Most investors begin their journey from a single-bedroom apartment or a single family house. The next big step to scale their investment portfolio is often multi family homes. These are large properties that are built to accommodate multiple families at once. On the surface, it is just the next step to strengthen the portfolio but there is a lot of debate on whether these properties are worth the investment. So, if you are looking for multi family homes for sale, these are the potential benefits and disadvantages that might come with it.
Benefits of Multi Family Homes
Home and Investment At Once
Owning a multi-family home means there is enough space for you and to rent as well. You can live in one portion while renting out others to clear the mortgage installment. This is in contrast to a single-family home because you can either live in it or rent it out. Rent prices in some regions are high enough to provide for mortgage installment in addition to spare extra for your livelihood.
Furthermore, in addition to clearing the mortgages, the price of the property rises with every passing year. By the time your mortgage is complete you can sell it for profit that would be far higher than single family homes can offer.
Part of the home where the owner resides receives the same tax treatment as a single-family home. However, the property taxes and mortgages cover two or more properties. It allows you to write only half of them. For example, if you have paid $6,000 in property tax in addition to $31,000 as mortgage interest. You can claim $15,500 on Schedule A form in personal dedication in addition to $3,000 in property taxes.
Furthermore, all the cost that incurred in the rental portion of the home can be claimed as well. These include advertisement fees, management fees and the cost that has gone into repairing the rental unit. The claim is not limited to but applies on utility bills of the rental portion and supplies that are bought for maintenance.
The IRS also allows depreciation of the rented half of the property. That said, the depreciation is only limited to building price and does not apply on the land. But even that can offer tax relief worth thousands of dollars.
If you want to invest in multiple single-family homes, each of them would require a separate process. You would have to apply for multiple loans which is not just time consuming but frustrating as well. With a multi-family home, there is no such hassle as the property is single unit. You just have to apply for a single loan to purchase multifamily properties.
Furthermore, management also becomes simple. You don’t have to file tax returns, pay maintenance dues and other costs for individual houses. Multi Family homes consolidate all of these prices in one place which is much easier to manage.
Risks of Investing in Multi-Family Properties
While multi-family properties offer several benefits, some of which are discussed earlier, there are certain risks that come with them. These are:
Higher Initial Expense
It is not surprising that multi-family properties cost higher than single family counterparts. Even relatively smaller units can cost millions of dollars in some states. Although banks usually provide the loans at a decent interest rate, potential owners still have to make some down payment. And this is not a small amount.
Owners that take loans for the down payments as well can find them in a pile of debt quickly.
The benefits of multifamily properties attract experienced investors to invest in them. Most of these investors are big corporations which creates fierce competition. It can increase the prices of properties and sometimes the cost becomes even higher than its true evaluation. Buying such properties can lead to loss because there is no guarantee that by the time you decide to sell it the same level of competition will exist.
Furthermore, big corporations often make the offer on full cash. It is preferred by property owners as it does not involve third parties and the deals have less chances of falling through. This can be a problem for new investors as they do not really have millions lying around their offices.
Finding Right Tenants
Finding the right tenants can be a hassle as well. You cannot just rent out a portion of your building to anyone. The potential tenants have to be mature and civilized enough to take care of the property. And this process does not just take time but cost in advertisement too.
We hope you found this blog post Multi Family Homes: Pros and Cons useful. Be sure to check out our post Moving Checklist, Guide & Tips for Move Planning for more great tips!
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