Is a Multi-Family House a Good Investment?

Financing

To purchase a multi-family property, you’ll most likely need to obtain a loan. Getting financing for a larger building may be easier than borrowing for a smaller one.

The more units there are, the less one individual unit affects the revenue collected. This means less risk for the bank.

Earning Potential

A multi-family house can allow you to generate a consistent cash flow.

Time and Financial Costs

A large property requires a lot of time and work to manage. However, you can hire a management company to help take care of those tasks.

Is a Multi-Family House Right for You?

Before investing, carefully consider how much money you have. Do you want to go it alone or with partners?

A multi-family property can help you earn substantial profits. However, you may need help from others to make the purchase and handle day-to-day maintenance.

Save for a Home with a Dollar-for-Dollar Match Program

A federal program helps low-income families buy a home with a unique method meant to encourage saving: It matches dollar-for-dollar what they save to buy their first home.

The Individual Development Account, or IDA, doesn’t offer a lot of money to help with a down payment — up to $2,000 in federal matching funds with more contributions possible from local IDA programs — but it’s a start.

Participants can start by saving as little as $25 — matched to as much as eight to one, depending on the program, though most offer one-to-one matches. Income levels must be 200 percent below their state’s poverty level.

With an 8:1 match, IDA participants can raise much more than the $4,000 total with federal matching, and could have $10,000 or so for a down payment on a house.

Most IDAs are funded by the federal government and are run by nonprofit groups and financial institutions, and grantee programs are required to raise an equal contribution of nonfederal funds. It can take from six months to several years to save for a down payment on a house through the program.

To earn the matching dollars, some IDA programs require account holders to take financial literacy classes and training on homeownership; they are also provided counseling and instructions on how their local program works.

More than 60,000 IDAs have opened in the U.S. since Congress established them in 1998. The Administration for Children and Families is the federal agency that provides the federal half of the match.

IDAs aren’t just used for buying a home. The matching money can also be used to repair an existing home, go to college or start a business.

Getting help with a down payment through IDA can benefit both lenders and homebuyers, who are less likely to default on home loans after participating in the program. IDA participants are 2 – 3 times less likely to lose their homes to foreclosure than other low-income buyers, according to a 2010 study from the Corporation for Enterprise Development and the Urban Institute.

An IDA might not be for everyone. But for families that can afford to save small amounts of money over time, matching money from an IDA can help them get a good start on a down payment and homeownership.

Things to Consider If You Have Inherited a House

When someone passes away, his or her house is generally left to a family member. Figuring out what to do after inheriting a house can be confusing and overwhelming, particularly when it is unexpected or when siblings become joint owners. Sometimes people rush to make decisions, and sometimes they put off making important choices. Either can lead to more financial costs and stress.

Find and Prevent Damage

If you have inherited a house, you should first assess its current condition. Have the house inspected by a professional so you know what needs work and so you can make any necessary repairs. Contact the utility companies to have the accounts switched to your name. Keep the heat and water turned on to avoid problems such as frozen pipes. Keep the electricity working and have the yard maintained to avoid making it obvious that the house is unoccupied and attracting thieves or vandals.

Clean out the House

Invite family members to the house to take any items they want, provided they were not left to specific individuals in the will. Start with immediate family members, then branch out to allow others to choose things they would like. This can be an emotionally difficult task, but putting it off would only increase people’s negative feelings and would prevent you from moving forward and deciding what to do with the house.

Move in, Sell or Rent?

If you want to move into the house, find out how much the mortgage (if any) and property taxes would be. If you and your siblings are joint owners of the house and one of you wants to live there, the future resident can buy out the others, pay them rent or work out another arrangement.

If you sell the house, you will need to pay taxes on any increase in value between the time of inheritance and the time of sale. Consult a real estate agent on the need for repairs, the local housing market and how much money you could realistically expect to earn from the sale.

You might be able to make money by renting out the property, but you need to consider the potential costs. You would be responsible for taxes and insurance. You would also be personally responsible for maintenance and repairs, unless you hired a property manager. That would cut into your profits but could also make renting the house less stressful. You would need to thoroughly vet prospective tenants to avoid dealing with missed rent payments, damage and possible eviction proceedings.

Think Things Over Carefully

The death of a loved one is an emotionally painful experience that can leave people feeling overwhelmed and struggling to make decisions. If you have inherited a house, it has likely created a host of financial and emotional issues that you were not anticipating. Talk to your family and ask professionals for advice so you can make the right choices.

Red Flags to Look for When Shopping for a New Home

When you look at a house you are thinking about buying, you may love the charm, landscaping, amount of space, or other features. But you should also approach a home viewing with a critical eye and be on the lookout for red flags.

