If you want to bring in more than one paycheck a month, a multifamily property is a great way to do it.
Whether it’s a multi-unit home, a small apartment building, or a row of townhomes, there are many ways you can be racking up the profits with just one monthly mortgage bill to pay back.
But, the key decision factor is going to boil down to your increased responsibility (more tenants = more time servicing them), and the increased capital you need to buy a multifamily property.
Overview
- Up-Front Investment: Purchasing the multi-unit home, usually with at least 20% down. Finding tenants.
- On-Going Investment: Upkeep and maintenance of the multi-unit home.
- Return on investment: Potentially high. Depends on your local area and listing.
- Best for: Many destinations could be lucrative for a multi-family unit, especially where affordable housing for families is lacking.
Are You Going To Live There?
Many experts advise investors to consider living inside one of the units. Not so that you can spy on your tenants, but so you can qualify for better terms. If you live in one unit inside a four unit home, you’ll be able to qualify for owner-occupied financing.
This means putting less money down, which is favorable since investors otherwise have to put at least 20% down.
This tactic can also allow you to purchase another property sooner since your debt-to-income ratio will be lower. And, you can keep a better eye on the building this way.
Seek Professional Assistance before buying multi-family property
It’s tough enough to make the right decision on a single-family home. Buying two, three, four, or more in one is a whole other beast to tackle. That’s why you should never underestimate the value of seeking professional help from a broker who is experienced with multi-family properties.
Your team of professionals should, at minimum, include a broker, an attorney, and a lender on-call for you 24/7. This team can help guide you through the customs and practices of the local area, and they can also help you focus your attention to the key areas, like physical aspects of the building, the financials, and your potential cash flow.
Another expert tip to ensure your investment doesn’t go awry? You should consult local tradesmen rather than hiring a general inspector, and have them each give their opinion about a major system/component of the building that they specialize in.
The biggest consideration is to really look at the history of the building. You should not feel hesitant to request detailed paperwork that covers the profit and loss reports for the past few years. You should also be certain about why exactly the current owner is selling. Are all the leases about to expire? That’s something you need to think about.
The Advantages to Purchasing Multi-family homes
Ideally, your building won’t need to be fully occupied in order to justify your monthly expenses. That’s why the biggest pro of owning a multifamily home is that you have a much larger chance for making extra profit. And, if one of your four tenants does drop, the other two-three should still be able to cover the bills.
In this way, a multifamily home somewhat lessens your risk of a vacant lot. With a single-family home, the entire house will sit empty and profitless in-between tenants or if a current tenant suddenly defaults on their payments. With a multifamily home, you can still stay in the black even when one unit becomes empty for a while as you try to get a new family in.
Another pro? If you choose to live there too, you can save money.
The Cons of purchasing Multi-Family homes
You will have to put down more money up-front when it comes to purchasing a multifamily property. You should also anticipate having to deal with more issues since you have multiple tenants, and perhaps even sustain a higher risk for liability problems.
The wear and tear on the building will be multiplied due to the large number of occupants, but with the right team by your side before you make the purchase, you can help mitigate these things as much as possible.
Summary
A multifamily property can be an excellent choice for investors so long as you consult the professionals and thoroughly review all the financial details before you take the leap.
