A two-family home investment can prove the ultimate house hack. Just prepare yourself for what that entails.
Head up the northernmost tip of Manhattan, and you’ll cross paths with two communities ripe with redevelopment—Harlem and the South Bronx. As both areas continue their decades-long renaissance, investment opportunities are popping up on practically every street in both neighborhoods.
One such property investment type is that of two-family homes.
Call it a duplex or triplex or fourplex or just multifamily housing—all terms are correct—two-family housing can prove a unique and worthwhile investment. But whether you opt to capitalize on the dual-income of both living spaces or make a home in one while renting the other, there are a few things to consider.
Let's explore the house hacking potential of two-family home investments.
Yes, we know you've heard it many times before, but location is a critical part of identifying the right two-family home investment. It might even prove more vital than the locations of other real estate transactions.
Whether it's in Harlem, the South Bronx, or anywhere else, your investment is predicated on people wanting to rent it out. Make sure you buy the property in a desirable area close to neighborhood amenities and transportation. Questionable locations make it more challenging to appeal to quality residents.
If you plan on maintaining one of the spaces as your own, you'll also want the neighborhood to be a comfortable place to call home. And should it ever come time to sell, buyers are easier to find, and the ROI is greater when the surrounding environs help the two-family home maintain its value.
Ah yes, life as a landlord. That means big fat rental checks for little to no effort, right? Not exactly.
Sure, multifamily housing can be lucrative, especially with the right renters in the right property in the right neighborhood. However, you'll be responsible for anything that breaks or requires repairs. And not just for one living space but two or more.
The purchase and upfront costs will be higher, too, as multifamily housing tends to be more expensive than a single-family house. Ensure you lay out a budget well before you buy any property. Also, expect your taxes to be more involved when you own and collect income on a property. It doesn't necessarily make your life more complicated; there are just more taxes to process.
Not only do you want to account for financing costs and any potential short- and long-term repairs, but also consider vacancy expenses such as utilities. And don't forget the maintenance and upkeep that comes with two or more units under your ownership.
3. Collecting Rent
For the two-family house hack to work, you're going to need to collect rent—whether you choose to occupy a unit or not. Non-payment can place a heavy burden on your investment goals, so prepare yourself to be a capable rent collector.
The process starts with excellent screenings of potential applications (within local, state, and federal laws). Make sure you perform credit checks, have your renters sign a legally binding contract, and pay a sizable deposit (nothing outlandish, but an amount that is uncomfortable to walk away from).
4. Living Situation
As we mentioned above, if you plan on occupying one of the living spaces, be sure it’s in an area of town in which you'll want to live. Secondly, and more importantly, make certain it's a building where you won't mind living in close proximity to someone.
Whether the home is side by side with shared walls or an upstairs-downstairs arrangement, expect to see your renter—a lot. Sure, coming and going is easy enough, but prepare for them to stop and talk to you in person—sometimes to chat and other times to express an issue with the home.
Also, make sure you invest in a property without paper-thin walls. Seeing your tenant is one thing. Constantly hearing them could be too much to take.
That said, a two-family home has excellent investment potential. And the right property in the right area (and securing the right renters) can lead to the ultimate housing hack—a great ROI.
Are you interested in buying or selling a home? Or are you seeking more information on investment opportunities? Contact the Uptown Flats team at Compass
today. It would be our pleasure to help you navigate the process.