Maintenance Problems

As you tour a house, look for indications of how well it has been maintained. Cracks in the foundation could jeopardize the structure of the entire house. Strange odors could indicate mold or an animal or insect infestation. Clogged gutters could lead to roof leaks, damaged siding, and foundation and landscaping problems.

Problems with the windows could lead to high utility bills and expensive replacement costs. Check the windows to make sure they open and close property. If you notice condensation on the windows or between the panes of glass, that could indicate that the windows are not functioning as they should and need to be replaced.

As you walk through a house, turn on the lights in each room to make sure they work. Flickering lights are a sign of an electrical problem. Check the outlets to make sure they function correctly. A faulty outlet or one that gets unusually warm could indicate a localized or widespread wiring problem

Is the Owner Hiding Something?

Homeowners often paint the walls to make a house more attractive to prospective buyers. A fresh coat of paint could be a good sign, or it could be an attempt to cover up mold or water damage. If you notice a musty odor, the owners could be trying to conceal a problem.

If you are not allowed to enter a particular room, that could be because something valuable or personal is stored there or because the room is undergoing repairs—or the owners could be trying to hide something. If you are not permitted to see a room, ask the real estate agent why. A vague or unsatisfying answer could be a red flag. If the agent provides what you consider to be a reasonable explanation, you should still ask to see the room before you agree to buy the house.

Look Around the Block

Consider the neighborhood as a whole. If other residents don’t seem to take care of their houses and yards, that could drive down your property values if you were to buy a home there. Several houses for sale could suggest a variety of problems with the neighborhood, such as noise, traffic, crime or interpersonal conflicts.

Get as Much Information as Possible

It’s natural to be excited when viewing houses, but approach each with a healthy dose of skepticism. Look for signs of trouble and ask the real estate agent a lot of questions. Before you commit to buying a house, be sure to have it inspected by a professional. Some red flags are obvious, while others are hidden. Learning as much as you can before a purchase can save you a lot of time, money and stress later on.

Understanding Your Property Taxes

Local governments and school districts raise a large portion of the money that pays for education, emergency services, transportation and other public goods through property taxes. The amount that individual homeowners pay is determined by the assessed property value and the mill rate. Each of these is calculated through a complex process.

How Property Values Are Assessed

An assessor will determine the value of your home. That value can change over time due to depreciation, improvements you make, and the local economy and housing market. Assessors may use any of three methods to calculate the value of a home. In some cases, they use a combination of two or more methods.

One way to determine the value of your home is by looking at the sales of comparable properties in the area. Those figures are used as a baseline and can be adjusted to account for the location of your property, the amount of land and any upgrades you have made.

Another way to assess the value of your house is to figure out how much it would cost to replace it if it were destroyed. That calculation will include local material and construction costs.

A third method of assessing your property’s value is to calculate how much income you could generate by renting it. The assessor will consider market value and will deduct costs to manage and maintain the property, as well as insurance premiums and taxes.

You should receive a statement showing the assessed value of your property. If you disagree, you can submit relevant information and ask the assessor to review the calculation taking the additional facts into account. If you accept the assessment, you will receive a separate property tax bill.

How Tax Bills Are Calculated

A mill levy is a tax rate used to determine how much property owners must pay. One mill is equal to one-tenth of one cent. County and local governments and school districts set their own mill levies based on the amount of money they need to raise and total property values in the area under their jurisdiction. Property owners then pay a mill rate that can include a total of county, state or town, and school district mill levies.

The mill rate will be multiplied by the assessed value of your property to determine your property tax liability. You may receive a tax bill once a year or once every several years, depending on the government’s policy. If you have any questions about how much you will owe and when, you can visit the assessor’s office or look up the information on its website.

The Benefits of Understanding How Property Taxes Work

Property taxes can vary widely based on where you live, the value of your home, and how much money the local government and school district need to raise. Knowing how your home’s value is assessed and how property taxes are calculated can help you avoid being shocked by the size or timing of the bill.

Just Bought a Home? Here's What Not to Do...

Buying your first home is an exciting milestone, putting you on the path to a smart financial future. There are certain traps you can fall into as a new homeowner, however, that can put your financial well-being at risk. Avoid doing the following too soon:

• Remodeling. Unless there’s something in need of serious repair, hold off on any remodeling projects. This will give you time to assess the cost vs. value of the project, ensuring that the money you put into it actually increases the value of your home. Waiting will also give you time to research and secure the best professionals to work with.

