Invest in Your Future With a Multifamily Home

As a first-time home buyer, you've worked hard, saved money and researched the perfect city to buy your first house. You've listed your wants (a fireplace, two bathrooms and a garage) and your needs: a safe neighborhood, great schools, and....built-in neighbors? Although it doesn't fit the image of the American dream, buying a multifamily home can be a smart investment for first-time home buyers. It allows you to get into your own property, and at the same time, invest in a rental property that may offset—in some cases even cover—your mortgage payment. Many first-time home buyer programs will cover a multifamily home, as long as it is owner-occupied (meaning that you live in one of the units). These programs can make purchasing a home and investment property in one an achievable goal for most first-time home buyers. Here are four questions to consider before buying a multifamily home:

1. What Is the Rental Potential?

The first step to deciding whether buying a multifamily is right for you is to research the rental potential for your property. Start by finding out what similar properties in the area are renting for by looking at similar listings in the area. Consider speaking to other landlords about the vacancy rates in the area. Calculate what rental income your property will draw and compare that to your monthly mortgage on the property. When you're crunching the numbers, be sure to consider the tax write offs that come with being a landlord.

2. How Much Should You Spend?

If you're working with limited funds (and let's be honest, most first-time home buyers are), buying a multifamily home may be appealing because it can help you qualify for a larger mortgage. Many lenders will factor the rental income that the property will draw when they calculate your monthly debt-to-income ratio. The Federal Housing Authority (FHA) will count 75 percent of rental income to help you qualify for a higher mortgage if you can demonstrate a continuous rental history (or show current leases). For example, consider a property that has two units, one that you will occupy, and one that will rent for $1,200 a month. The FHA will add $900 to your monthly income, which will in turn allow you to qualify for a larger mortgage.

3. What Are Your Responsibilities?

Take some time to research the laws in your area and common practices between renters and landlords. Find out which (if any) utilities the landlord is required to cover and what tenants are responsible for. For example, some places require landlords to cover the water bills, and property owners will almost always be responsible for taxes. You'll also want to understand how having renters will affect your homeowners insurance and ask if you need any additional coverage (it's likely you will!). Also consider whether you have the cash flow to address emergency repairs that may come up in your rental property. Things that you may be willing to live with, like lead paint, may be unacceptable to renters or even illegal in a rental property.

4. How Will It Affect Your Life?

There's no such thing as easy money, and that is certainly the case when it comes to investment properties. Consider the work that maintaining a rental property will take, including fixing repairs in a timely manner and maintaining the yard. Also, think about how you will handle the boundaries between home and work when you are living in proximity to your renters.