For starters, multi-family property is identified as a property with two or more units. This most often means that the units share an interior common wall, or a unit is on top of another unit.
If you live in an area that has a high demand for rental units, you can easily find a renter to fill the space that you don’t need. Let’s say it is a duplex, the renter pays you (the new landlord or landlady!) and covers a good portion of your monthly mortgage payment. If you crunch the numbers, you might see that owning this hypothetical duplex is more affordable than buying a single family residence. It could potentially be more affordable than renting your current place, especially if you consider that you’ll be building equity and paying your own mortgage versus your landlord’s. Check out the breakdown 👉🏻
Increase your buying power and build more equity
Right now, you might only be prequalified for $350,000 if you have 10% cash for your down payment. Say there’s a duplex available with a renter paying $1,200/month. When you add the $1,200/month rental income with the income you’re making from your job, that will increase your buying power and raise your max prequalification amount to a property purchase price of $480,000. (An additional ~$130,000!)
The breakdown of these hypothetical purchases:
For someone with a FICO credit score of 700:
- The monthly payment on a $350,000 SINGLE family home with 10% down is $2,725 (Amount includes estimated taxes and insurance)
- The monthly payment on a $480,000 MULTI-family home with 5% down is $3,275, and with 10% down, it is $3,050 (Amount includes estimated taxes and insurance)
The exciting math:
If your renter is paying $1,200/mo in rent, your portion of the monthly payment for the multi-family house scenario is only $2,075 or $1,850 which is far less than the single family home.
NEW low down payment options!
As of November of 2023, Fannie Mae introduced options for owner-occupied multi-family properties to be purchased with a down payment of only 5%. This is huge! If you buy a 4-plex for $600,000, that means you only have to pay $30,000 for a down payment if you live in the property for at least one year!
While I am all for people putting more money down to decrease your interest rate and monthly payments, it’s worth talking with a lender to see the exact monthly breakdown of putting down 5% and keeping extra cash in the “oh $#!T” savings account.
(Full Disclaimer: I am not a lender, I am only a real estate broker and I can connect you with a local lender that will crunch these numbers for you.)
There are tax advantages
The new homeowner can potentially utilize tax deductions for:
- mortgage interest
- property taxes
- depreciation
- maintenance
- utilities
- improvements
These write-offs and deductions must be solely connected to the unit that is providing income and it will further increase your financial return on the property.
Pro tip: Always consult a tax professional, especially your first year in owning any sort of real estate!
Build your investment portfolio
Let’s say that you live in this property for a few years (minimum of one year!) and you either outgrow it and want another property. You could be in a scenario where you can rent out the unit you’ve been living in and get prequalified to buy your second property. Many smart investors do this and buyer a second multi-family property because they see the benefits in this
type of ownership. Overtime, you are building your portfolio and building even more equity than you would if you bought a small starter home. After all, you have to spend money to make money.
This type of home ownership isn’t for everyone
Some people don’t like the idea of living so close in proximity to another person or being a landlord/landlady, and that is okay. This type of living situation has so many benefits, but it is a commitment as you sacrifice some personal space and time. If you think that you want to explore the option of buying a multi-family property, let’s talk to weigh the pros and cons given your particular situation. Even if you are on the fence, it could be worth the consideration before you cancel it out! I was too until I considered the flexibility and financial relief that comes with owning multi-family versus single family for our first home.
Happy to be your real estate resource!
Breena Buettner, Broker/Owner, Realtor
Waypoint Realty Group at Keller Williams
406-302-8257 | breena@kw.com
