4 Reasons to Consider Buying a Multi-Family Home

Blog posted On November 28, 2019

Your investment in real estate starts with the purchase of your first home.  The major advantage of buying over renting, is that when you own your home, every mortgage payment goes toward building home equity.  You can take your real estate investment a step further by buying a multi-family home like a duplex or triplex instead of just a single-family home. 

A multi-family home is by definition, a residential property with more than one dwelling unit.  To classify as a dwelling unit, it must have its own kitchen, bathroom, and utilities, but attached and under the same roof.  A multi-family home with four units or less can be classified as a residential multi-family home, while a multi-family home with five units or more is a nonresidential multi-family home, like an apartment building.  

4 Reasons to Consider Buying a Multi-Family Home

1. Rent out your additional unit.

If you don’t plan to use all of the units in your multi-family home, you can rent out the additional unit to a tenant.  Just like renting out a separate investment property, you will have to draw up a lease with an attorney, find a tenant, and act as the landlord or hire a property manager.  Since you will be living in an attached unit, it may be easier to act as the landlord yourself and cut out the cost of a property manager. 

A good rental arrangement starts with a good lease.  With the help of an attorney or other real estate professional, you can make sure you cover all the important areas in your lease.  Once you’ve started accepting applications for your tenants, be sure to do background checks and credit checks.  There are many inexpensive services online that you can use for this.  When you’re managing the property, be prepared to address tenant concerns in a timely manner, especially since you’ll be their neighbor!

2. Easily accommodate multigenerational living

If you’re living with an aging relative or your adult children have moved back home, a multi-family home is a great way to manage multi-generational living.  Your relatives get their own section of the home and everyone still lives together and shares expenses.

If you’re going to have a parent or older relative move in, make sure their unit is equipped to handle the needs of an aging occupant.  Is everything ground level?  Is it wheelchair accessible?  Looking for a home that meets these needs ahead of time will save you money on renovation costs later.  If your adult children are moving home to save money or live at home while they attend college, make sure to set boundaries.  Are you comfortable with them living with you indefinitely?  Will they need to share expenses?  Do they have a deadline to move out?  Discuss these things ahead of time to avoid awkwardness later.  

3. Eligibility for tax breaks

All homeowners are eligible for tax deductions related to mortgage interest or property taxes.  Multi-family homeowners renting out units have the added benefit of writing off related expenses.  Any maintenance or upgrades you complete on the other units you don’t occupy could be considered a business-related expense. 

Check with your tax professional for the specifics on what you can and can’t write off on your taxes.  Taxes vary from region to region.

4. More financing options

When you’re buying a home with a mortgage you will be subject to conforming loan limits.  Both government and conventional loans have a baseline and high-cost area loan limit.  Your loan limit increases when you are buying a multi-unit property, to help cover the costs of the larger home. 

The Federal Housing Finance Agency (FHFA) reassess loan limits annually based on housing costs.  Check with your loan officer for the most up to date loan limits.

A multi-family home is a great option if you’re looking to earn rental income or accommodate other family members.  It also will give you additional tax incentives and more financing options.  If you have any questions about buying multi-family, please let me know. 

Sources: FHFA.gov, The Motley Fool