the mindset and a set of values based tactics that will help you buy your first home or investment property and it's based on my 25 years of buying and selling real estate all over the country and that's what we're doing here today. So if it's the first time you're here, welcome. If you're returning really appreciate you coming back. Before we dive into today's topics, just a couple of ground rules for you. Number one is that this is a judgment free zone, which means we're here for one reason, we're here to present information to you that hopefully is of value to you to become a homeowner or an investor, or if you're a seller, how to do that very well successfully. But we don't have all the answers. I have not done everything right. I don't pretend that I have done everything right. And we also don't think that this is the end all be all. Owning real estate is a fantastic way to create a foundation in your life that will give you the resources and give you the mindset and help you grow in ways that you could never realize without buying a property.
But there are other things that you can do to create a foundation and create resources in your life, like owning stock bonds, a balanced portfolio say owning multiple streams of income through other businesses. So basically, take what works for you. Leave the rest. I'm not here to sell you anything, truly. I'm not here to convert you to my religious beliefs, political beliefs, any of that, it's just trying to present information to be of value to you that you can use as a homeowner or first-time investor. So we've covered the ground rules. Again, so happy you're here for housing, with Powerful Homes.
So, today's topic is TwoFer, T W O F E R. Why owning a duplex is a very good idea. Just the obvious, you know, who doesn't like a good BOGO, right? Buy one, get one; a two for one, you know, it's just kind of implied in that notion of getting an additional thing when you buy one. But yeah, I mean, there's, there's some amazing things about owning a duplex. So we're going to go over it today. And I wrote a book last year called Powerful Homes and in it, I have one piece of advice. It's basically a bunch of real life stories and all of the stuff we're going to talk about here, isn't me researching online and regurgitating it or creating a really fun story that I didn't experience. All of the things we're going to talk about are things that I have done or experienced in my career.
So basically in that book though, I give one piece of advice, I think within the last couple of pages and it's basically, if you hear anything that I have to say, if you're in your twenties, thirties, forties, any age, and you haven't bought a piece of real estate, I would recommend everybody in the world, literally everybody in the world, buying a duplex, living in one side, renting the other, particularly in the United States. There's so many reasons to do that and we'll go over that today. So I could talk for hours about this. Hopefully we'll just cover it about 15 minutes. But let's dive in. Let's talk about, you know, what is a duplex? Just in case you don't know. So, there's a few things I want to go over about a duplex, and then I'll go through the six things, the TWOFER, amazing aspects that make it a great idea. And finally, I'll just give you kind of some tips and tricks to mitigate the risks of owning duplex.
So first of all, the physical structure; duplex is basically two houses that share a common wall. Sometimes it can be up down, but the ones we're talking about today is where they have, they build the structure, they pour the foundation one common wall, and then everything else on the left and right is simply separate. Usually the lot line goes down the middle and one side owns one and the other side owns everything on the other side. So it's an efficient way to build, right? You can share a common wall. So you're using less resources. You're building one roof, you're building one foundation. Often one sewer line comes in and kind of branches off. You'll have possibly one water line, one comes in branches off; very often that's the case. And it's just an efficient way to build. Often these duplexes, triplexes are in rental areas and it's just a way to efficiently build. But also give folks the privacy, right? It's not you know, living with a hundred neighbors or a hundred people that are renting with you. It can be very close to owning a single-family home.
So the other thing I want to talk about is the zoning of it. So if you don't know, basically the way it goes is a condo is kind of the first thing you could buy, then you go duplex or town home, and then ultimately it's into a single family home. In a condo and I should say that in the show notes of this episode, this thing we're talking about today, we'll have lots of resources. So we'll have also a transcription of this whole talk but lots of resources and links you can kind of fill in because we're going to go over a lot of things today. So don't feel like you have to take notes. You can just click on the show notes and get some of this stuff.
But a condo is something where you own the inside walls. You own the rental unit. And then outside of the walls is all common area. Like a pool can be included in that, a little park area. So you own the property, but you share everything else. And there's a condominium homeowners association that governs that and administers all the common maintenance that's done. You pay a fee on a monthly basis to do that, and it's a fine way to own a property, but it's different. There's a common sharing of other things. Then you go to the townhome and the duplex model where you may just have one neighbor. You have one neighbor and essentially you own a lot and a block, in zoning language. You own the lot, and you own this part of the block and everything to the east and west, north and south of that. Whereas in a condo, you own the thing in the middle and everything else is shared. A little different.
