Most home buyers–whether they’re ready to buy for the first time or are looking to upgrade from their existing home–assume that a single-family home is their only real option. In actuality, multi-family properties can offer a multitude of benefits compared to single-family homes, and investing in such homes may be easier than you think. Here’s what you should know about multi-family properties as you start your home search.
Why You Should Choose a Multi-family Property for Your Next Home
If you’ve never given multi-family homes a thought, you may be surprised to find out that they offer a wide range of advantages for both first-time and repeat home buyers.
Multi-family Allows You to “House Hack” — Perfect for Young and First-Time Home Buyers
The biggest barrier to home ownership is often buying your first home. Finding money for a down payment and securing financing as home prices continue to rise can be difficult. Purchasing a multi-family property helps you get around many home ownership obstacles. With the rental income that additional units can bring in, you may be able to afford more home than you otherwise could, giving you an important foothold on the housing ladder.
Multi-family Provides a Steady Stream of Supplemental Income — and May Even Cover Your Mortgage!
Even if you’ve never really considered a multi-family home before, the income potential inherent in such properties can be very attractive. Since the cost of renting is generally higher than the monthly mortgage cost on the same home–particularly in large cities like Boston–the rent you generate on the additional units in your multi-family home is likely to cover a significant portion of your mortgage. In some exceptional cases, you may be able to cover your mortgage completely with the rent you generate, effectively allowing you to live in your home for free.
Multi-family Gives You Options as Your Needs Change
Many multi-family homes–particularly duplexes–are configured to have a smaller unit to rent and a larger unit for the owner to live in. However, home buyers who are looking to generate even more rental income can choose to live in the smaller unit instead, taking advantage of the higher rent generated by the larger unit. This arrangement offers you options as your needs change. For example, if you add a new baby to your family or you find that you need additional space for a home office, you can switch units at the end of the lease term and acquire additional square footage without having to upgrade homes.
Multi-family Offers More Flexibility and Options for Investors
From a pure investment point-of-view, multi-family homes are superior to single-family.
Multi-family properties tend to have a greater variety of exit strategies than single-family homes do. You could bring in partners and take some cash out of the asset. You could also convert the units to condos to sell them individually, bringing in more than a whole-property sale. Over the life of the investment, there are often more options to improve the value of a multi-family property by adding additional amenities or improving common spaces.
Multi-family is a Particularly Attractive Property Type for Bostonians
Investing in a multi-family home is a great option in many markets, but certain characteristics of the Boston market make it even more appealing here. As you may have noticed if you’ve begun looking at homes in the area, prices are high and supply is low for single-family homes. Indeed, Zillow has scored Boston 12th on its ranking of cities facing a housing crisis. The reasons are simple: Boston’s population has increased at double the rate of the country as a whole in the last decade, leading to reduced supply and surges in home prices that far outpace the United States overall. The median-priced single-family home in Boston now costs 5.2 times the average yearly income!
Of course, it is still possible to find a decently-priced single-family home in the metro area–but you’re going to have to travel for it. The biggest single-family home price increases have occurred within the Route 128 corridor, leaving many buyers to look more than 15 miles away from the city center. And if you’ve ever been to Boston, those extra 15 miles can make or break your work commute.
Yet, multi-family homes offer a potential solution: the extra income provided by renting out the other units can make purchasing closer to the city center possible when it wouldn’t be with a single-family home.
How Does Buying a Multi-family Home Work?
Perhaps unsurprisingly, buying a multi-family home is a bit different than purchasing a single family home. Banks evaluate mortgages for investment properties differently than they do for traditional homes–but if you plan on living in one of the multi-family units, you’re in luck. While banks typically require investors who aren’t planning on living in the property to provide a 20 percent down payment, owner-occupied financing can usually be obtained with less money down.
First-time home buyers can even take advantage of the perks offered by FHA loans to purchase certain multi-family homes. FHA loans require lower credit scores than traditional bank loans, and down payments are typically lower as well–as little as 3.5 percent with a credit score over 580. There are some limits on what kinds of multi-family properties will be approved for a FHA loan: the property must have at most four units, you must live in one of the units and you generally cannot count projected rent payments as part of your income. For younger buyers having difficulty making a traditional single-family home make financial sense, purchasing a multi-family property with a FHA loan can be an excellent option.
Ready to Invest in a Multi-family Home in Boston?
While it’s always important to choose the right real estate team, it’s even more important when you’re navigating the ins-and-outs of the multi-family home market–particularly as a first-time buyer. The team at Metro Realty has been the Boston area’s premier boutique realtor for over three decades, and we have the experience and knowledge to help match you with the right property.
To speak with one of our sales advisers, just contact us online or call us at (617) 232-2255.
Recent Multi Families Sold by Metro Realty: