Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Hedging your Investment Portfolio with a Duplex

|Includes: iShares Mortgage Real Estate Capped ETF (REM)

Buying a duplex is one of those decisions I am proud to look back on. I purchased my duplex 5 years ago at the age of 21 with no experience and little knowledge about it. It has had its ups and downs but overall it's been a great experience.

The investment so far has provided me with great returns. I could sell it today for the price I purchased it at, if not more. I’m happy about that because I’ve got equity in the property from the principal that’s been paid over the years. Click here if you would like a breakdown of annual cash flows from a duplex investment (note that property tax and insurance are included in the mortgage cost when looking at the chart).

I bought the place for $88,000 with 0 down and it only cost me an initial investment of $1000 (Home Inspection and Mortgage Process fees). I experienced 0 vacancies for the first 3 years and the longest vacancy I've experienced between tenants is 2 months. I’m in the Akron, OH area where you can find really nice duplexes for less than $80,000, and I rent to the college market because they’ve always been good about paying. I prefer to only buy properties where there’s a market for college students.

I only do month-to-month leases because I believe they're a win-win for both parties. If I don't like the tenants, I can end their lease after a month notice without providing them with a reason. If they don't like living at my property or can't afford it, they can also end the lease after a month notice. It's easier and more convenient for both parties this way.

As far as repairs and maintenance goes, there's small things here and there that need to be fixed. The carpet needs cleaned, walls painted, toilette seat and door locks changed, and other miscellaneous things. Most of the work is done between tenants, so if you have tenants that live in the property for multiple years, the repair and maintenance costs decrease. If you have tenants that trash the place when they move out, which I’ve had happen before, you can take it out of their security deposit,

Anytime I experience a loss on the property for tax purposes, I get to deduct that loss from my AGI. It's easy to take a loss after you factor in depreciation, interest, property tax, and repair costs. Another nice thing is that the Schedule E form is a piece of cake.

I can’t say that Duplex investments are for everyone, but they are easy and require little time to manage. The nicest thing about a duplex is there’s always a market for renters, especially today with the foreclosure crisis the economy has experienced. If owning a duplex isn’t something for you, you can always buy a REIT that manages rental properties. Whichever you prefer, real estate is a great way to hedge your investment portfolio.