Updated: Apr 8
When people think of multifamily instantly their thoughts go to “Too expensive”, “I can’t afford an big apartment building”. We already set that mental barrier before we even get to crack the egg of all the benefits multifamily real estate provides. Multifamily homes do not have be 50-unit apartment buildings. They can be as small as two separate units, which in a lot of areas cost the same as a single-family home. Residential multifamily properties range from 2-4 units and require the same kind of loan requirements a single-family home does. Nonresidential or commercial properties are at least five units or more. To purchase that kind of real estate, is a whole other ball game. Here are the reasons why I love residential multifamily homes.
1. Easy to House Hack In
First, I will explain what house hacking is. House hacking is a strategy that involves renting out portions of your primary residence to generate extra income or to offset the cost of your mortgage and other expenses associated with owning a home. I recommend this for all first-time homeowners if you can find a multifamily that fits you and your family’s needs. Why pay full price for your mortgage when someone else can pay it for it? Now remember you can get a residential multifamily home loan just as easily as you can a single-family home. In my local real estate market, I can purchase a triplex for $170k and also find a decent 3-bedroom two bath for the same price. Now I can promise you the duplex (2-unit home) for $170k will not be in the same quality neighborhood, but the cash flow will be amazing. Now imagine if I live in one of the units of that duplex and rented out the other one. For example, let’s say your mortgage Is $850 for your duplex. You live in one unit and you do your research discovering that you can rent the other unit out for $900. This covers your mortgage and at least half of a utility i.e. water, gas, or electricity monthly bill.
Related Article: 8 Landlord Lessons Learned (Year 1)
2. Lower Foreclosure rate
Since like I said you can find a multifamily for around the same price as a single-family home your mortgage is around the same but your income from your units are more combined. If you did your research and got the right deal, when it comes to 2-4 unit homes it should take half the units to cover the mortgage. Since you do not have to rely on everyone to pay their rent, you are more insulated from issues like COVID-19 pandemics, recessions or just getting a tenant who can no longer pay. When it comes to real estate always ensure you have contingency plans. Multifamily homes provide that extra cushion of security while you figure things out.
3. Easier to Manage Wouldn’t you rather go to one location to handle 5 repairs than go to 5 different properties to handle 5 repairs? I would. This is why I enjoy multi family homes because I get to kill two, three, four birds with one stone. Don’t forget that triplex may have three units in it but all those units all share the same roof that will need to get prepared. that’s better than having to repair 3 different roofs. Roofs are extremely expensive to repair.
4. Build Your Real Estate Portfolio Faster Remember when I said that in a lot of markets you can find duplexes and sometimes even triplexes for the same price as a decent single family home and that the loan requirements are similar? Here’s a quick life hack : Use an FHA loan to put 3.5% down on a residential multifamily home (2-4 units) rent out the other units, save up what you would be paying in your mortgage every month for a year. Use that money as your next 3.5% down payment for your next residential multi family home. For example, you find a duplex for $150k. A 3.5% down payment would be $5,250. Factor in another $2,000 for closing cost. We are at $7,250 to purchase your duplex.
Now you will be living in one unit and renting out the other unit for $900. Your mortgage is $800. You have enough to pay your mortgage and cover a utility bill. Save up the $800 you would have spent on your mortgage monthly for 12 months. By the end of those 12 months you will have $9,600 (Keep in mind each state or loan provider varies on the duration of the FHA loan). Time to go house shopping again for another duplex because you have your 3.5% saved and then some! So, within a year at a minimum you are now at 4 total units. Now imagine if you did that with two fourplexes. You would have 8 units within a year. It is doable. You just must stick to using that extra money you have and consistently saving it for the next home you buy. 5. Easy Tenant Retention Another awesome thing about multifamily homes are the ability to retain tenants who have growing families. For example, if you have triplex that has a studio, one two bedroom and one three bedroom and one your two bedroom is rented out to a family of three with the wife expecting. Now your tenants will be looking for a bigger place to live. Well it would just so happen that your three-bedroom unit will be available prior to newborn joining the world. A great way to retain that two bedroom tenant is to let them know the 3 bedroom unit will be available and (this is a suggestion) throw in $150 off their first month’s rent as a congratulation for their new addition to the family. Your tenants will appreciate it and a happy tenant adds to retention. So now you have kept a happy paying tenant and can put the vacant two-bedroom on the market. Possibly increase the rent after making some improvements. Everybody wins.
Related Article: 9 Landlord Lessons Learned (Year 2)
If you have a plan and scale your real estate portfolio strategically, then you will see success a bit faster than the average way of trying to save up the 25% down payment every time you want to purchase an investment property. Real estate is not hard, but it isn’t easy either. Do your research and maximize the opportunity in each situation to see not “get rich quick” progress but steadily asset and income progress. The path to wealth is just waiting for you to take your those first few steps.
To learn more about investing from Robert Kiyosaki (Rich Dad Poor Dad) click here
If you want more information on how to build wealth through the House Hacking strategy read this book below: