Business Multi-family homes: an innovative way for first-time buyers

Multi-family homes: an innovative way for first-time buyers


But after a year of facing bidding wars on some listings and putting a price on others, the 25-year-old decided to take an unconventional path to home ownership for a buyer for the first time: he started shopping a multi-family property instead of making a single-family residence your first real estate investment.

Like first-time homebuyers in other expensive cities, where high prices and low inventory have set aside many millennials, Jacques says the multi-family route will allow him to live in the house while renting the other units to help to cover the costs of the mortgage and increase the capital.

Another advantage is that lenders tend to offer certain incentives for such investments: better interest rates and lower down payment requirements than for single-family properties.

“I didn’t want to be on the sidelines and play this waiting game to have a house,” says Jacques, who is financing the investment through a loan from the Federal Housing Administration, government-backed financing that can be used for properties with more to four units. “It seems that the longer you wait, the more property will become out of reach.”

Long considered the domain of established real estate investors, multi-family properties are increasingly becoming a popular road to home ownership for some homebuyers for the first time.

Many are millennials leaving booming real estate markets in expensive metropolitan areas, from San Diego to Boston, where home inventory is scarce and prices rise faster than revenue. Others are attracted to earn rental income to help with mortgages while struggling to balance housing expenses with rising healthcare costs and student debt, which reached a record $ 1.5 trillion this year, according to the Reserve. Federal.

Large increase in family and popular investors

The share of home sales purchased by investors reached 11.3 percent last year, its highest level in two decades, according to the real estate data firm CoreLogic, based in Irvine, California.

Ralph McLaughlin, deputy chief economist at CoreLogic, says the increase is not due to the type of large institutional buyers that engulfed thousands of homes seized by thousands after the real estate collapse. He says he is being driven by smaller investors who have just entered the real estate game.

“These investors seem to focus on the startup startup level,” says McLaughlin. The segment of investors called “mom and dad” grew from 48 percent of all homes purchased by investors in 2013 to more than 60 percent in 2018, CoreLogic data show. “That is a strong contrast to the rise of large institutional investors in the years after the recession.”

Historically, low interest rates are also encouraging multi-family investments, says Jamie Woodwell, vice president of real estate research at the Mortgage Bankers Association (MBA). The number of borrowers who contracted multifamily mortgages increased 24 percent in the third quarter of this year compared to the same period of 2018, a record pace, according to MBA data.

While low interest rates are fueling higher housing demand in many US markets. In the US, it is also reducing the inventory of entry-level homes for sale. According to a report by, the number of homes priced below $ 200,000, an ideal point for many first-time buyers, fell 16.5 percent in November from the previous year.

Leslie White, a Redfin agent in Washington, DC, says first-time buyers who opt for multi-family investments instead of single-family homes are becoming more common as prices in the District soar out of reach of many younger buyers .

The average price of a DC home reached $ 635,000 in December, an increase of 10 percent since December 2018 and more than double the national average, according to Long & Foster Real Estate housing data. The inventory of homes in the District was reduced by 34 percent year-over-year in December, according to the firm.

“Younger buyers realize they can’t afford the type of house they want in the area of ​​the city where they want to live,” says White. Neighborhoods like Capitol Hill, Shaw and Petworth, rich in two- and three-unit townhomes priced at $ 750.00 to $ 1.5 million, have been popular with multi-family buyers, says White. “They are mostly young couples who could never buy a single-family home in these areas and they like the idea of ​​tenants helping to pay their mortgage.”

Across the Potomac River in northern Virginia, where Amazon will open a second headquarters in North America, Weichert’s management corridor, William Wiard, says the housing frenzy is surpassing inventory. (Amazon founder and CEO Jeff Bezos owns The Washington Post). And that is pushing a growing number of younger buyers to consider multi-family homes, he says.

Redfin calculated that the two real estate markets surrounding Crystal City, the location of Amazon’s offices, are the most competitive real estate markets in the nation.

Wiard says that, in some cases, new and younger buyers are partnering to buy multifamily homes in an effort to find a home.

“They are joining their financial resources to keep up with this market,” says Wiard, “adding that he already sold about a third more multifamily listings this year compared to all of 2018.” Many of those properties have gone first … time buyers because most of them see a multi-family investment as the only way to home ownership in this market. “

Become an owner

The modest houses that line many of the tree-lined streets on the east side of Providence, Rhode Island, have been popular among young professionals attracted by the bustling restaurants and university bars in the area.

The average values ​​of the homes in Providence have increased by 38 percent since December 2015, reaching $ 235,954 in December 2019, according to Zillow data. Zillow data [] show. Much of the increase is due to the city’s proximity to Boston, 50 miles to the north, and the growing number of graduates who call the city their home after college.

“It’s a much more competitive market and is pushing buyers for the first time,” says Taylor. “So, the idea of ​​becoming homeowners in a two or three unit house is much more economically attractive.”

Katrina Demulling and her husband, Derek, were renting in Brookline, Massachusetts, on the outskirts of Boston, when they decided to buy their first home. The couple, who has a 6-year-old daughter, began searching the Boston area earlier this year, but quickly realized that prices were prohibitive.

After a little research, Demulling says they decided to skip the single-family route in favor of multi-family property in Providence. “We think rental income would offset the mortgage and allow us to buy a bigger place while earning income,” says Demulling, a 36-year-old executive at the Boston technology firm.

In March, using Taylor & Associates, the couple closed a three-family home with an initial price of $ 430,000 at College Hill, a popular neighborhood on the east side that includes Brown University and the Rhode Island School of Design. The couple occupies the second level while renting the floor and the third level of the house.

“For the money we spend we will be lucky if we find a smaller two-bedroom condo in Boston,” says Demulling, who adds that his new home measures approximately 1,300 square feet per floor. “It just made more financial sense for us to find a multi-family and become owners.”

Like many multifamily buyers, Demulling obtained a mortgage through a local bank that offered a favorable interest rate and a lower down payment for investing in a home occupied by the owner.

Other multi-family buyers are being attracted to federally backed loan programs that offer attractive interest rates and lower down payment requirements compared to conventional mortgages.

FHA insured loans are among the most popular options for multi-family buyers, some brokers say. The program allows buyers to buy multifamily homes occupied by the owner with up to four units with a down payment as low as 3.5 percent in some cases.

Jared E. Paioff, a real estate lawyer and partner at the Schwartz Sladkus Reich Greenberg Atlas law firm in New York, says conventional lenders can be a harder route for first-time homebuyers.

“Usually, they require a larger down payment and less favorable interest rates,” he says. “Because they do not take into account the rental income of the unit in which the owner resides.”

A lower down payment through the FHA loan program is what attracted Jarvis Thibodeaux to look for a multi-family property as his first real estate investment.

The 26-year-old business appraiser in Houston says he and his wife liked the idea of ​​creating capital while earning rental income, but it was finding a mortgage that required only 5 percent of the purchase price that ultimately convinced.

“The rental units will already allow us to take advantage of other people’s money to help pay our mortgage,” says Thibodeaux, who is using a Redfin broker in Houston to help find a multi-family property with two or four units in the range of prices of $ 500,000. “But the lower down payment actually allows us [to] start in [the] home buying process much earlier. “


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