Deciding whether to buy a single family home or a multiple unit property is a easy decision for me, because I am fifty-three years old, and I can remember buying my first home. It was not a multiple unit property, but I wish it was. I made the mistake that many other first time homebuyers do and was led around by the nose to an overpriced single family home.
I had an opportunity to eliminate my housing expense completely, but instead I bought a single family home and made payments for years. I discovered the magic and promise of multiple unit properties later in life by accident as an investor and not an owner occupant. Imagine paying $300k for one single family home or 75k for one unit of a four unit multi unit property. Why would you pay more? You would not unless the home meant more to you than cash flow. Cash flow makes the world go round; without it everything stops.
You see, early in my life I did not have anyone telling me what I am about to tell you, Mr. or Ms. First time home buyer. My realtor did not tell me; my lender did not tell me; my parents did not tell me; and I certainly did not learn it in high school or college and I have MBA. The American Dream for most of leaving home, getting a job, and buying home is represented in single family residence, not income property; however, it is should be. When you are starting young you have time on your side to learn, to make mistakes,and to recover to maximize the power of compound interest and the rule of seventy-two. Acquire assets and build multi streams of income while you are young and you will do very well in life.
Get ready to go on short ride, because if you want to be a real estate investor and a first time home buyer, then you need to seriously consider multiple unit properties. There are advantages and disadvantages to owning single family homes and multiple unit properties, but finding the right deal for you will require a careful analysis of your financial stability and the quality of the property and neighborhood that you select to buy in. The disadvantages to buying multiple unit property are so few that I will list them in a future article. With everything there are risk and rewards.
The Rewards of Multiple Unit Properties – One to Four Units
Cash Flow: Here is the rule for every dollar you pay on the mortgage and all the expenses on the property. You need a 1.25% in revenue/rent or higher. That is the key rule. As a result, you never pay a mortgage. The tenants pay your mortgage and it is a beautiful thing.
Mortgage acceleration: If three of the four units are occupied, you can actually make two payments on your mortgage or a payment and a half to pay off your mortgage in fifteen to twenty years or sooner.
Income Appreciation: Every year you increase the rent three to five percent. This increase the value and cash flow of the property.
Market Appreciation: Every year the property value will go up because of inflation and demand for housing in your neighborhood. This is why location, location, location are still very important even when buying multiple unit properties.
Do Not Listen to Fear Mongers and “Glass Half Empty” People
If you are just beginning in real estate investment, you want to start out with a two, three, or four unit home. Live in one unit and rent the the other. Do it! Do not listen to so called experts who say you must be an experienced homeowner before you buy an investment property. Hogwash! This is how get experience in real estate. You just do it. Whether it is your first single family, multiple unit property, or commercial property – just do it. Fear never served anyone well in life. Courage and risk taking always has it rewards. Fear always leads to failure.
To reduce risk, only rent to people with good credit and stable jobs. Keep in mind that you need to be able to afford the payment even if you did not have a renter. Ironically that would be case anyway if you bought a single family home. You would have to pay the mortgage, and there would be no income from the property coming to you unless you rented out one of the kids’ bedrooms to a family member. Who wants to do that?
Secondly, join a local apartment association and get a mentor who is currently a real estate investor. Find an experienced professional and join the buyers and sellers club on the Power Is Now’s website. We have all the resources you need to be investor and homeowner.
A seasoned professional in the real estate business knows that having both multiple unit properties and single family homes makes for a diversified and strengthened portfolio. As you grow as a property owner, be sure to invest and diversify. With ninety percent of wealth coming from property, there is no reason not to invest in homeownership and particularly in multiple unit properties.
Eric Lawrence Frazier MBA
President and CEO
Boone, A. (2014, December 28). Single v. Multi-Family: Which is a Better Rental Property? Retrieved August 11, 2015.
Chautin, J. (2014, December 11). Real Estate Investing: Single Family Houses Versus Multifamily Rentals. Which Is Better? Retrieved August 11, 2015.