by Jessica P. Beganski 

If you’re in the market for your first home, one option you may have considered is buying an owner-occupied multifamily house. Buying and living in a multifamily has many benefits, including the following: It gives you the ability to afford a larger and more expensive house, you get tax breaks, you get help from tenants in paying off the mortgage, you can use the equity in your multifamily house to step up to a single-family house, and it can provide you with retirement income.

These benefits come with plenty of risk and responsibility, though. When you have tenants, you have risk in the form of losses from vacancies, costs to find good tenants or evict bad tenants, personal liability and extra expenses, plus chances are good that handling all that responsibility will give you headaches. As the owner, you’re responsible for everything. If a tenant’s heat isn’t working, you have to get it fixed immediately.

The risks of being a landlord can be managed with proper planning, including setting aside a few months of rent in case of vacancies or eviction. Other ways to reduce risk is to get adequate insurance, screen potential renters thoroughly and properly maintain the property.

You Don’t Have to Be a Landlord. If you know being a landlord just isn’t for you, another option is buying a multifamily for you with family members as tenants. Another option is to pool resources and buy a multifamily along with some of your family members.

Definition of a Multifamily. A multifamily is a property with two to four legal units. Anything with more units is considered commercial property. A single-family home with an in-law apartment may also be considered a multifamily, depending on the location and size of the unit in relation to the primary home. Always check with town hall to make sure the units are legal. An owner-occupied multifamily means that you, the owner, live in one of the units.

Obtaining a Mortgage. Because you live in one of the units as your primary residence, you may obtain a mortgage at the same interest rate as a single-family house. Typically, you are able to use 75% of the income you expect from tenants to qualify for a larger mortgage. For example, if your household earns $5,000 a month in income and you anticipate taking in an additional $1,600 a month in rent for other apartments in the building, the lender will count your $5,000 in income, plus $1,200 (or 75 % of the expected rent).

In the Market for a Multifamily. Over the last few years, multifamilies have kept pace with the increasing value of single-family homes. Based on homes with similar square footage, the average sales price in 2006 for a multifamily in Hartford is $242,000, and the average sales price for a single-family is $245,000.

The Benefits of an Owner-occupied Multifamily

More for the money. In addition to being able to purchase a larger, more expensive house than you could otherwise afford, you will have help paying the mortgage from your tenants. The rent you collect from tenants may offset the mortgage so much so that you are paying less to own a multifamily than to rent an apartment.

Tax Deductions. While your expenses (taxes, insurance, and maintenance) will be greater with a multifamily, expenses related specifically to the rental portion of your property are deductible. A percentage of expenses related to the entire property, such as repairs to the roof, are also deductible.

Trading Up. Many people use multifamilies as their first step to single-family ownership. Sharing your home with tenants may allow you to put away additional savings or use the equity you’ve earned over time in the multifamily to help you purchase another home.

Income for Retirement. If you decide to keep the property long-term, you will likely enjoy increasing rents and rising property values. If you can hold onto the property for a long time, let your tenants pay for your entire mortgage, and you will have income for retirement.

The financial rewards of owning a multifamily can be tremendous. If you are prepared for the risk and work, there are people who can help you locate, finance, insure, and prepare for being a landlord.

Jessica P. Beganski is a licensed Realtor® with A Buyer’s Market, LLC. She may be reached at (860) 648-9637 or jessica@buyeragentct.com.