Investing in real estate can be a smart move, but that doesn’t mean this wealth-building strategy is available to everyone. It normally takes at least 20% to get an investment property to good use, and saving that much money can be a daunting task for almost anyone – especially in this real estate market.
But what if you could buy an investment property that makes money every month? and live there yourself? Believe it or not, this strategy – buying an apartment building and using it as a primary residence – is a strategy that many new homeowners and investors have been using for decades to get their feet in the door.
Buying a maisonette (or any apartment building) and living in one of the units has numerous advantages, but there are also disadvantages. Before deciding to buy an apartment building such as a maisonette or a triple-decker, you should, according to expert opinion, examine both the advantages and disadvantages.
The benefits of buying a maisonette instead of renting a maisonette
If you would like to become a homeowner, but also want to invest in real estate for the long term, you can kill two birds with one stone by buying a semi-detached house. Not only do you secure a roof over your own head, but you also have at least one other unit that you can rent out at a profit. Depending on your goals, you can use the rental income to either a) reduce your own cost of living or b) invest in other property investments. You could even do both.
One reason why buying a maisonette is so attractive is because the barrier to entry is lower than buying a detached rental property. We already mentioned how you usually need at least 20% for a single family investment property, but the rules are very different if you are buying property to live yourself.
You might not be able to buy an apartment building with no money, but with a Federal Housing Administration (FHA) home loan, for example, you can buy a maisonette to live in with as little as 3.5% off. FHA loans also come with simpler credit requirements and low closing costs, which can make them an even better deal.
In addition to the possibility of circumventing the usual down payment rules for certain loans, buying a maisonette offers other advantages. Some of them are:
- You can use your rental income to gain financial freedom. Jason Reed, a Minnesota real estate investor who also runs The Duplex Doctors, says buying a duplex is a great way to prepare for financial success. Why? Because with the rental income you have collected, you can free more money for yourself. “By taking rental income from across the street or above your apartment, you have the option to potentially cancel your mortgage payment and live at a very low cost – helping build financial momentum,” Reed says.
- Maybe you can afford a nicer home. Another benefit of buying a maisonette is the fact that you can usually add a portion of your future rental income to your own income in order to qualify for a mortgage. This increases your credit potential, says Reed. As a result, you may be able to afford a duplex that is in better shape or in a better area.
- You can enjoy some tax benefits. Being a landlord is a business, which means you can usually write off certain expenses like repairs to the rental unit. However, if you live on-site you can usually also deduct some of the upkeep of the common area that affects both the rental unit and your apartment, such as: B. Landscaping or snow removal.
- That way, you can find a better tenant. Buying a duplex to live in could result in better tenants than you could buy a single family home. After all, tenants who may be in trouble or paying late don’t want to live next to their landlord, right?
At the end of the day, there are many benefits to buying a maisonette to live in. It’s also important to note that duplex living doesn’t have to last forever and that this strategy can get you started as a real estate investor without saving huge sums of money.
Ideal REI’s Eric Bowlin is the perfect example of someone who has used a maisonette to start real estate investments when they may not otherwise have been able to. Bowlin says that when he completed his Ph.D. in New England they bought an apartment building with the aim of making a living.
However, the income from the property changed her life, he says, and just a few years later he dropped out of his doctorate. Program to invest in real estate full time.
Nowadays, Bowlin lives on rental income and invests in real estate instead of another career. Ultimately, buying a duplex or multi-family unit is a great way to move into investing until you can move into a single family home. And you never know, you might even be amazed by the process how he did it.
The cons of buying a duplex
While there are definite advantages to investing in real estate, there are disadvantages too – especially if you are buying a property that you actually live in. Some of the greatest disadvantages of living in your own investment property include:
- You can have difficulty setting boundaries. Bowlin says living in your own investment property next to tenants means work never ends. “Tenants will think that they can ask you to check out something at 9pm at night, even if they would never ask you to if you lived elsewhere,” he said.
- If your tenant has to move, things can get ugly quickly. Bowlin says living next to them can make the process a lot more uncomfortable when you have to leave or vacate a tenant. Imagine you give your tenant an eviction notice, but you also have to see them every day.
- Bad tenants can turn your life into a nightmare. It’s one thing to have a bad tenant remotely but another thing to share the walls with you. Reed says duplex owners need to be extremely careful about tenant screening as some tenants may not treat a property the way they should or fail to pay their rent on time. Remember that this person is not just your tenant; they will be your neighbor too – for better for worse.
- Being a landlord is not for the faint of heart. Reed also notes that being a landlord isn’t as easy as some people imagine it to be. “As a property owner with a tenant, you need to be prepared for any potential problems that may arise in the short term,” he says. “Even if you choose not to do the maintenance yourself, you will likely be the one taking calls from tenants.”
The decision to buy an apartment building
Should you buy a maisonette and live in one side? Reed says the most important thing before buying an apartment building is your ultimate goal. what do you hope to achieve
“If you’re looking for a way to subsidize your mortgage, you might be buying a very different property than someone buying the first of many real estate investments,” he says.
Of course, a maisonette you want to live in has to be a place where you are comfortable – at least for a while. It doesn’t have to be your forever home, but it does have to meet your family’s needs. It also has to make sense as a financial investment if you no longer live in it and rent it on both sides.
At the end of the day, it’s all about finances. Before you buy a maisonette to live in, you should calculate potential rental income based on comparable rents in the area. From there, subtract at least 10% of your rental income to be used for repairs, upgrades and maintenance. Also, keep in mind that you will have to pay taxes and insurance on the property. Once you start looking for a duplex or apartment building, your real estate agent should be able to discuss these costs with you and help you figure out the numbers.
Not only will they keep the finances working, but they will also make sure that you are mentally prepared to become a landlord. The internet is a treasure trove of landlord horror stories, and you need to keep in mind that owning real estate is a lot of work. You not only take care of the tenants themselves, but also have to carry out or outsource maintenance, repairs and cleaning. If your tenant damages your property, which will eventually happen, you are the one to deal with the consequences – whether you are fixing problems yourself or renting for work.
For this and other reasons, real estate agent and expert Evan Roberts of Dependable Homebuyers in Maryland says you might want to consider hiring a property manager to oversee your duplex. While hiring a property manager typically costs anywhere from 8% to 12% of your monthly rental income, they can help you avoid some of the headaches.
Roberts says real estate managers can help you find tenants, screen tenants, and set a professional tone for your business. But most importantly, their existence can make life in your maisonette less stressful.
“The property manager acts as a buffer so that complaints and inquiries get to him instead of the tenant knocking on your door,” he says. “The tenants don’t even need to know that you are the owner while you live next door.”
But you still live next door … so you have a good idea of what is going on with your investment. If you think you can handle the responsibility with or without a property manager, buying a maisonette might be a great way to get started in real estate investing.