While many people see themselves as aspiring business owners and entrepreneurs, many others start business ventures as part of a natural progression in their own personal financial lives. Simply put, people often become business owners and get involved in real estate investing to make money and save money. Many have realized, for example, that owning and living in a small investment property with up to four housing units can do exactly that, save you money on rent and other expenses while providing you a stable second income.
Not surprisingly, there are real benefits and potential pitfalls to owning a multi-family investment property. Before we discuss a couple of interesting scenarios for you to consider, here are some tips to keep in mind:
Costs and Benefits of Renting, Purchasing a Home, and Owning Investment Property Over 20 Years.
In the chart above, our TMS research suggests that renters spend the most money for housing over a 20-period. Home owners saw lower costs, and live-in landlords benefited from free rent and tenant revenue on their investment property.
How to Get Started
One great way to get yourself started in real estate investing while saving you and your family money is to take advantage of the Federal Housing Administration's (FHA) mortgage loan program. Here’s how it works: local banks and credit unions offer loans that are insured by the FHA. Because the loans are insured by the federal government, the banks can offer the borrower lower interest rates and make it easier for them to qualify for the loans. FHA loans can be used to purchase a one-family home as well as properties with up to four units. To qualify for the FHA loan, you must live in one of the units. Also, you must purchase the property in your own name (no LLCs allowed).
Here is a link to some helpful information on the FHA Loan Program from Bank Rate.
Comparison: Rental vs. Home Ownership vs. Multi-Family Investment Property
In our own analysis comparing renting, purchasing a single-family home and purchasing a multi-family investment property through the FHA Loan Program, we show that there are clear advantages to owning a property as a resident-landlord, when the property is effectively managed and maintained. Our research suggests that the purchase of a two-unit property has the high potential to allow the landlord to cover costs on the property while enjoying rent free living. With the purchase of a four-unit investment property, our analysis indicates that the likelihood of generating positive cash flow increases; and the landlord can benefit from both free rent and a predictable source of income.
Just some last things to think about:
While real estate investing is not for everyone, there are clear advantages to acquiring a small multi-family property for those that have the interest and the motivation. We at TheMoneyShelf.com are happy to be able to offer research, access to real estate books and other financial publications, and insight from our in-house team of experts that you can use to make informed financial decisions.