Should I buy that house for two families?

Some people buy a two-family home because they expect to live in one apartment and rent out the other to significantly reduce their cost of living! While this is a great solution, for some, it’s not for everyone. For some, they need more privacy and/or don’t want the responsibilities of ownership. Other people buy houses for two families, for investment purposes, and it is essential and important, to begin this process, with your eyes wide open, understanding both the advantages and disadvantages. While a well-regarded and right-priced property can be a fantastic investment opportunity, there are others that may not be for certain reasons. With that in mind, this article will attempt to consider, examine, review, and discuss these two scenarios and the process one must go through before making the commitment.

1. Occupied by the owner: An owner-occupied two-family home is eligible for very similar mortgage conditions and requirements as a single-family home. Often this is around 0.5% or more, a lower rate than when the owner does not live there. What rate of return and other relevant concerns should be considered? Start by considering the cash flow, that is, the outflow from the owner, versus the rent collected. How will this compare to your costs if you bought a single-family home? How comfortable will you be as an owner? Are you helpful or will you need to hire others, whenever there is a repair needed etc.? Do you have the type of personality that could handle some of the inherent stresses and strains involved? Will you be happy sharing the property, making sure your tenant takes decent care of the part you occupy, and any potential challenges, in terms of privacy and other issues?

2. No – owner occupied: Start with a realistic assessment and analysis of income and expenses. Will it generate enough cash flow to avoid additional financial challenges and stress? Unless you are convinced that there will be a positive cash flow situation, you should generally avoid investing. Consider only about 75% of the realistic rent, to account for vacancies and other unforeseen contingencies. On the expense side, add your mortgage payment (including principal, interest, real estate taxes, and security deposit) to your monthly contributions into various reserve funds, for repairs, renovations, upgrades, etc. . If this is positive, then move on to a rate of return or ROI/return on investment analysis. Consider the total cost of purchasing the property (purchase price plus initial renovations/improvements/repairs) and your annual rent. Look for at least a 6% return.

An investment property can be your smartest move, or a risky and reckless one! Follow these simple steps, from the beginning, and proceed accordingly.