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         Sean Little, Broker/Owner Austin Lone Star Realty

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Will a Duplex Appreciate Faster Than a Condo?

By Patrick Barta
Special to RealEstateJournal.com

Question: I've been considering buying a duplex so I can occupy one half and live off the rent from the other half. But I'm wondering whether duplexes are good investments compared to other properties. Do duplexes do better or worse in the long run than other kinds of real estate, like houses or condominiums?

-- Mary Beth, California

Mary Beth: Unfortunately, there's no definitive data that settle whether duplexes appreciate faster than other properties. But generally, analysts are bullish on duplexes for one simple reason: There aren't many of them.

Like any rental property, a duplex provides a stream of income that can help the owner ride out ups and downs in the local market. But unlike apartments, condominiums or even single-family houses, duplexes are not as prone to overbuilding, which can help enhance their value so long as demand is strong.

According to U.S. census data, there were only about 4.99 million two-unit structures in the U.S. in 2000, only slightly more than in 1990, when there were 4.95 million. By contrast, there were nearly 70 million detached single-family homes in 2000, up substantially from about 60 million in 1990. Buildings with 50 units or more also increased substantially, to 6.13 million in 2000 from 4.39 million in 1990.

The relative scarcity of duplexes makes them particularly valuable in areas that already have lots of apartments and single-family homes, says Greg Rand, managing partner at Prudential Rand Realty in the northern suburbs of New York City. "If you can find a duplex that's surrounded by 250 houses, that's a great investment, because a lot of people prefer to have a half of a house than an apartment," he says.

On top of that, a growing number of home buyers are converting duplexes into single-family homes because they can't find good deals on single-family properties in older neighborhoods. That has expanded the pool of potential buyers for duplexes and further regulated the growth in the stock of duplex properties.

That doesn't mean duplexes are always sure bets, though. Michael Carliner, an economist at the National Association of Home Builders, notes that duplexes probably had their heyday back in the 1920s and 1930s, when it was more common for strangers to share houses. After World War II, families tended to want more privacy, on large, suburban lots. And some renters prefer the luxury of a new, pristine apartment without a landlord next door. "If [duplexes] were such an attractive investment, they would be building more," he says.

On the other hand, condos and apartments are more common in some places because they can be cheaper and easier to build, a phenomenon that has spelled trouble in the past, especially in the downturn of the late 1980s and early 1990s. In Boston, for example, condo prices dropped 20% between 1989 and 1991, compared to about 16% for single-family homes.

Another problem with condominiums is that they often are very much alike. That means that if you have to sell quickly in a down market, there's a good chance there will be similar product available elsewhere, possibly even in your same building, putting you at a competitive disadvantage. Single-family homes and duplexes are often more unique, which could help them sell in troubled times.

"In general, I'd say [duplexes] are safer," than many other properties, says Karl Case, an economist at Wellesley College and one of the founders of Fiserv CSW, one of the nation's best-known home-price forecasters.

-- Mr. Barta is a staff reporter for The Wall Street Journal. His "House Talk" column appears every other Friday exclusively on RealEstateJournal.com. Click here to email him your questions about the residential real-estate market. Please include your first name and city and state. If your question is answered and posted, we will show your first name and city.