5 Things to Know About Multi-family Investment Properties

A few weeks ago I wrote a blog about investment properties and it was extremely popular!

But let’s face the facts here. Most of us can’t afford to buy a few single family homes as rentals while affording our own home, let alone buy a couple hundred single-family homes. This is why there has been a recent trend in home buyers purchasing duplexes or even multi-family units to live in one of the units while renting out the others.2f

From the perspectives of a Realtor and a landlord, here are some things to keep in mind.**

1. Buying a multi-family home will limit your location options

If your goal is to get a duplex, triplex or quadruplex to live in one part and rent out the other or others, you may be limited in terms of the locations that you’ll get to choose from.

You might have an even more difficult time finding a multi-family unit that you’d be happy living in if you live in a more rural part of the United States. But if you’re not extremely picky about the neighborhood you live in now, this could be your opportunity to get in and make some good money over time.2f2

2. Newton’s third law of multi-family real estate

“For every benefit to owning a multi-family property, there is an equal and opposite reaction.”

The main benefit of owning a multi-family unit and living in one of the units is rental income. Every month you’ll get a rent check that offsets your mortgage.

One downside? Tax complexity. Just look at all the IRS rules regarding investment properties. Always consult your tax professional prior to making a large investment purchase, especially one that you expect to make deprecations and write-offs from.

Another benefit of owning a multi-family unit and living in one of the units while renting out the others is that you’ll always be close to your rental properties so that you can check on the condition frequently. If loud music is being played late at night, you’ll be the first to know about it. If a pipe bursts or a toilet is clogged and your tenants need assistance, at least you won’t have to make a long drive in order to fix the situation.

The drawback? You’re close to your tenants, so that loud music bothers you, not somebody else. And if you have a needy tenant, they’ll have easy access to you to voice their complaints.house

3. Financing a multi-family home is tricky but doable

It may seem impossible to buy a duplex or multi-family unit with your budget, but the reality is it might not be as hard as you think.

According to Anthony Lococo, Vice President of Cornerstone Mortgage, “If buying an owner-occupied duplex, you would definitely be able to use [the potential] rental income from the second unit” to help you qualify for the purchase.

For example, if you will be living in one unit and renting out the second, and you anticipate the second unit to be rented out for $1,200 per month, that income will be factored in to the lender’s qualifying ratios.

How do you know what the second or additional units will rent out for? If you don’t already have a lease in place (which you probably don’t), check with Snyder & Pritchard Homes to find out local rental prices in your area and use craigslist to help you verify rental prices for similar units. Keep in mind, the potential rental income may help you qualify for the loan, but it’s not the only factor to be considered.

You’ll still need to have good credit, a low debt to income ratio and a large down payment, typically around 25 percent of the purchase price or more. On a $500,000 duplex, you’re looking at a down payment of $125,000, not including your closing costs such as escrow and loan fees.multi

4. Is it even legal?

If you can qualify, lending guidelines for multi-family units are straightforward. One thing can pose a problem, however, according to mortgage broker Anthony Lococo. “Whether or not the second unit is permitted. Just because it produces income doesn’t mean it’s considered a “unit”. Granny flats are a good example…”

Most real estate agents can tell you how hard it is to tell a house with an unpermitted granny flat. Financing can be even more difficult. If the property is not an actual duplex, just a single family house with a large wall partitioning areas and two separate kitchens, lenders may not be able to consider the potential rental income in your qualifying ratios, even if you can, in fact, rent it out.family

5. What if you want to move out someday?

If you buy your multi-family unit with the intention of living in one of the units, the time may come when you’re ready to move out and get something bigger. In that case, you may choose to sell the multi-family unit. If you don’t absolutely have to sell it in order to qualify to buy the new house, consider getting a tenant in the unit you were living in and keeping the whole thing as a rental. Having already been a landlord for your neighbors, being a landlord for one more family won’t be too much of a shock.

When I was 21 years old (before I was a real estate agent), I bought a house with an unpermitted granny flat, lived in the house and rented the granny flat out. It did produce some nice income that made my mortgage payments a lot lower. As I started a family and wanted to live in a different area I finally sold that house and I can honestly say I’ll never buy a house with an unpermitted granny flat again! It was challenging to sell because despite having interested buyers, some lenders were not willing to finance it.

What’s your story? Have you ever owned a multi-family unit or have you considered buying one? Let us know your experience in a comment.

