By John Figard: Senior Editorial Contributor for NowICanOwn
What is best for a first time homebuyer 1 family or multifamily home?
If you are a first-time homebuyer, you might be wondering whether you should buy a single-family home or a multifamily home. A multifamily home is a property that has two or more residential units under one roof, such as a duplex, triplex, or fourplex. Buying a multifamily home can offer some advantages and disadvantages compared to buying a single-family home. Here are some factors to consider before making your decision.
Pros of buying a multifamily home
- **Rental income**: One of the main benefits of buying a multifamily home is that you can live in one unit and rent out the other units to generate income. This income can help you pay your mortgage, build equity faster, and save money for your future goals. Depending on your location and the rental market, you might be able to cover more than half of your monthly mortgage payment with the rent you collect from your tenants .
- **Tax benefits**: As a landlord, you can deduct various expenses related to the rental portion of the property on your federal tax return, such as advertising, depreciation, insurance, mortgage interest, property taxes, operating expenses, and repairs. These deductions can lower your taxable income and save you money on taxes.
- **Vacation rental potential**: If your local regulations allow it, you could also rent out one or more units of your multifamily home on the vacation market, such as Airbnb or VRBO. This could generate even more income than renting to long-term tenants, especially if your property is in a desirable location. You could also use the vacation rental unit for your own personal use when it is not booked by guests.
- **Real estate experience**: Buying a multifamily home can be a great way to learn about real estate investing and property management. You can gain valuable skills and knowledge that can help you grow your portfolio and achieve financial independence. You can also network with other investors, agents, contractors, and professionals in the real estate industry.
Cons of buying a multifamily home
- **Landlord hassles**: Being a landlord is not for everyone. You have to deal with finding and screening tenants, collecting rent, handling maintenance requests, resolving disputes, complying with landlord-tenant laws, and evicting bad tenants if necessary. You also have to be available 24/7 in case of emergencies. Being a landlord can be stressful, time-consuming, and costly .
- **Qualification challenges**: Buying a multifamily home can be more difficult than buying a single-family home in terms of financing and eligibility. You might need a larger down payment, higher credit score, lower debt-to-income ratio, and more reserves than for a single-family home. You might also face more competition from other buyers and investors who are looking for multifamily properties. Some first-time homebuyer programs might not offer benefits for multifamily homes or might have unit restrictions .
- **Additional expenses**: Owning a multifamily home can come with higher expenses than owning a single-family home. You have to pay for utilities, repairs, maintenance, insurance, taxes, and management fees for the rental units. You also have to account for vacancies, turnover costs, tenant damages, and legal fees that might reduce your rental income .
- **Shared property**: Living in a multifamily home means sharing the property with your tenants or neighbors. You might have less privacy, space, and control over the common areas than in a single-family home. You might also have to deal with noise, parking issues, conflicts, or complaints from or between your tenants or neighbors .
Conclusion
Buying a multifamily home as a first-time homebuyer can be a smart move if you are looking for an opportunity to generate income, build equity faster, enjoy tax benefits, and gain real estate experience. However, it can also be challenging if you are not prepared for the responsibilities and costs of being a landlord and owning a shared property. You should weigh the pros and cons carefully and do your research before deciding whether a multifamily home is right for you.