More than three decades ago, my mentor suggested I purchase a multi-family home as my first home. He had purchased two multi families before he bought himself the home in a neighbourhood he wanted to live in. Needless to say, I didn’t follow his advice. Over the years as a mortgage professional, I have suggested the same approach to owning real estate to most of my clients. Some took the advice – and those who did have networths that are possibly 4 times as much as those who did not.

Pros To Owning A Multi-Family Home

  • You could qualify for a larger mortgage, because lenders may take the potential income from the rental unit into consideration. You’ll need to research rental rates in the area. And as long as you are an owner-occupant, you can qualify for low-down-payment options as you would with a single-family home.
  • Build equity faster. If you cannot afford a home now in your dream neighborhood, buying a duplex in a more affordable neighborhood can help you build equity faster and move up to your dream house later – at a faster rate than building your savings while renting.
  • Rental income may cover half the mortgage. Depending on your location, the rental income may cover all or most of the monthly mortgage payment.
  • Tax benefits. If you itemize deductions on your tax return, you can write off various expenses related to the rental portion of the property, like repairs and utility costs.
  • Vacation rental potential. If your municipal bylaws allow it, you could make even more money renting out your units on the vacation.
  • Real estate experience. If you think you might be interested in real estate investment in the long term, a multi-family can be a great crash course in how to be a landlord.

Cons to owning a multi-family:

  • Being a landlord is not for everyone. You must learn the landlord-tenant laws in your province/state as well as the intricacies of leases and screening potential tenants. You must be available to your tenants 24 hours a day in case of emergency.
  • You’re responsible for all repairs to the rental units as well as your own. You can save money by handling repairs yourself – but if you are not handy and need to hire someone, this can eat into your savings. Make sure you have enough room in your budget to afford repairs and appliance replacements.
  • Limited locations. Looking for a duplex may limit your location options. Not all neighborhoods in every city offers a mix of single-family, duplex and multi-family units for sale.
  • Resale issues. Generally, there is less demand for duplexes than single-family homes, so reselling may take longer.
  • Property insurance rates are higher.
  • Appreciation is generally lower for duplexes.
  • Higher up-front cost. While you can qualify for low-down-payment options as mentioned above, you will likely spend more on the duplex than you would on a single-family home. So even if you only put 10% down, you may face higher up-front costs.
  • Rental income is not guaranteed. Just because you have a space to rent does not mean you will see that rental income each month.

All advice aside, the only person who can determine whether a mult-family or a single-family home is right for you – is you. So, do some soul-searching to see if it is a good option for you as a first-time home buyer.

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