Two-Family Homes
Filed under: Home Buying, Real Estate Investing
While a single-family home is most people’s first preference, the economics of owning a two-family home might make you think again, especially if you are just starting out. Many two-family homes consist of a two-story building in which the renting family occupies the upper floor and the owning family the lower floor. In a well-planned lease, the renting family’s monthly rent covers the owning family’s monthly mortgage payments, annual property taxes and maintenance costs of the building. In other words, the owning family gets to stay for free. This evades one of the biggest fears of first-time, single-family homebuyers — that some unforeseen disaster will cause them to lose the property because they can’t meet the payments. However those are not all the benefits for the owning family. This family acquires increasing equity in the building as the mortgage is paid off by the renting family, and gains in wealth as the building’s value increases. As with most landlord and renter situations, one side ends up with everything and the other with nothing.
You can use a two-family home to live in a neighborhood in which you could not afford to live in a single-family home. As long
as you can get a mortgage and the renting family covers mortgage payments, taxes and maintenance, a higher priced building in a more affluent neighborhood is to your advantage. In addition, with added facilities and pleasant surroundings, the renting family is apt to stay for a longer period of time.
Screening applicants for an economically stable, strife-free and not too noisy family, may be your biggest chore. What you need is a renting family that your family can get along with, so make sure your spouse or partner is part of the screening process and listen to what he or she has to say. Be wary if a renting family already occupies a two-family residence for sale. Don’t enter any arrangement in which the tenants have previously been to court with the seller. Laws protecting tenants vary widely by state, county and city. Even when the law seems straightforwardly to be in your favor, any court appearance or judgment can go against you, or be otherwise unfavorably suspended or held in abeyance. The last thing you want is a feud with a family that lives in the same house!
Renting to family and friends has its pros and cons. The greatest advantage is that you know the people with whom you are sharing the house, and the biggest disadvantage may be that family or friends may not feel as much need as strangers would to pay the rent on time.
Buying a two-family home and sharing it with a friendly and economically responsible family as renters not only keeps a roof over your family, but frees up your income for other real estate investments.
