Investors consider buying multi-family homes because these properties provide an affordable entrance into real estate investing.
We all need a place to live. We also know that buying a home can be an expensive proposition. But what about buying multi-family homes?
Investing in real estate can have its ups and downs, but buying a multi-family home, living in one unit, and renting out the other can have a considerable upside. Not only will you be building equity through homeownership, but you will also have the chance to offset costs by making rental income.
Today we are looking at some of the reasons people choose to buy multi-family homes and how this can be a smart investment move.
Three reasons why buying multi-family homes can make sense for investors
1. Buying multi-family homes allows the owner to subsidize their own cost of living
There is a term called “house hacking,” which refers to buying a multi-family home, living in one of the units, and renting out the rest. Using this strategy can help minimize your bills and allow you to live free if the money you charge in rent is enough to cover your mortgage.
House hacking is an excellent real estate investing strategy for beginners. Not only can the homeowner make money from renters, but it is also possible to get a Federal Housing Authority (FHA) loan for using the rental property as your primary residence. An FHA loan benefits low-moderate income buyers with a lower down payment. Qualifying for an FHA loan is also easier due to its acceptance of a lower credit score than other lenders. A FICO around 580 is enough to qualify for an FHA loan.
2. Buying multi-family homes can provide sustainable income when located in a desirable market
Finding the right market is important for living reasons and renting purposes. You will obviously want to live somewhere you enjoy, feel comfortable, and can afford. The multi-family home will need to provide those living qualities to renters as well.
Many potential homeowners interested in buying multi-family homes will look for up-and-coming neighborhoods. Often these areas will have new businesses and recreation opportunities, which increase the attraction to them.
Just as it is essential to find up-and-coming areas, it is best to avoid locations that are losing economic viability or have problems with crime.
There are various considerations to make when researching the markets of interest to you. First, consider the job market. Is the local economy stable or growing? If so, you are looking in the right place. Next, look at the population growth. Is it increasing or decreasing? If the numbers are growing, your rental property may have a better chance of being filled due to higher demand. Finally, think about the demographics of the area. Are there a lot of renters looking for places to rent, or is home buying more prevalent? Markets with high amounts of renters will be desirable. This type of area is often found near large universities or colleges.
There are other expenses to consider, as well. Areas with attractions, entertainment, and reliable public transportation are often sought after. Renters will want areas with low crime and a manageable cost of living. The ability to walk to a town center or recreation space is also favored by many.
3. Buying multi-family homes can be easier when looking at the data and analytics
Fortunately, there are resources for potential multi-family home buyers. The website Mashvisor provides information on investment properties in specific areas so you can learn about them before making an offer. Researchers can find average rental income rates, the cap rate for multi-family homes, information on prices, and more.
All in all, buying multi-family homes can be a good financial move. But always do your homework and make sure it’s the right move for you.
Would you or have you ever bought a multi-family home as an investment? Share your experience with our community.
Nancy Zambell, Chief Analyst of the Financial Freedom Federation, has spent more than 30 years helping investors navigate the minefields of the financial industry. Nancy's book, Make Money Buying & Selling Stocks is an introduction for new investors and a reminder for experienced investors on how to profit in the stock market.Learn More