One of the smartest decisions I ever made was to purchase a multifamily home as a first-time buyer. My wife had some trepidation but was very supportive (having a partner who is on board is critical). The idea of being a landlord - having a life mired by fixing broken pipes, fighting drug dealing tenants and getting portrayed as a slumlord all had me worried as I imagined one day becoming a landlord. While I have changed a couple sump pumps, dealt with a tree falling on my rental home and have spent a few weekends finding tenants instead of hanging out at the beach, the experience has been incredibly rewarding financially and even more rewarding personally. So why should you consider becoming a landlord?
1) Make a Nest Egg:
Buying a multifamily home will likely mean that you won't stay there forever. The home you purchase will likely be a duplex, triplex or quad. It probably won't be your dream home but it can still be a great and wonderful starter home. With tenants paying you rent, you will have the luxury of having someone contribute to paying your mortgage. This will allow you to continue to make your mortgage payment while also saving money and stocking away extra funds for your dream home downpayment. Once you have enough money to buy another home, you will be able to move out, rent the unit you were occupying, and have your tenants pay your mortgage. If you maintain the property as an investment, rents will continue to rise over time while your mortgage will stay the same. Eventually, your tenants will pay off the property for you and you will own the property outright and continue to receive rent. Continue to gain income from the property or sell it off as your retirement package - it is your choice.
2) Their Raising the Rent (why can't you):
Right now with a challenging economy, many buyers are afraid to make a home purchase. This is causing the residential rental market to be very strong. While home prices decline, rents are continuing to climb. So what does this mean? You can fall victim to having your rent go up or you can turn the tables and collect rents of your own.
3) You Can Buy (and others can't)
Following the mortgage mess, regulators made it tougher for investors to get financing on multifamily properties. Because so many foreclosures were the result of overzealous investors, who were flipping properties, putting no money down and far exceeding their affordability; the government made steps to ensure the mess didn't happen again. Now investors need to pay higher mortgage rates, extra points, are often required to put more than 20% down and need significant assets in the bank. What this means is multifamily properties are becoming less expensive as fewer investors can afford to purchase properties; however first time buyers have the opportunity to buy. First time buyers can get financing on properties as long as they will be owner occupiers and can get the same financing as if they purchased a single-family home.
4) You Don't Have to be Bob Villa
Being a landlord doesn't mean being a plumber, electrician, landscaper or roofer -- it means using common sense, finding smart people and knowing your limits. Just because you are a landlord doesn't mean you have to be a jack of all trades. When I first bought a multifamily, I barely owned a toolbox. It is helpful to learn some basic home maintenance tips and fix-its but ultimately pros can be hired for not that much to handle any job. I have learned some basic plumbing, painted dozens of rooms and done lots of landscaping because I wanted to, not because I had too. No job is too big or too small for someone else.
5) Landlords aren't Jerks and Renters aren't Freeloaders
Landlords are famous for being made into caricatures as soulless, uncaring, money-hungry
hermits
. There are actually a heck of a lot of nice landlords and I have met very few of the caricatures (a few but not many). There are bad people in all walks of life and the bad ones ruin it for the rest. The same is true for renters, most are responsible, law abiding, hardworking, and for the lack of a better term completely "normal." There are horror stories of tenants having huge parties, skipping out on rent and making meth labs in the basement (never heard of one of those, ever!) but the truth is that bad tenants are few and far between. I've never had a tenant miss a rent check, I've never even received a check a week late... The fact is rent-paying tenants make for much less interesting stories than terrible ones...
6) It Can Be A Great Experience
I wouldn't regret being a landlord for a minute. Through it, I have learned a few homes tricks and tips; I've helped secure a strong financial future; and perhaps most importantly it has offered me the opportunity to meet some wonderful people. Some of my renters have become great friends, who I have shared great experiences that I'd never would have had if I hadn't taken the leap to become that dreaded word called "landlord."
