Many of us who buy a home hope that the investment will turn a profit in the future. For most folks, this process means buying a quality, single-family home that has the potential for some steady improvement in value. There’s nothing wrong with this plan (it was good enough for most of our parents, after all!), and it’s important to realize that there are other options out there. Buying a multi-family property, for example, is a popular and profitable alternative to the standard, single-family home. If you’ve thought about buying a multi-family home in the past, you’ll be pleased to know that the process yields plenty of benefits; if you’ve never considered buying a multi-family home, then read on to learn about how buying one might just be one of the best financial decisions you can make.
(To clarify, this article’s discussion of “multi-family” homes refers to smaller units, such as duplexes, triplexes, and fourplexes. You’ll need to look elsewhere if you’re interested in purchasing larger, commercial rental properties.)
Security
One of the best parts about owning a multi-family property is that it’s secure. Consider, for instance, renting out a single-family house: everything’s great if you’re renting the property. However, if the sole occupants of the house move out, you’re going to have to scramble to find someone else to fill the vacancy and cover pertinent costs.
Now, consider owning a duplex. It’s not as a big deal if one family moves out, because at least you’ve still got other tenants picking up some of the slack. In that case, even though you’re obviously going to try to fill that vacant unit, the sense of urgency will be much lower with a multi-family home. Less urgency means less stress, and less stress means more leisure time.
Rent Equals Income
This idea might seem like a no-brainer, but it’s actually a helpful detail to remember when negotiating mortgages and down payments. Many homeowners might be worried that their monthly income won’t be enough to cover the larger average costs of multi-family homes, but remember that the rent you will be charging can be factored into your monthly budget. So, even though you’re not going to be charging rent when you’re in the stages of buying the property, you will be charging rent when you’re actually living there, and so your estimated rent charges can be counted as income (discounted to 75% to account for vacancy with most loan programs), making it easier to afford a more expensive property.
You will still have to provide a down payment and have your credit score checked, of course, but the rent-as-income rule will definitely make things easier. So, if the only thing stopping you from buying a multi-family home is anxiety about money, remember that the act of purchasing a multi-family property is going to be increasing your monthly income. Who wouldn’t want that?
Efficiency
Efficiency is probably not the first benefit that pops into your mind when you consider buying a multi-family home. Even so, it’s nevertheless true that purchasing a multi-family home is a cheap method of owning rental space. For example, if you own several rental properties in multiple locations, you’ve got to spend time and money traveling to each property. If, however, you own a single multi-family property, all of your rental units are consolidated in a single space.
Things are even easier if you happen to occupy one of the units. Let’s say, for instance, that you own a triplex and live in one of the apartments. If one of your tenants in this scenario informs you that his sink is leaking, your stress is lessened by the fact that you’re not obliged to travel to the edge of the known universe to fix his plumbing. Instead, you’ve simply got to stroll down the hallway. As such, you save time and money, but you still get the job done.
Avoid paying your mortgage!
Obviously, you’re still going to have to make your mortgage payments each month. However, if you’ve got tenants paying rent, then your financial burden will be at least lessened. At best, you could get away with spending virtually zero paycheck dollars on your mortgage.
Let’s say you own a triplex and need to make a monthly mortgage payment of $2,000. Now, let’s say you live in one of the units and rent out the other two for $1,000 a month. In this scenario, you cover your mortgage with the rent you collect, meaning that your personal funds only cover the property’s bills and utilities. If we want to make things even more interesting, let’s say that the quality of the triplex means that you can fairly charge $1,200 per month per unit. That’s a pretty good price in most markets, and so you’d most likely find it easy to secure tenants. In that case, you’d not only be covering rent, but also utilities and bills along with it. Indeed, depending on the cost of those bills, you might even be making a modest profit at the same time. In short, with a multi-family home, it’s possible to not only cover your mortgage and bills, but to actually make some money at the same time. That’s a win-win situation.
It’s easy to see that multi-family homes are a great investment option, especially if you’re looking for an easy way to purchase your first rental property. For assistance purchasing a multi-family home, call (425) 502-5397, email info@pickettstreet.com, or simply check out Pickett Street’s website.