Investing in 2-4 unit housing has long been a great way to build equity, while minimizing risk. By purchasing a 2-4 unit dwelling, a homebuyer can live in one unit, and rent out the others to help offset monthly mortgage payments. Lenders take the projected income into account to help the homebuyer qualify for the larger loan. It’s a housing option that’s often overlooked by first time homebuyers or even parents wishing to help their kids get started. One reason is that buyers have been concerned about the down payment on a larger property. Effective November 18, 2023, Fannie Mae changed guidelines to allow for a 5% down payment. In the past, minimum requirements ranged from 15-25% down.
The obvious advantage of buying a multi unit home with a low down payment is leverage. With a small down payment, the new owner is able to secure housing for themselves, while also collecting rent from tenants in the other units. In the best of circumstances, the rents might cover most or all of the ownership expense. Over a longer span of time, the rental income should help pay off the property and inflation is likely to equal much higher rental income in the future.
Although we don’t have many 2-4 unit properties here in Danville, we do have some, and neighboring communities have more. They’re also fairly common in most college towns, so you may want to consider helping your student purchase their first home, instead of paying exorbitant rent while they’re away at school.
Not sure if you want to be a landlord and wondering how this type of investment minimizes risk? Let’s compare buying a single house or condo as an investment property, that you plan to rent out. With a single home, if your tenant moves out or stops paying rent for some reason, it’s a complete loss during that time frame. If you own a four-plex and live in one unit, you have 3 other units that should generate income. If you end up with a vacancy or other gap in income from one of the units, you likely still have two other tenants paying rent….and you still have a place to live, yourself.
Every home purchase is unique. If decisions about investing are leaving you feeling overwhelmed, please feel free to reach out to me at 925-964-5010 or via email at Lisa.Hopkins@Compass.com for a custom analysis of your options. Even if you’re not ready to make a move today, it’s never too early to start planning for success. DRE#01111126.