• Furnishing the whole house. You don’t have to have every room perfectly outfitted at once. Take your time and settle in to your new home. This will give you time to make better furniture choices. It will also allow you to budget over time as opposed to a big financial hit all at once.

• Taking out an equity loan. Let your equity serve as a cushion for future needs. As home ownership plays out, there are countless needs and issues that will arise. If you’ve already exhausted your equity, you won’t have that emergency fund at the ready.

• Moving up. You might be on a mission to get to your next bigger and better home as soon as possible, but wait it out a bit. You want to make sure you have the finances to do so comfortably, and you want to make sure you choose the right location. Living in your current home will teach you a lot about your likes and dislikes.

• Making major aesthetic changes. Don’t go crazy with paint, wallpaper or any other bold design statements just yet. You’re still in the getting-to-know-you phase, so feel your new home out for a while before you start changing its look.

If you need more real estate information, feel free to contact me. 

Coming up with the down payment on a home can be hard enough, and one way to make a home more affordable is to spread out the mortgage payments over 30 years.

But 30 years can be daunting, and that time can be cut down with a 15-year mortgage. It’s a lot more expensive in the short-term than a 30-year fixed-rate mortgage, but pays off through greater long-term savings.

Here are some things to consider when weighing a 15-year vs. 30-year mortgage:

Saving Money
It can be difficult to see the long-term benefits when looking at a monthly mortgage bill that will be 50 percent higher over 15 years instead of 30.

Paying a home loan off in half the time requires a larger payment, of course, but it can save you tens of thousands of dollars in interest charges. Why? Not only is more principal paid earlier, but interest rates on 15-year mortgages are usually better than other loans types.

Here’s an example of a $200,000 mortgage at 30 vs. 15 years:

Mortgage type:         30-year          15-year
Interest rate:             4.5 percent    4 percent
Monthly payment:     $1,013           $1,479
Total interest:            $164,813       $66,288

That’s almost a savings of $100,000 by going with a 15-year loan. Divide that savings over 15 years and it’s about $555 saved per month.

Borrowers should make sure they have enough income to afford it, are able to manage their household debt and have money in liquid savings for emergencies.

Building Equity
Repaying a mortgage faster not only saves you money in the long run, but you build equity in your home faster, too. If home prices rise, your equity could grow as well.

This is good for many reasons, including making refinancing easier by lowering your debt-to-income ratio. While it won’t improve your cash flow, it should make it easier to get approved for a home equity loan or home equity line of credit.

An Easier Retirement
Another big advantage…if you plan to retire in the next 10 to 20 years, you won’t have to worry about mortgage payments during your retirement. Instead of a house payment, you can use that money for retirement expenses.

If you continue paying a 30-year mortgage into retirement, you may have to pull money out of your savings to make the payments.

Check Your Credit Report Before Applying for a Mortgage

Applying for a mortgage to buy the house of your dreams can be a daunting process. You have to submit an application, pay stubs, tax returns and other documentation. In addition, the lender will base their decision and how much money to loan you partially on your credit score.

Reasons to Check Your Credit

Before you apply for a mortgage, it’s a good idea to know where your credit currently stands. The best way to find out is to request copies of your credit reports. You’re entitled to receive free copies of your reports from the three credit reporting agencies: Equifax, Experian and TransUnion.

One reason? You can compare your score to your lender’s guidelines to see if you’d have a good shot at being approved for a mortgage. If your score is too low, you can take steps to raise it. You can pay down your credit card balances, consolidate debt to lower your interest rates and pay it off faster. Additionally, be sure to pay all of your bills on time. It may take several months to have an impact, so the sooner you start making changes, the better.

You should also check your credit before applying for a mortgage to find out if your reports contain any errors. Sometimes records get mixed up if people have the same name or a company reports information incorrectly. If you find an error on your report, it could also be due to identify theft. Data breaches happen all the time, and criminals use stolen information to open fraudulent accounts. You might be unaware unless you check your credit report.

Errors on your credit report could prevent you from getting a mortgage for which you actually qualify. If your credit report shows that you have more debt than you really do or that you’re behind on payments when you really aren’t, that could cause the lender to consider you too risky for a mortgage.

If you find that your credit report contains errors or accounts that you didn’t open, you should contact the credit reporting agency to dispute the information. They can investigate to find out what happened and correct errors. If you’ve been a victim of identity theft, contact law enforcement.

Check Your Credit Early

When a lender is deciding whether or not to approve your mortgage application, your credit score is one of the most important pieces of information they’ll consider. Several months before you fill out your mortgage application, request copies of your credit reports. See where your score currently stands and check for errors. Then you can take action to raise your score and correct any mistakes so you can turn your dream of owning a home into a reality.