Should I buy a Multi Family Home for investment?

Question

I recently graduate from college and thinking about purchasing my first real estate property. At first I was looking at single-family homes and town homes, but now I am thinking that a multi unit might be a better investment. I am making around $60K and looking at possible investment. My mind-set is that with a multi unit I can live on one of the apartment and rent out the rest to tents. Bases on my calculation and the kind of property I buy (condition and location) I can have zero percent vacancy within a short period and the income would cover all my expenses, and I would be pretty much be living there for free take home any additional income. Thanks a lot for your inputs in advance.

The only cons I have thought of are maintenance cost . Unplanned, emergency maintenance cost is my only worry, because if something major happens to the building, then I might not have the huge amount of money to repair. I appreciate all the inputs I can get

Answer 1

I think it would be a good idea, as long as you can still afford the payments even if you don't have a tenent (sometimes you might have a month or two with noone renting from you).

Also become knowledgable on court proceedings. You need to find out how to file an eviction notice and take legal actions against tenents in the case that they default on their payments of rent to you.

Also, try consulting a lawyer who can advise you of writing contracts for the tenents to sign in the case you want to sue later for back owed rent you can show proof of contract.

Also, it might be a good idea to familiarize yourself with the responsibilities of telephone bills they might jack up. I believe that the law is that if there is a telephone bill from the previous renter (lets say its $500.00) and they move out, the new renter will not be able to turn on the phone until the bill is paid. The phone company may also TRANSFER the bill to YOU as the owner of the house (this happened to a friend of mine. Her renter racked up a phone bill and it was later transferred to HER account. There was nothing she could do about it; she had to pay.)

Also, renters can cause a LOT of damage to a house that can be costly. They do things they aren't supposed to. Put holes in the walls, make horrible messes on the carpets, smoke, drink, etc in their apartments. My dad lost a lot of money one time renting to someone who ruined the apartment and then ended up not paying. Eviction notices take time so at the first sight of trouble, get their *** out of the place and evict them!!!

If you are good at maintenance, you can do this yourself without too much trouble/cost, especially if you live in the same building as your renters. Lawn mowing and stuff like that you'd be doing for yourself anyways.

I'd say just be very careful who you choose to rent from you and don't cut anyone any breaks. If people say give me a few more weeks to come up with the money, say to them, "No and here's your eviction notice."

You want stable, healthy, and clean people renting from you.

BTW, choose a house to buy that has a good/new roof and septic system. They're the two biggest financial emergencies that I can think of and if you start out with new/good then you have at least 10 years to build up the savings for these emergencies. Have the home inspected by a home inspector before you buy (a guy who works for YOU and not someone the seller recommended so he gives you honest opinion of maintenance). Also ask a friend in maintenance his opinion on the houses you look at.

Answer 2

First off, good for you. Real estate is very exciting, and I'm assuming b/c you just graduated, you are young. As my good friend once told me (he is the broker/owner of a 60+ person real estate firm and bought about 10 mill worth of property last year) - "Give me 10 years, and I'll make you a real estate genius". If you can somehow find a property that pays you to live there, you are WAY ahead of the game. Coming from the rental market you are probably familiar with it and have contacts that can fill your house. You are making a good income, but make sure you have some cash to cushion you (either through a partner or waiting 6-12 months and saving) so you can sleep at night and your tenants won't hunt you down if they need a new fridge (or a/c or roof...)

The good news for you is your young and if it doesn't work perfectly the first time, you'll be good and ready come tomorrow (aka 2008, 2009, 2010) while the rest of your friends are still enjoying their new found lifestyle.

In todays market, you can probably get a lot of sellers to cover closing costs, hold second mortgages, etc. - basically make you not have to come out of pocket much - provided your credit is decent. This will hopefully provide you with some cash cushion to get in this game.

Best of luck!

Joe...

Answer 3

Quadruplexes was the first property I brought and what I have learned is that you need to have at least 6 months mortgage coverage in your bank account. I was fortunate to use the VA loan instead of using first-time buyer loan to have zero down but you still need to pay the escrow closing cost depending on the person you are dealing with. When I am doing my taxes, I could claim 100% expenses on all rental units but not my unit space, it becomes a personal usage. I could claim 3/4 expenses on the property grounds, such as putting up a new gate or water sprinklers. One thing is if you don't have a great tenant and they give you a hard time paying rent on time more than 3 months, don't hesitate to evict them and do your every 3-4 months walk-thru routine check up on each units. It is for you to make sure each unit are in good shape. Tenants won't tell you about the damages that is happening in their unit until it become a bigger issue. Hoped this help you decide what you rather go for either home for 1 or multi units property. For me, my major reason to get the 4 units is to be able to retire early without worrying about financial after 30 year fixed loan is done. Since you will have your own income with free rent you should put more toward the principle (at least 2 extra mortgage payments a year to bring down the loan interest on the years of interest--instead of paying something like $700,000 in 30 years on $350,000 home can cost you something like $500,000).

Answer 4

Multifamily Financing

Multifamily housing is a type of residential property that has more than one unit in the same building.

Multifamily housing can be divided into 2 sections:

2-4 units: duplexes, triplexes, and quadruplexes (4 units)
5+ units: apartment buildings

Conforming loan limits increase for Multi Family dwellings. The greater the number of units (to a limit of four) the greater the conforming loan limit will be in the properties respective state.


The property with 2 - 4 multi units are considered as a residential property. Thus there are more opportunities and easier to finance this type of property through regular mortgage lenders.
However, the property with 5+ units are considered as a commercial building. Then the broker usually has to go outside of boundary to look for fund from commercial lenders.

Generally the more units a property has the tougher the financing will be. The requirements are usually a little more strict with more units to a property and the rates are usually a little higher to go along with the home loan too. One reason for this is due to the fact that multi-unit properties are a higher risk to a lender. Many people buying multi-unit properties are relying on rental income to be produced from these properties, and if they go unrented for any period of time this may put the homeowner into a bind and could cause some problems with making their payments on time or even at all.

The ability to secure 100% financing usually stops at 4 unit buildings. Any building that has 5 units generally require a down payment of up to 20%.


An FHA owner occupant borrower can finance a Fourplex with about six and one-half percent of the purchase price (the rule of thumb for cash out of pocket to close an FHA loan). The FHA borrower lives in one unit and uses the income from three of the units to qualify.
An owner occupant veteran can buy a Fourplex with zero down, live in one unit and use the income from three of the units to qualify

What is the downside to selecting a multiplex over a single family home? You will have management tasks and usually fix-up between tenants

Answer 5

Well, sounds like you are just starting out. If this is true, I would suggest you buy a single family home for yourself first. I say this only to try to help you. If you buy a double and rent out the other side, I can guarantee you that you will hear all the noise that goes on, on the other side. You re right, maintenance can be a nightmare and if you don't have the cash to fix it, guess what, you probably will get sued and then have to sell the unit you bought. Think about how much water wells, furnaces, septic tanks, and all can cost you if they go bad. What if all the above happens in the same year ? Well, you are out about $25,000.

I suggest being young, you get your own single family residence until you get deeper pockets, then start to look for investment property. Whatever investment property you buy, try to buy single family homes and then rent them out. The housing market right now in my area is very bad, some people whom bought homes 2 years ago, now owe more on their house that what it is worth. Yes, there house depreciated.
Good Luck kid, just some advise from an 40 year old Indiana farm boy that's trying to help.

Answer 6

Single

Answer 7

Good move, first save some money to cushion you in the event that something happends. ALso you can do alot of the maintence yourself. Like painting and lawn mowing.

Answer 8

depends on your budget and income, but generally it is a good idea. Choose location carefully