**Tips borrowed from www.moneyunder30.com279-285-WaterviewSALE PENDING ON THIS LOVELY MULTI-FAMILY PROPERTY. Someone must be listening to me!         

Still considering investing in real estate? Here are some MORE things to know before you apply for a loan for that new income property.**header


Fannie Mae currently allows each investor to carry 10 loans at once. (Bored? You can read all about Fannie Mae’s investment mortgage underwriting requirements.) If you are working with the right lender, (which Snyder & Pritchard Homes do!) they can help you strategize both a long-term and short-term plan to ensure that you are taking advantage of your 10-loan limit.

It’s worth noting that many lending institutions will only lend up to four loans (typically the bigger banks). You’ll likely have to do a little leg work to find a lender that will go up to the 10-loan limit.mortgage


When purchasing rental property, an important aspect of your long-term success is developing a strong, reliable team – and your lender is BIG part of that equation. When I first began real estate investing, I made the mistake of using a broker who didn’t understand the investing landscape. As a result, I spent a lot of time trying to explain my strategy and objective. In the end, I ended up receiving a lot of bad advice and it almost cost me several deals. I could have easily avoided this had I worked with the right lender from the get-go, mainly a direct lender.

There’s nothing wrong with working with a mortgage broker when you are in the market to by a primary residence, but if you’re trying to build a portfolio of rental properties, I recommend you work with a direct lender.

The main difference between a broker and a lender is that a broker shops around your financial profile to their selected list of lenders, where as a direct lender is the institution actually lending you the loan.

When you work with a broker, you give up control. The underwriter can change lending standards (often during escrow) or decide that they want to pull out of the deal at the last minute. When you work with a direct lender, you’re in closer contact with the decision makers from the get go.loan

Before working with a lender, here are a few good questions to ask:

  • Do you currently work with any active investors?
  • How many loans can you offer to any one investor?
  • Do you personally own any rental property?loan3


As I mentioned earlier, Fannie Mae currently allows up to 10 loans per investor. A little known fact is that there are two different credit-qualification guidelines for obtaining these loans. The first is for properties 1-4 and the second is for properties 5-10, listed below:

  • Loans 1-4: requires a credit score of at least 630
  • Loans 5-10: requires a credit score of at least 720down_payment_280


In addition to the down payment, lenders will require you to have six months of cash reserves available per property.

This means that if you own a primary residence and you are going to acquire a rental, the lender will require you to have six months of mortgage payments (cash in the bank) for both your primary residence and your future rental.

Once you know the price point of the prospective rental you are considering, it’s a good idea to have a lender provide you with an estimated monthly payment so that you can save accordingly.mortgage-downpayment


Just like there are two sets of guidelines for your credit, there are also multiple sets of guidelines regarding down payments, listed below:

  • Loans 1-4 (Single family): 20% down
  • Loans 5-10 (single family): 25% down
  • Loans 1-10 (multi-family): 25% down downpmt


Lenders will require a minimum of two solid years of w-2 income. They want to see that you’ve been at your job or working in the same industry for at least two years. The underwriter will calculate your annual income by averaging your past two years of gross income. For example, if this year you earned $100K and last year you earned $50K, your average annual income would be $75K.

If you are self-employed, you’ll need to provide two years of tax returns, a year-to-date profit and loss statement, and most likely a letter from your CPA confirming the validity of your previous tax returns. The calculation for your annual income is the same as the w-2 employee.mortg


Contrary to popular belief, now is a great time to buy rental property. Many markets that were over-priced during the housing bubble have over-corrected and property can now be purchased far below the cost to rebuild – which can mean substantial cash flow (even with the costs of property management).

I initially began purchasing rental property as a way to diversify my wealth-building strategy. After I acquired three houses, I noticed that over the course of six months, my rentals were far out-performing my IRA and 401(k). I decided to pull my money out of the financial markets and reinvest it into building a strong rental portfolio. I’m not saying that this is a strategy everyone should employ, but I will say that anyone looking to build wealth should at least review the real estate investment vehicle.ending

What about you? Have advice to share about getting a mortgage for rental properties? Are you trying to buy an investment property and have questions about getting financing? Share your comments and experiences with us!
**Tips borrowed from www.moneyunder30.com

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Shoshana Snyder

Shoshana Snyder


Sarah Pritchard

Sarah Pritchard


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