If you have always wanted to be a landlord, yet are leery of owning a place that you are not near and unable to check in on frequently, the multi-unit property might be the right choice for you. With today’s ability to obtain a mortgage more than a single unit property as an investment, it is very easy to make enough money on rent in order to pay your mortgage. The best news is with a multi-unit property, you can live in one of the units too!
What Properties are Available?
There are multiple ways to live in a multi-unit property. Do you want to live directly next to your tenant? If you are okay with that a duplex will be the right choice. If you would prefer more units to keep you away from being in direct contact with them, a 3 or 4-unit property might be more acceptable. The more units located in the property, the harder it is to get financing if you are not planning on living there yourself. If you live on the property, it is an owner occupied property; but if you live off of the property, it is an investment property and the regulations for obtaining a loan are harder. The key difference between a multi-unit property and renting out a room in your home is that there are separate entrances, rooms, and amenities – you will have a physical barrier that makes it obvious that the units are separate and are recognized as so by the county.
Getting Financing for a Multi-Unit Property
Obtaining financing for a 2, 3 or 4-unit property is the same as obtaining financing for a single unit. You will need to provide the same information and documentation in order to get approved. If you are putting less than 20 percent down on the home, an FHA loan usually makes the most sense because you are only required to put down 3.5%. If you want to go the conventional route, you will have to make sure you have enough to put down. A 2-unit property requires a minimum of 15%, but 3 and 4-unit properties require 25% down in order to get financed.
How do you Make Money?
There are several ways to make money on a multi-unit property. If you are charging enough rent on each property that your mortgage payment is covered and there is money left, you can consider the left over money your profit. Remember, however that you will have to pay insurance, taxes, and any repairs on the units that you do not live in. Aside from that profit, there is the money that you will gain in the equity of the home. Your renters are essentially paying your mortgage or a part of your mortgage for you. That means that you get the investment in the property, giving you the money if and when you decide to sell the units.
The amount of money that you are able to charge on the units really depends on the average rent in the area. It makes more sense to search the rent in the surrounding areas rather than going off of your mortgage payment. Depending on the amount of money you are putting down, what your credit history looks like, and how risky your loan file is considered, your mortgage payment may be significantly higher or lower than the standard rent for the area. You will have to decide if the work is worth the amount of money you will make after paying the mortgage, based on the norm for the area.
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