Why Buying a Multifamily Property is Easier to Finance

When setting out to purchase a home, most people don’t intend on becoming landlords as well. However, there are a multitude of reasons why purchasing a duplex, triplex or fourplex is a seriously smart move. A multifamily home can be an incredible investment for the right buyer, read on to find out the possibilities purchasing this kind of property can open up.

Exploring your options

Imagine — after years of renting, you’re ready to buy your first home. You explore several viable options with your real estate agent, and finally land on a classic colonial-style home that needs some minor work done. After doing the math, you figure out you’ll need to take out a $170,000 loan to pay for the house so would it be time to look at somewhere such as Reali to apply for the home loan? Assuming you have a 30 year fixed loan and an interest rate of about 5-percent, your monthly payment will be around $900. You’re intrigued, but not sold yet.

You keep searching and find a duplex that’s perhaps pushing the limits of what you can afford. This property would require a loan of roughly $200,00, but it’s in great condition and doesn’t require any repairs. This larger loan would mean a monthly payment of about $1,000, but you’re savvy with your finances so this monthly payment is still doable.

But wait — there’s more! The duplex has a one bedroom unit as well as a two bedroom. If you choose to move into the one bedroom, and rent out the two bedroom for $900 a month, your mortgage payment has shrunk down to about $100 a month. This means you can pay off your loan faster, and save up money towards your next property. This also gives you the opportunity to learn about buying a new home and what it actually involves. Plus, owning a property is an extremely equitable investment. Whether you choose to live in it or not, owning a multifamily property means you have a steady stream of income to help support yourself, and maybe even a family somewhere down the road.

Let’s talk FHA loans

Even more importantly, duplex, triplex and fourplex properties all fall into the category of an FHA loan. FHA loans are mortgages insured by the Federal Housing Administration, and people who borrow money using an FHA loan have to pay for mortgage insurance. Mortgage insurance protects the lender from losing money if the borrower cannot make the loan payments and ends up defaulting on the loan.

Because of the required mortgage insurance, there’s less risk for the lender, getting a loan for these kinds of properties is easier to do, and the required down payment is usually much smaller. In some cases, you can own a rental revenue property with just 3.5-percent down.

A seriously smart investment

With better interest rates a and easier borrower qualifications, there are several reasons qualifying for an FHA loan and purchasing a multifamily property is very attractive. Plus, having the ability to rent out separate units within your property is literally money in your pocket. If it’s within your means and makes sense for your own financial situation, buying a multifamily home could be the smartest investment you ever make.