Buying your first home is exciting. But, you can make it even more exciting if you combine your purchase for a place to live in with a home to rent out too. It sounds crazy to think of investment real estate when you are buying your first home, but with a multi-unit property, it’s not only possible, but beneficial too.
The Home Can Pay for Itself
There’s nothing more enticing than a home paying for itself, right? That’s what you get when you buy a multi-unit property. It satisfies the requirement of the primary residence for programs, like the FHA or VA loan, while giving you units that you can rent to others.
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The income you make from the rent can help the home pay for itself. If you are lucky enough, you may be able to cover your entire mortgage payment with the rent charged to your tenants. If it doesn’t cover it completely, it should cover a good portion of it. This allows you to live rent and mortgage free while you have tenants. What a great way to start homeownership.
Save for Your Dream Home
As a benefit of your tenants paying for your mortgage, you can sock more money away on a regular basis. This means that you can save for your dream home sooner than you thought. Think about it. If you pay the entire mortgage on a single-family property yourself, you likely pay $800-$1,500 per month for a mortgage. If that takes up almost 30% of your gross monthly income and that doesn’t include your other monthly debts, it may not leave a lot of room for saving. You may end up living in your not-so-dream home longer than you wanted.
If you buy a multi-unit property and take the help in getting your mortgage paid, though, you have the extra money to put away. Whether you save the amount of your mortgage payment each month or another amount, you are more likely to be able to have a large down payment for the home you really want in a few years.
The good news is that when you can afford your dream home, you won’t have to sell the property you already bought. Instead, you can rent out the unit that you lived in and buy your own home. Now you have a primary residence and a separate rental property. Eventually, the rent you collect will help you pay the mortgage on the property off and you’ll reap even more benefits from being a real estate investor.
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Start Investment Real Estate With a Small Investment
Let’s face it, starting real estate investment is costly. Usually you need a pretty sizeable down payment to get started. If you go the multi-unit property route, though, you won’t have that issue. You can use almost any of the standard first-time homebuyer programs on a multiple unit home that you can then rent out. The main factor is that you prove that you will live in one of the units as your primary residence. Lenders don’t mind if you rent the other units out to make a little money. This means you can apply for any of the following loans:
- FHA
- VA
- Conventional
Each of these loans has different guidelines, with the VA and FHA being a bit more flexible than conventional loans. Either way, the most you would have to put down on the property is 5%, as that is the minimum amount allowed by Fannie Mae and Freddie Mac, as long as you live in the home.
Property Management is Easier
When you live in the same building as your tenants, building maintenance becomes a lot easier. Chances are you will know what is going on in the building right away, allowing you to fix problems before they get out of hand. Plus, because you live there, you are probably more likely to make sure the maintenance is always kept up to make sure that your home is in good shape, which then benefits your tenants.
Property management is never ‘easy’ per se, but it can be easier with you right there. You’ll likely have a good relationship with your tenants, since they are now your neighbors too, so you are more likely to make sure that everything is comfortable and satisfactory for them.
Make an Income
Last, but certainly not least, you can make an income from renting out the other units of your property. That’s the idea for most people anyways. Even if you don’t want to move into another home (your dream home), you can rent out the units and save the money for another purpose. It’s a great way to make passive income, even though you do have to be somewhat involved in the maintenance, repairs, and upkeep of the home.
Buying a multi-unit for your first home may seem intimidating, but it can pay off in the end. If you are thinking about becoming a real estate investor, why not look when you buy your first home? There are numerous benefits to giving it a whirl now rather than waiting. The financing is probably much easier to get as your first home than it would be for a standalone investment home down the road.
