Multi-family homes can be an excellent way for new real estate investors to begin purchasing properties that will generate passive income. However, these properties, which contain multiple units for more than one household, face some challenges that single-family homes do not. Here’s what you should know before buying a multi-family home.
A multi-family home is a single structure that has been divided to accommodate more than one family living separately. They can range from a duplex (two dwellings in one building) to homes or small apartment buildings with up to four individual units. (Typically, buildings with more than four units are considered commercial properties.)
A multi-family homeowner can either live in one of the units and rent out the others or live elsewhere and rent out all of them. The rules for financing a multi-family property differ depending on whether the owner intends to live there: If you do not intend to live in your property, you are considered an investor. You may be able to use the property’s projected rental income to help you qualify for a mortgage, as well as a larger loan amount.
Increasing the value of a multi-family home
In most cases, a multi-family home will also serve as an investment property for the owner. To maximize your investment, you must first understand the costs associated with the property, which include not only your mortgage, property taxes, and homeowners’ insurance, but also other expenses such as utilities, real estate agent fees, advertising (to attract tenants), and legal fees.
Buying multi-family real estate is ideal for those who want to get into real estate investing to generate wealth and are willing to accept the additional responsibility and time commitment that comes with being a landlord. If you occupy one of the units and the rent from the other units is sufficient to cover your monthly expenses, you may be able to live rent-free. Rent from multi-family homes can become a passive source of income once the mortgage is paid off.
They are also a good option for multi-generational families who want to buy a home together while having their own dedicated space. Multi-family homes, which typically have two to four units, allow extended families to live under the same roof while still having the privacy of individual units.
Thinking about purchasing an investment property? Talk to us!
