People purchase, and own, multi – family houses, for a variety of reasons. Some, do so, because, they feel, it is a more affordable way, to enjoy the advantages of home ownership, because the rents, collected, help to offset the costs. Others, purchase these, for strictly, investment purposes, evaluating the historic advantages, from a financial perspective, of using real estate, in an advantageous manner. In either case, however, it’s important, to proceed, wisely, and in a prepared way, to discover, whether, this is the best approach, for them. With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, both examples, of owning these types of properties, whether, for personal use, or as an investment vehicle.
1. Personal use: A 2 – family house, often, makes sense, for one, who no longer, wants to rent, where he lives, yet, finds it, extremely challenging, to afford, doing so! One should begin, by giving himself, a check – up, from the neck – up, and examining, whether he would be happy, living in a place, where he is also, a landlord? Are you, ready, willing, and able to assume these responsibilities, and having to, also cater, to a tenant? If so, then, the next step, should be, to do a financial analysis. This begins with looking at the anticipated rent, the apartment, you won’t use, might demand (and doing so, conservatively). Deduct three – quarters of that, from the amount of your monthly payments, including, mortgage interest and principal, real estate taxes, and maintenance, renovation, and reserve funds, needed. Will this approach make sense, and, be one, which helps you enjoy, your living experiences?
2. Investment purposes: If you won’t be living there, understand you will generally, need, different qualifications, to qualify, for a mortgage. In many cases, this requires a higher down – payment. It also, means, often, having to demonstrate, the rents, received, will, at least, cover the necessary expenses, etc. After you’ve qualified, it’s important to work – the – numbers, and see, if the rate – of – return, meets your investment standards. Also, you should consider the actual rate of return, both, based on the total purchase price, as well as on a cash flow, basis, and have the discipline, to maintain your standards. I suggest using a 6% calculation, for these purposes. For example, if your total monthly costs, amount to $2, 000, you need, to receive, a cash flow, exceeding $2,120, plus an additional 25% or $500, to ensure against any ramifications, including major/ minor repairs/ renovations, vacancies, etc. In addition, this $2,620 (the original $2,120, plus the additional $500), multiplied by 12, or, $31,440 per year, means, you should not spend more than $524,000 for this property. which represents a 6% rate of return.
A wise, well – considered, approach, is wisest, regardless of how, you might use, the home. Are you prepared, and disciplined, to do, what’s best, for you?