Millennial Multi-Family

Dated: January 14 2020

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Why would someone buy a multifamily property as a “starter home” rather than a single family? These days millennials are faced with different challenges than previous generations. These include difficulty finding employment, student debt, and when we find employment, usually experience slow wage growth. 

Often times it may feel as if the cards were stacked against us. These factors make it difficult to become a homeowner. Many millennials then resort to living with their parents for longer periods, then renting an apartment. Beware, this is the ultimate trap! This is the fork in the road! 

As a tenant, you are paying off someone else's mortgage and getting a very poor return on your money. Your home or living situation is almost always your biggest expense. Now I understand, some people don't have a choice. If you have to rent then make sure you are able to put some money away. 

Instead, you should live cheap or at home with parents until you have built up a good credit score above 700, saved up enough money for a downpayment on a home and are ready to make the move. 

Now, let’s say you take my advice, and are ready to Purchase a home. The next question is single family or multifamily property? Just some quick facts that will help you understand why I always suggest that one should choose a multifamily. 

  1. Banks finance 1-4 unit properties as “residential properties”.  

  2. Carrying costs: A single family property and a multifamily property of the same size in the same part of town will have very similar carrying costs. 

  3. You can buy a 1-4 unit property with a low down-payment loan as long as it is owner occupied.

  4. If you Purchase a two family property, decide to live in one apartment, and rent out the other apartment for $X per month, the lender will see that $X per month as income.  

I met with a millennial client of mine, who is in his mid twenties and interested in buying a home. I asked him, well have you considered a multifamily property? He said “Yeah I thought about it, but Jeff I don't want to spend money fixing my tenants toilet and stuff”. 

I told him, If you Purchase a single family home you still have to spend money fixing your toilet. You just don't have a tenant who is paying you $15,000 - $30,000 per year that you can use to pay your mortgage. It may be worth it to run around and make a few small repairs here and there. 

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Additionally, as a starter home, this is perfect since you will have that extra rental income and your living expenses will be lower than average. This allows you to build equity or ownership in your home, live cheap and continue saving. 

The next step however, is probably the best part. Maybe you outgrew the multifamily apartment you are living in and want to start a family. You don't always have to sell your multifamily. You can use the equity you have built up, refinance your home to pull out your equity and buy your next home. This is also known as a cash out refinance. 

Assuming you did proper research, you should be able to fill your old apartment with a good tenant, which should at least cover the remaining expenses on the multifamily property. I would always suggest to keep the multifamily property for as long as possible. 

Making your first home a multifamily property, allows you to build a solid financial foundation for your future. It can help pay for that dream home! 

Or you can use this as a foundation to retire in 20-30 years. How? I’ll tell you next time.


Thanks for reading,

Stay tuned. 

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Joseph Baratta

On a mission to provide his customers with the absolute best solutions in the world of real estate and prioritizing customer satisfaction above everything else, Joseph "Joe" Baratta, has made it a po....

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