With the current inflationary costs continuing to surge in the real estate market, many buyers are thinking “outside the box” when it comes to creative ways to purchase and own a home. One option you may not have considered is how a multi-family home might be right for you.
What is a Multi-family Home?
For starters, there are many ways to define “multi-family home.” That might look like a single-family home that has a converted basement or detached garage apartment on the property. For these to act as separate homes, there must be a separate entrance to the dwelling apart from the main living areas, each must have its own kitchen and bathroom. There are also duplexes, triplexes, and quadplexes to consider.
In each of these scenarios, the owner would reside in one “unit” and rent out the other space(s) to rent-paying tenants. While the upfront cost to own a multi-family property might be significantly higher than simply purchasing a single-family home, the potential to generate income can also be significant.
House Hacking Explained
One term you may have heard is “house hacking.” House hacking is simply where an owner shares a multi-family property’s space and expenses with a tenant. The benefit for the tenant is that he or she is able to rent out a smaller space for likely a more affordable rent. The benefit for the owner is that a tenant is paying rent to help significantly offset the home’s mortgage expenses.
Use Common Sense and Caution
In the short term, there are many factors to keep in mind such as the breakdown of how shared utilities may work, rules and regulations for the tenant, and whether or not there is enough “reward over risk” for the owner to take on such financial and potentially, legal, responsibility.
For some who choose this multi-family approach, in the long term, they can help to expedite the payoff of the home mortgage, reduce monthly expenses, and eventually when it’s time to relocate, can now have an additional rental income if they decide to rent out their own living area, thus generating additional monthly income.
For military families, however, it’s best to think through this carefully as there can be some specific regulations for using the VA loan benefit on secondary homes, investment properties, as well as the potential scenarios that could arise as a “long-distance landlord.”
Slow Real Estate Investing
House hacking, or owning a multi-family property, can be a great strategy for those who want to slowly get into the real estate investing business. Financing a primary residence is generally more affordable than getting a loan for an investment property, with better interest rates and lower down payments.
According to Roofstock, there are essentially five key steps to owning and operating a multi-family property: 1. Understand the ins and outs of all financing options, 2. Search for the right property to house-hack, 3. Crunch the numbers before making an offer, 4. Close escrow, move in, and make repairs, and 5. Find good tenants.