Do you want to learn more about multi-family investment properties in Twin Cities? Check out our post for some of the pros and cons!
Multi-family investment properties can help to grow your real estate portfolio. In fact, many people use owner-occupied multi-family properties to begin their investing careers. By living in one of the units of the building yourself, you will be able to purchase the property (up to 4 units) with an FHA loan and a low down payment. The rent you are charging the other tenants in the building should pay your mortgage as well as many other costs of ownership. In essence, you will be able to live for free while building equity and saving money. Win. Win. Win.
Below, we discuss the pros and cons of owning multi-family properties. Not just owner-occupied ones, but properties that are completely tenant occupied as well. Learn more about what’s involved than give us a call to find the best deals on multi-family properties in Twin Cities!
Lower Vacancy Rates
Having multiple sources of income is always a smart idea as it helps you avoid potential financial losses. For instance, if you invest in a single-family home and your tenant moves out, you will no longer receive any rental income. However, if you invest in a duplex and one tenant moves out, you’ll still receive $1,000 per month from the remaining tenant. This is a much better scenario compared to losing all rental income because you have your eggs in one basket. Therefore, it’s important to diversify your investments and spread your income across different sources to mitigate risks and secure financial stability.
Low Funding Costs
FHA loans offer a low down payment option compared to conventional mortgages. These loans can be used to purchase a single-family home or an investment property with up to four units. To use this strategy, you must occupy one of the units as your primary residence for at least 12 months. Once that period has passed, you can rent out the entire building, which allows you to build equity and pay off your mortgage quickly. This approach can be a smart financial move for those who want to invest in real estate but don’t have a large amount of cash to put down on a property upfront. By taking advantage of FHA loans, you can access the benefits of real estate investing without needing significant upfront capital.
Lower Maintenance Costs
When it comes to major repairs or renovations, it’s often more cost-effective to tackle them once rather than having to repeat the process two or three times. For instance, if the roof of your triplex needs to be replaced, doing it once ensures that you won’t have to worry about it again for several years. In contrast, if you have three separate houses, you’ll likely be dealing with roof repairs much more frequently, which not only costs more money but also takes up a significant amount of time. Furthermore, owning multiple properties also means having to deal with repairs and maintenance for each property, which can add up quickly in terms of both time and money. Therefore, investing in larger properties with multiple units or buildings can be a smarter approach as it reduces the amount of ongoing maintenance required and can save you time and money in the long run.
Owning a multi-family property comes with its own set of unique challenges. One of the biggest challenges is dealing with multiple tenants, each with their own set of needs and demands. With more tenants, you can expect to receive repair calls more frequently, and you’ll also need to mediate disagreements between neighbors. It’s important to have systems in place to handle these types of issues and ensure that you can quickly and effectively address them. This may involve hiring a property manager or maintenance staff to handle repairs and maintenance requests promptly. It may also involve establishing clear communication channels with your tenants and creating a process for handling disputes or complaints. By being proactive and prepared, you can mitigate the potential challenges that come with owning a multi-family property and ensure that your investment is successful in the long run.
One of the challenges of owning a multi-family property is that it tends to attract more transient tenants who may not plan on staying for an extended period. This can lead to more turnover and a higher need for tenant screening and professional cleaning services. Additionally, you may experience more rental income losses as you search for new tenants to fill vacant units. In contrast, a single-family property tends to attract more stable tenants who are looking for a long-term rental solution, which can reduce turnover and vacancy rates. However, there are also advantages to owning a multi-family property, such as the potential for higher rental income and the ability to spread risk across multiple units. It’s important to carefully weigh the pros and cons of each type of property and choose the one that best aligns with your investment goals and risk tolerance. Additionally, implementing effective tenant screening processes and staying on top of maintenance and repairs can help mitigate some of the challenges of owning a multi-family property.
Using an FHA loan to purchase an owner-occupied investment property comes with a requirement to live on-site for at least one year. This means that you will be available to your tenants 24/7 and will need to have effective systems in place for handling their requests and concerns. It’s important to have a clear understanding of your tenant screening process to ensure that you attract responsible tenants who will respect your space and privacy. When you have the right tenants in place, owning a multi-family investment property can be an effective strategy for building wealth through real estate. With multiple units and tenants, you have the potential for higher rental income and the ability to spread risk across multiple sources. However, it’s important to carefully consider the unique challenges of owning a multi-family property and to have effective management systems in place to ensure the success of your investment.