in your area.
I want to...
Is a Multi-Family House a Good Investment?
A multi-family property can make great sense from an investment standpoint. Even for someone who’s not investment-minded, there’s the option of buying a duplex (two-unit home) or triplex (three-unit home), living in one unit and renting out the others, with your tenants’ rent moneys covering most or all of the mortgage payment.
In many ways, owning a multi-family home is considered a lower risk than a stand-alone residence. With good credit and credentials, it could mean more favorable interest rates and terms on the front end of the loan. It can increase your passive income every month and, therefore, your net worth. Measure the value of the property versus its income potential (its capitalization rate). Consider:
- It’s unlikely that the entire building will ever be vacant, even if families come and go
- Maintenance costs can differ, such as putting one roof on the entire structure rather than separate rental properties
- In many areas, multi-family homes don’t receive the attention that stand-alone houses do, so you’ll have less competition to purchase the property you’re wanting.
Potentially Negative Aspects of Owning Multi-Family Homes
Bear in mind that you will need a higher down payment. Many banks ask for as much as 30% down, and you may have to indemnify that with an interest in your own personal home or another commercial property.
It’s important to manage a multi-family property well, and you may want to consider a property management firm as a go-between. Your contract with them will cut into the bottom line on your return.
Do a thorough market analysis beforehand. Take into account what similar units are renting for, as well as the value of the building and the land.
Do your due diligence when researching properties. Look into any title problems like liens. Look at utility bills, maintenance records and tax records. Consider probable yearly expenses against the income potential and cap rate.
For a smart investor, a multi-family unit (or even a duplex, triplex or fourplex) can wind up as a solid, stable investment that can keep bringing money in for years to come.