Multi-family could mean multi-problem
In the past year, it seems like the interest in multi-family homes for the first-time buyer has exploded. The value proposition is certainly there. Buy a single-family home, live there and make no income. Buy a multi-family home, live in one unit and someone will actually pay you rent to live in your second unit. Hmm...interesting concept. The pre-approval for a multi-family unit will be substantially higher than for a single family which also sounds intriguing to that first-time home buyer. Buy a bigger home and make income, seems like a no-brainer. The reality however is that multi-family could mean multi-problem, especially for the first-time buyer.
It seems like I give this same speech multiple times a week and it is getting progressively harder and harder to convince these first-timers that they are biting off more than they can chew because everyone is telling them how good an investment it is. While it certainly can be, let me touch on five points every first-time buyer should consider when toying around with the idea of buying a multi-family residence as their first home:
Have you ever been a landlord?? If you have a history as a tenant, what does the average tenant think of their landlord? What percentage of rentals have some dispute over the course of the lease (security deposit, upkeep and maintenance, noise level)? Have you ever, as a tenant, lived next door to your landlord? Think long and hard about these questions.
You are doubling the amount of things that can break in your home. Yes, you will be getting rent for your second unit, but what if their oven breaks? What if their hot water heater leaks? There goes your rental income.
You are trusting strangers, not just to live in a building you own, but to occupy a separate unit that is attached in some way to yours. This is your first home, which is awesome! But you are sharing your biggest investment with strangers.
What are you going to do when they don't pay their rent? Sure, you will politely remind them that the rent is late. Then you will do it again. When you don't receive rent for a couple months, you will start thinking of eviction. You will also find out that it is much harder and takes much longer to evict someone than you think. If you are counting on that income each month to pay the bills for the whole house, where do you get that money from if your renter is late?
You aren't getting more home for your money. Yes, you can spend more on a multi-family home based on a higher potential mortgage commitment, but you will definitely be getting less space because you are sharing the overall home size with your tenants.
A multi-family home can be a fantastic investment, but there are plenty of factors to consider before taking that plunge on your first home. Take the time to find a REALTOR® you trust who knows the single vs. multi-family game and let them help you evaluate what is best for you and your family.
I am a dedicated father of two, aesthetically inclined and art forward, and a proponent of healthy living. I am also a realtor®/ABR®/e-PRO®/trainer with Berkshire Hathaway HomeServices New Jersey Properties in Montclair, New Jersey and a proud member of Giveback Homes.
Feel free to visit my website for more information on real estate. To connect on social media, you can follow me on LinkedIn, tweet me @realtorgreene, follow me on Instagram @greenelivingbhhsnj or check out my Pinterest page @iamgreene. For more information on my training and presentations, visit my training page.