So why is that relevant? So townhomes and duplexes will have a thing called a party wall agreement versus a HOA document. A party wall agreement is basically saying, we're going to share this wall and anything that is common, like say the roof or the sewer line or water, here's how we're going to interact with each other on that. So that's a little bit of the zoning difference, and why does that all matter? A lot of this has to do with the loan. The type of loan you can get and we'll get into the amazing aspects of that. So some lenders only allow certain types of loans for condos. Most everybody will allow duplexes, triplexes, and townhomes. It's a big difference. Again, look in the show notes for some details about that.
So really back to the original question, why is it such a big deal? Why is it such a good idea? I would say for a couple of reasons, one ownership of anything, especially real estate changes, a person. We've talked about this in other episodes, that when was the last time anybody washed a rental car before they brought it back, you just don't do it. But owning something changes something in you. It's that commitment. But purchasing a duplex is not only are you the owner on day one, but you're also a business owner. So it's you owning two things. You own this business, you're responsible for the tenants. There's just a lot of responsibility that comes with that. A little shift in your mindset, a little more committed, perhaps that's what some of it is. The best way I can explain it is like becoming a parent.
I didn't become a parent until around 30, I believe. Got married at 25, 29 is when we had our first child, I was 29. You can read all the books in the world about becoming a parent, about what it's like, but when you become a parent and is that huge commitment for the rest of this person's life to be on the lookout for them and have their best interests as a priority, a huge deal. It's a wonderful thing. It's a weighty heavy thing as well. Mostly I would say it's a wonderful thing. It shifts things for you forever. Buying a duplex, owning one home and renting the other is not quite being a parent, but it's that kind of transformation. It makes a big shift in your mind. So those are just background piece of information about a duplex.
So, I'm going to dive into the T W O F E R, TwoFer is an acronym. We try to put things in the form of an acronym in these sessions, so that they're easy to remember. So the first one is that you get total leverage is the T, total leverage. And so one of the reasons is real estate is one of the greatest investments and most reliable investments, safe investments in the history of the world, United States real estate is because of leverage, this concept of leverage. So if we go to Webster, it has two aspects, the actual definition of leverage that apply here. So one is that using borrowed capital for an investment, expecting the profits to be greater than the interest payable, that's part of it. And the second one is to use something to maximum advantage, leverage. So you expect that the interest will be lower than the benefits and the profits, and you want to use it for your maximum advantage.
My heart pounds with excitement talking about that, but that's exactly what a duplex does. And one of the things about leverage, the biggest parts is that there's a hack here, basically a little loan hack, which I love talking about, which is when you are a homeowner, when you are an owner occupant, you live there, you get the best rates in the market. Fannie Mae and Freddie Mac love homeowners. That's our whole system, those two institutions are set up to give the best interest rates and best terms and lowest down payment for homeowners. So in this case, you can get an FHA loan. You can get other loans and only put three or three and a half percent down, a down payment. Why does that matter? You can have 97% leverage. You own the whole asset, which appreciates something like four to 6% a year, depending on your area and even more, but you only own 3% of it, but you get all the value gains, you get all the profits from the rental net profits, total leverage. In this situation, you get massive leverage.
And if buy an investment property by comparison, just a single rental property, you have to put 25% down because you're not living there. That's kind of the hack. You live in one side and rent the other, but that rental is basically a business you own, bringing in rents, paying expenses and having net profits. But you get the loan as if you were an owner occupant and not as an absentee owner. Amazing thing. And why is it like that? Well, I think the fundamental reason is when people are underwriting the loans, they say that someone who lives there is less likely to default. And I think statistically, that is the case. So they give that FHA high leverage to both sides. Awesome thing.
So, the second thing of the "W" of TwoFer is that you get to write off more expense and save on taxes. As the owner living in one side and renting the other, you can rent off expenses for the whole property. And for every dollar you spend, you can save 25 to 35 cents on your taxes as a write-off. Again, a fantastic thing. But I would recommend that you check with your CPA. I don't know what tax bracket you're in, but for sure you get to deduct more as if you didn't live there. So, the third thing on the "O" for TwoFer, is that you own a home and a business at the same time. I know we talked about that a minute. But just think about this, right? Everyone, needs to live somewhere. It's the most basic human need. Why not own it if you can? Well, some people don't do it because they don't realize they can. Some people think that they have to put 20% down. You don't have to with the duplex. Some people think it's too much responsibility. It's too hard to do.
One of the things we talk about here on this podcast, we're going to give you tons of resources after, but we would love to walk with you and be a guide and help you break through some of those limiting beliefs about homeownership. So often people think, should I buy or should I rent? And they break it down into, well, here's appreciation, here's inflation and it's kind of a wash. So it really doesn't make sense. It is so much more than that. Owning your own home is it's just it's life altering. It's helped me transform my life. I now own hundreds and hundreds of properties throughout my career. Flipped them, own them, rented them long term. It's just an amazing thing and it's way more than just one piece of analysis.
So here's the way to think about it. Ask any 40 year old that's owned their home 10 or 15 to 20 years, right? Hey, would you want to have three of those or five of those? What's one of the biggest number one decisions after who you picked for a spouse and some of your career decisions, biggest decision you ever made, buying a home as early as I could. And what we recommend is to buy your first home as early as possible and hold it as long as possible. Truly, we believe that and it would change your life. So it's not just a one and done decision. So the next thing is TWO and then F is financial freedom, right? You can have no rental payments. If you own one side and you rent the other; if your payment is 1200 bucks and you get $1,200 in rent, that's probably very realistic numbers. You have no rent.
Everybody has to live somewhere, why not live rent free? Another one in the E of the TwoFer is, I love this one. I can talk about this for an hour. Is that owning a duplex you have multiple exit strategies. You think about an investor who invest in something. They really have two questions every time, right? It's how much am I going to make? And how do I get in? When do I get my money back? How much? And when I get it back and what would be the procedure for that? So if you invest in a duplex, there are so many exit strategies. You can buy it, live in one side, rent the other. And at some point, possibly move out, use that equity to buy a home. You could sell the whole duplex at some point. You can sell half of the duplex at one point and pay off your loan and have no payment. That's a whole other thing.
You can continue to rent it, both sides as rent goes up, you can even add an ADU or building in the back and have another unit, if your zoning permits it. There are so many exit strategies. And there's so many ways to increase value; if you increase the rents, the value goes up. You reduce expenses, the value goes up and as the value goes up, your options with financing increase. So you don't have to just sell. You don't have to sell the whole thing. You don't have to sell one side on and on and on. Multiple exit strategies.
So, the last one on TWOFER, is again, one that it just gets me fired up is that return on investment could become infinite. So here's a trick question I love, This is a housing literacy moment. And what it is what is the return on investment when you have no cash invested. Let that sink in. What's the return on investment ROI, if you don't have any cash invested. I've only had two people answer this right and I've asked it hundreds of times. The answer is infinite. That you get a return. It's like having Amazon stock, that you didn't pay for and it pays eight to 12% a year. That return is infinite. You can't even put a number on it, it's so big. Fantastic.
So one housing literacy case study is that we have a participant in our program in Powerful Homes, 20 year old, bought a property in December for one 75, put in around 25. He actually borrowed some of the down payment to put somebody in himself. And then he refinanced the property after jumping the rent to $1,500. It used to be less than a thousand. The property appraised number now, after he remodeled it and released it, that he could pull all of his money out. That's a 20 year old, right? So now he has a nice piece of equity, which is another word for profit that he didn't have to pay tax on. Housing literacy right there. And he's going to make $600 a month for the rest of his life for the next 30 years. And that tenant is going to pay down his mortgage. He'll have it free and clear in 30 years. The return on his investment is infinite because he has no cash investment. It's just a fantastic concept, another reason to own a duplex or own real estate.
So I'm going to zip through some tips and tricks that I've gone through my career with owning a duplex. One thing about having a common wall, it could get noisy. One thing you can do is add masonry or a couple of sheets, few sheets on both sides of three quarter inch drywall to stop the noise. Another one is if you're living in one side rent and renting the other, you may or may not want the tenant to know that you're the owner. You can have the rent sent to a PO box. That's a great tip. I think another one is to make sure that the common wall goes all the way through the roof and all the way down to the ground. Why? From a fire code perspective, it keeps the fire from jumping up and, and having a big problem on both sides, if there's an issue. It could make you nervous and that's a way to prevent that issue from happening.
Know where the ground underground systems are including the water line and the sewer and create shutoffs, so both sides can shut off the water and it access the sewer line. One thing is, if I talked earlier, if you have a common waterline, something you can do is put a counter on one side and then each month kind of see how much water is used, and you can only pay for the amount of water. Again, another great tip. And I would say consult with a local attorney to draft your party wall agreement, to protect both sides. And in the show notes, I'm going to put an example of a great party wall agreement that you can look at. Again, check with your own attorney.
So hopefully you've found some value in that. Hopefully that inspires you to think about investing in a duplex, either as an owner occupant, or as an investor. I'm so glad you're here with our Powerful Homes housing, literacy discussion, and look to see you next time. And as always, my cell phone number is (303) 885-1644. Text me if you have any questions, love to chat with you about your ideas about being a homeowner or an investor. See you next time.
Thank you for listening to another episode of the housing literacy podcast. Don't forget to like comment and hit that subscribe button and stay connected with Matt Guarino by visiting www.powerfulhomes.org.