Buying a multi-family home has its advantages. For instance, you can earn money from other tenants while your family lives rent-free. Before you buy a multi-family home, though, you should understand how the process works. This step-by-step guide will introduce you to the basics.
Small vs. Large Multi-Family Properties
Depending on how much money you have to invest, you can purchase a small or large multi-family home. Small multi-family homes usually include buildings with four or fewer units. Large properties have five or more. Understand the advantages and disadvantages of each option.
Most people find that smaller homes:
- Cost less money
- Are easier to manage
- Don't make a lot of money
On the other hand, larger multi-family homes:
- Require higher investments
- Give you an opportunity to make more money
- Take more time to manage and maintain
Consider how much time and cash you can invest in the property before you decide which option fits your family's needs. Also, remember that you can use a multi-family loan to make the purchase more affordable.
Getting Insurance for Your Multi-Family Home
You will need property insurance to protect your investment. The good news is that you only need one policy for your multi-family home. You don't need multiple policies because you only want to protect the building rather than the individual units. Tenants can get renter's insurance for their belongings.
The bad news is that large buildings can cost quite a bit to insure. Talk to several insurers before you decide which policy to buy.
Choosing Tenants for Your Property
Filling your multi-family home's units makes it easier for you to earn money. Plenty of companies offer screening services and software that can help you choose responsible people who will pay their bills on time.
Keep in mind that the Fair Housing Act prevents you from discriminating against potential tenants because of their:
- Nation of origin
- Familial status
If you reject someone for one of these reasons, you could face a lawsuit. Defending yourself in court will cost a lot of money. If found guilty, you can expect to pay a civil penalty up to $19,787. You may also have to pay the tenant for any losses experienced because of the rejection.
Many people find that multi-family homes provide a steady stream of income and lower their personal living expenses. As long as you do your research and follow the law, you should find that owning a multi-family home is a rewarding experience.
Thinking about purchasing a multi-family home, but aren't sure if it's right for you? Click here to learn more about the advantages and disadvantages.