Multi-family homes in Chicagoland: Is the investment right for you?

Purchasing and living in a multi-family home is a great way to get a feel for being a landlord. There’s a growing need for rentals in Chicagoland, and, if managed correctly, renting out property can be an effective way to build wealth. It’s not for everyone, but, if you’re up to the task, consider a multi-family home when buying a primary residence.

Advantages

Depending on your financial situation, a higher residential mortgage on a 2-4 unit property might be easier based on the rental income generated. With the right loan and the right property, you may be able to put as little as 3.5% down, even with a less-than-perfect credit.

The rental income from your 2-4 unit property also could cover or reduce your mortgage while you build home equity. Moreover, you’ll have access to larger mortgage loan limits for a multi-unit building since loan maximums are higher than for a single-family home.

Disadvantages

Before you jump into being a landlord, carefully consider drawbacks. When your rental property also houses your primary residence, you’re living in close proximity to your tenants. You’ll get to know each other intimately, sharing common spaces like yards, decks, parking and, possibly storage areas.

Remember, tenants are your primary clients for this business, and they see renting as a business transaction. That means they make demands. For example, if a unit requires a repair, tenants will want immediate service.

Costs

Your monthly costs (utilities, property taxes, mortgage payments and maintenance) are likely to be higher than those of a small single-family home. In addition, you’ll want to set aside money to replace items as they wear out. You might be able to put off replacing your own dishwasher for a month or two, but your tenants will want problems addressed in a timely manner.

And what happens when you have a vacancy? Your expenses go on even when your unit sits empty. For this reason, many lenders require applicants to demonstrate property management experience, prove that they have enough savings to cover several months of mortgage payments, and/or submit to tougher underwriting standards.

In what neighborhood should I buy?

Buy somewhere you’ll want to stay long-term, because the cost of buying, moving and selling takes a large bite out of your potential profit. The tenants you attract depend on the quality of the neighborhood, so choose carefully. Evaluate neighborhood stability so you’re sure you maintain ample rental revenue. Also, look for areas that have a lot of amenities and easy commute times or access to public transportation.

How do I finance multi-family home?

Mortgage lenders consider any one-to-four unit property a primary residence as long as you intend to live in one of the units, so you’ll have a full range of mortgage options to choose from depending on the sale price. You may even have down payment options as low as 3.5% depending on the rental income structure. Your first call should be to a lender to review financing options custom to your situation.

United Home Loans can help you find the smartest mortgage for your multi-family home investment. If you have any questions, contact us via the form below or at 708-531-8388.