Rising rents are creating a frenzy since most people are trying to find best rental deal possible. The National Multifamily Housing Council reports that 44 million households, or 34% of Americans, are renters. The size of the rental market, plus the need for rental options, creates favorable market conditions for home buyers considering a multifamily vs. a single-family home purchase.
“Inventory overall is still tight in the metro area,” says Sarah Cole, board chair for the Greater Milwaukee Association of REALTORS (GMAR®). “The number of duplexes and four-family apartment buildings for sale is strong, making it a good time to consider a multifamily purchase.”
Multifamily Does More than Build Equity
Similar to buying a single-family home, one of the main benefits of a multifamily is that ownership builds equity over time. The advantage of a duplex or four-plex is that it also generates monthly rent payments.
“Income from rental units not only helps cover the mortgage it serves as additional income for the buyer,” says Angela Walters, a broker with EXP Realty.
Owners achieve economies of scale when it comes to repairs and maintenance costs because the units exist under one roof and share a basement and yard. Owning a multifamily delivers tax benefits, too. Maintenance, repairs, insurance premiums and operating costs, including utilities, property management fees and marketing expenses, are all tax deductible.
Some investors believe that even $100 per month profit is worth the time and money associated with buying a multifamily. However, Walters points out that the larger the profit the more cushion exists for maintenance and repairs as well as property taxes, which often increase each year.
Owning a Multifamily Comes with Some Risks
In addition to ongoing maintenance and repair costs, and the need for sufficient insurance and liability protection, managing tenants is often the most challenging part of owning a multifamily property. The greater the number of units, the greater the likelihood for increased difficulties.
Walters recommends that first-time buyers start small and manage the property themselves. To better prepare new buyers about what is involved in owning a multifamily, the City of Milwaukee’s Department of Neighborhood Services offers free landlord training several times a year both in-person at various locations and online. The award-winning program provides valuable information on regulations, landlord obligations, how to screen and manage tenants, and a variety of other legal and business issues related to managing property.
Financing and Buying Process Differs
Walters says it’s important for the buyer to have a conversation with their lender right away since financing a multifamily is a little different than financing a single-family home. A property comprised of more than four units is considered commercial real estate and necessitates an even more complicated transaction.
“Lenders will carefully assess the income a property can generate,” Walters says. “To do so, they will request copies of tenant leases and other rental information.”
Getting inside a multifamily property for a showing can be more challenging due to the varying schedules of multiple tenants.
“Seeing the property might take longer,” says Walters. “Sometimes an offer might be made after seeing the exterior, one vacant unit and the basement. The full property might not be seen until the home inspection.”
Working With a REALTOR® Helps
Like with any home purchase, a REALTOR® brings valuable expertise in helping negotiate the purchase price of a multifamily so the buyer gets the best property, in the best condition and at the best price. A REALTOR® understands market conditions including the neighborhood and financial performance of the property. Providing valuable information like this helps determine if the purchase would be a good investment or not.
REALTORS® also know which lenders specialize in multifamily purchases so the financing process goes smoothly. They help buyers with all the required documents and forms and ensure transparency throughout the transaction.
The REALTOR® Advantage
A REALTOR® is a member of the National Association of REALTORS®, is committed to a Code of Ethics and has the expertise to find the right home for everyone. Look for the “R” to determine if your agent is a REALTOR®.
Locally, the Greater Milwaukee Association of REALTORS® is a 5,500-member strong professional organization dedicated to providing information, services and products to help REALTOR® help their clients buy and sell real estate. Visit gmar.com for more information.