Is Purchasing a Duplex or Multiunit Property Right for You?

Buying a multiunit property, and either living in one of the units or renting out the entire property, has numerous advantages. However, there are many factors that you should consider before making a decision.

This topic is so complex that we’re dedication two blog posts to the subject. The first article will discuss whether buying a multiunit property and becoming a landlord is right for you. Then, if you decide to move forward, the second will provide information on financing options available for these properties.

Multiunit Properties, Part 1: Making the Decision

The Difference Between Multiunit Properties and Simply Renting a Room

While they can be similar, it’s important to understand the differences between owning a multiunit property and simply renting out a room in your house. For legal and tax purposes (as well as the daily life of your family and your tenants) you should understand that they are vastly different and should be considered under distinct terms.

With a spare room, or a basement with a kitchenette, the tenant is basically living in your unit. However, with a multiunit property, each unit will have a separate entrance, kitchen, bathrooms, and utilities. Generally speaking, each unit will have all the same facilities as a single-family home. You can, however, convert large single-family homes into multiple units. This is not uncommon, especially in densely-populated areas, college towns, and other locations with many renters.

Although some principles will overlap, for the purpose of this series, we are discussing multiunit properties only, not renting a room in your home.

Is Being a Landlord Right for You?

Being a landlord has a lot of benefits, including financial independence and the chance to make money off your property. However, it’s not for everyone. To be a landlord, you have to be comfortable with collecting rent from tenants on a monthly basis. If your tenant doesn’t pay, you may have to be assertive, even pushy, in order to get your money; not everyone can handle that. Also, the time may come when you have to evict a tenant, which is never easy. You certainly don’t have to be ruthless, but to be a landlord you do have to be firm and decisive.

As the landlord, you are also responsible for everything that goes wrong in the unit. Whether the garbage disposal leaks or the air conditioning won’t run, you are the one that is responsible for any repairs. You can fix it yourself or hire a handyman, but you are liable for ensuring a comfortable, livable unit.

How Much Money Could Your Make?

It’s the bottom-line question for becoming a landlord, but there’s certainly no easy answer. How much money you may will depend on many factors, including how much you pay monthly for the property (your mortgage payment), local property taxes, and how much you charge for rent. Other factors include the cost of upkeep, repairs, and advertising the unit’s availability.

The easiest way to find out how much you can charge for rent is to simply do a search of rental websites and listings. If you have a specific property in mind for a purchase, search for rental units that have similar amenities, floor plans, and are in the same area. This will give you an indication of how much your property will bring.

You’ll also need to do the math on your monthly mortgage payments and compare that to the potential income. If you discover that the outgoing mortgage payment is significantly lower than the incoming rent payment, you likely have the financial cushion to make a profit. However, if the mortgage is close to the rent cost, there may not be enough room for profit, especially when you factor in taxes, upkeep, and other expenses.

Things to Consider When Buying a Multiunit Property

Location Options Will Be Limited

If you are looking for a duplex or a property with three or four units, and you plan on living in one of the units, you will have to accept that property locations will be limited. Think about the area where you live; no matter which direction you go, you can likely find single-family homes. However, can you think of many duplexes in the surrounding neighborhoods?

Multiunit properties are fairly rare, so finding one in the location where you want to live could be difficult. If you are not planning to live in the unit, this may not be a problem, but if you want to occupy half of your duplex, you may need to be open to living further from work or outside of your preferred neighborhood.

Owning a duplex could bring a steady boost to your monthly income.

Taxes are More Complex

Another issue to renting out part of your duplex is the complexities with taxes. While federal and state tax codes are always changing, there are layers of complexity that make income predictions more difficult. The IRS has pages upon pages of tax rules affecting landlords, so be sure to speak with a qualified tax professional before you purchase a multiunit property.

If You Live Onsite, You’ll Live Next to Your Tenant

The upside of occupying a unit at your rental property is that you live next to your tenants. The downside…you live next to your tenants!

Being close to your rental property certainly has advantages, as you can constantly check on the quality and care of the property; your mere presence could deter tenants from outright destroying and damaging the property. However, if the tenant needs anything, you’re just across the wall. Of course, you won’t have to drive across town (and it is your responsibility anyhow), but your tenants will always know where to find you, which can have some obvious downsides.

When the Time Comes, Selling Can be Difficult

Possibly the biggest issue with purchasing a multiunit home comes years or even decades later. When it’s time to sell, you could have difficulty finding a buyer. As we’ll discuss in part two, finding financing for a multiunit home can be more difficult, so fewer buyers will qualify. And quite frankly, there are less people willing to buy duplexes compared to people looking for single family homes. Finding a buyer is certainly not impossible, but it could take longer.

Click here to read Part 2: Finding the Right Loan for Your Multiunit Property

If you have decided that buying a multiunit property is right for you, congratulations! You’re giving yourself and your family an opportunity for financial independence and stability, so to get started, check our blog for Part 2 of this series!

If you have further questions, contact the team at San Diego Purchase Loans today. We’d love to discuss the benefits and drawbacks of owning a multiunit property!

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Chad and his team have been a pleasure to work with. I’m a 3rd time home owner. Wish I had known Chad and team a lot sooner. He made my 3rd home purchase very easy. There were a lot of moving pieces and they handled with professionalism and care. Juliann was a pleasure to work with too. The whole team made it possible for us to move into our dream home. Thanks you Chad and Team!

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My husband and I found Chad through an article he had written. Every aspect of working with Chad and his team was exceptional. From our initial phone call where he explained the many options we had, to advice he gave in dealing with somewhat challenging sellers, and closing our loan ahead of schedule, the loan process with Chad and his team went very smoothly. I especially appreciated the one-on one guidance from Juliann, who really made me feel like I was her only client. I look forward to working with Chad and his team again and would highly recommend them to anyone looking for a mortgage.

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