Lately I have been toying with the idea of purchasing a multi-family home as my first house and renting out the other unit to lessen the mortgage

Asked by Mav, 15902 Thu Dec 17, 2009

payment. Is this feasible? What do I need to take into consideration? Will a real estate agent be able to help me explore this option?

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Jeff K’s answer
Jeff K, Home Buyer, Bristol, PA
Thu Dec 17, 2009
Hi Mav,

Johnstown, eh? I'll be in nearby Somerset, PA in a few days. How about that? :-)

I am doing what you are thinking about. I hadn't "planned on it". I had been looking for a single family and found my multi-family by accident. I worked up the #s with my realtor (who's got a background in finance) and ... wow! I just HAD to buy that house.

You have gotten other pieces of very good YES there ARE tax considerations. Yes, you should talk with an accountant to understand them fully. But they are fantastic from my view.

Yes, it IS possible that your tenants can pay your mortgage (not necessarily including your taxes by the way).

Please be aware that there are very specific state and federal laws that cover certain areas of landlord tenant agreements, etc. Please see the links below.

Here are some tidbits that may be of interest to you. Caveat: no I'm not a lawyer but I am a landlord and went into this eyes wide open and did my due diligence. I'm just saying that do NOT jump into this lightly. You need to know what you are getting into.

When you work up your #s, be conservative. Assume that you will only get X rent instead of what you HOPE to get. I worked up my #s based on a very conservative model, along with 1 month vacant per year per unit. And the #s STILL worked for me. So I "had to buy that house". But that's me and I'm ok with that. You know better than anyone what is suitable for you.

Things happen. You'll need to have several thousand dollars in a checking/savings account that you can use for emergency fixes. I keep $5000 as a "just in case" fund - and that's AFTER I have a full house full of paying tenants. Some might consider that overboard. I like having the peace of mind. This fund is only "just in case for the house" - I have other money that is "just in case" for other things like loss of job, etc.

You need to figure that it will take MONTHS to get "the right tenants". You'll need money to bridge that gap.

I found that Craigslist was the BEST way for me to get qualified tenants, without question. The sign out front got me LOTS of calls. LOADS of them - and 90% from people that I would not want under my roof, regardless of whether they could actually prove their financial situation. I will never post a sign up again. If you build a really nice ad on Craigslist, with lots of great photos, and keep reposting it every 3 days, you will get a nice pool of people - most of whom are reasonably "pre-qualified". That's been my experience anyway.

You will need to be able to run credit checks. There are MANY services that can help. The one that I liked is Please note that you MUST by law handle certain things in the SAME way for everyone. More specifically, you can't run "only a credit check" on person A and then run "a credit check and background check" on person B. That is illegal. I'm not a lawyer but this is my understanding and I read a LOT to cover my butt.

Note: there are specific laws in PA as to exactly how you MUST handle security deposits (escrow, etc).

Your advertising must not violate any discrimination laws. This may seem obvious or where common sense would apply. But it is actually very easy to break these laws and you do not want to do that. For instance, you can not advertise for an apt with phrases like "perfect for working singles" or "great for families'. Learn the laws - they are well-written and I found them easy enough to just read and understand.

BUT ... if you live on the property and it is 4 units or less, then in PA you get to decide WHO you will rent to! That's right - if you LIVE there then you can decide that you don't like people for any reason and not rent to them.

Here are some resources:

By the way, I LOVE my tenants. They are GREAT people, and we get together socially all the time. I spent a lot of time waiting for the right one's to come along (and did a lot of advertising - but Craigslist was the way to go for me). Please make sure that you won't have to rush and pick people too quickly. That's a risky road.

Please bear in mind that most people are not looking to move in the winter. So, plan accordingly for anticipated move-in dates and enough money to float the difference ...

Good luck!
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Don Tepper, Agent, Burke, VA
Thu Dec 17, 2009
Other advice here is good. It's a great idea. Just make sure you talk to an accountant, and make sure you understand what it'll be like to be a landlord with your tenant living next to you.

Back a long time ago, my wife and I purchased our first home using a very similar technique. We found a real estate agent who had a neat strategy. She'd find older, not-too-expensive homes in good locations with walk-out basements. Her husband ran a construction business, and he'd convert the walk-out basement to a separate rental unit--an in-law suite. In our case, that basically involved adding a kitchen. She'd sell the buyer the house, and also (if requested) find a tenant for the downstairs unit. And in our case (and I'm sure others) she lent us a portion of her commission (reasonable rates and terms) in order to finance the rehab. So she had multiple profit centers: her commission, the lending of her commission, the rehab done by her husband, and possibly the commission on the rental portion of the house. But it allowed the purchaser to move in with very little money down and a mortgage (after accounting for the rental income) 40% less than if the rental unit weren't there.

So, again, it's a great idea. Just make sure you get a real estate agent who has experience in and knowledge of what you're looking for.

Hope that helps.
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Barbara Q., , Bergen County, NJ
Thu Dec 17, 2009
Mav- 1.) You should speak with a mortgage professional. There are specific underwriting guidelines and ratios regarding multi-family income producing properties. Know your price range.
2.) You should speak with an accountant regarding the tax advantages/disadvantages based on your specific financial situation.
3.) Meet with a competent Realtor.

Good Luck!
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Daniele Summ…, , Charlotte, NC
Thu Dec 17, 2009
Absolutly, but first speak with your lender as they will be able to run the numbers and give you more information on how this situation works. Also ennsure that you have someone you can talk to for tax advise. Although the CD tax software can help you, a tax professional will be your best bet.

So my advise is to speak with a lender to see how much house you can buy because it's now different when you have the income of the other side worked in, keep your tax advisors business card handy and then chat with your Realtor to help you find a multi family unit. If you don't know of one, i'm sure people here will chime in, but you can also call a brokerage and ask to speak to the Broker In Charge and than THEM recommend someone to assist you as they know each and every one of the agents in their office and can ensure you get an agent that is capeable of handeling this type of transaction.

Good luck!

Daniele Summerfield,
Wilkinson & Addosictes
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Sean Dawes, , Philadelphia, PA
Thu Dec 17, 2009
One thing not mentioned yet is will you be able to carry the mortgage without a tenant? being a landlord involves dealing with vacancies, repairs and other potential headaches. But if you are willing to take on the risk and can afford to offset a vacancy if there is one, then I would suggest you explore this as an option.

A realtor will be able to show you how much it costs to buy a multi unit and how much you could rent out the remaining units for as well as go over current market statistics

Sean Dawes
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Dallas Texas, Agent, Dallas, TN
Thu Dec 17, 2009
Yes for a Realtor assist in those options. Keep in mind your tenant is right next door to you, is that "to close comfort". Owning real estate is a great investment with many rewards for property owner including tax benefits, perhaps in several years later you can rent out both halfs.

Confer with CPA for annual tax benefits.

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