Why Your First Home Should Be a Multifamily Property
There are few moments in life as exhilarating as buying your first home. But amidst the excitement, many first-time buyers overlook a crucial truth: this purchase is a pivotal step in your financial journey. Today, I want to help you think strategically about this moment. Specifically, I’m going to focus on why your first home should be a multifamily property. Trust me, making this choice could be one of the smartest investment decisions you ever make. Here are some compelling reasons why:
Homeownership is the most powerful driver of wealth accumulation in the U.S. economy. In 2022, the average net worth of a homeowner was just under $255,000, while renters barely scraped by with an average net worth of around $6,300.
Many first-time buyers focus solely on having a roof over their heads, but that’s a shortsighted approach. Your first home is an investment property, whether you realize it or not. So, why not think like an investor? By choosing a multifamily property as your first home, you’re ensuring that your first asset is a solid earner that can serve you for a lifetime.
When you buy a single-family home, every penny for the mortgage, taxes, and insurance comes out of your pocket. But with a multifamily property, your tenants help offset—or even completely cover—those expenses! This cash flow doesn’t just put money in your pocket each month; it also gives you breathing room to handle unexpected costs or reinvest in improvements that increase your property’s value.
Remember: Positive cash flow is the name of the game when you’re building wealth.
Thinking and acting like a real estate investor can feel daunting, especially when you hear stories about seasoned investors dealing in massive complexes. But here’s the good news: the mechanics of purchasing a duplex are not that different from buying an apartment complex—they just come on a smaller scale.
By starting with a smaller residential multifamily property, you can develop the essential skills you’ll need to tackle larger investments in the future. It’s never too early to dive into real estate investment, even when you’re searching for your first home.
I’m a huge fan of “house hacking,” which means living in one unit of a multifamily property and renting out the others. The rental income can cover most—or even all—of your housing costs. Imagine living virtually rent-free or greatly reducing your monthly housing expenses. That frees up cash to eliminate high-interest debt, fund an emergency account, or reinvest into your growing real estate portfolio.
Think: Instead of paying rent to someone else, you can own an asset that pays you.
Imagine you’re ready to purchase your first place and secure a $250,000 loan. With a 3.5% down payment on a 30-year FHA loan at 3.75% interest, your monthly mortgage payment (excluding taxes and insurance) would be about $1,306. If you buy a single-family home, that entire burden rests on your shoulders.
Now, picture this: you opt for a duplex instead. In your market, rental rates for a 2-bedroom unit hover around $800/month. By living in one unit and renting out the other, you’ve reduced your monthly mortgage load to just $506.
Take it a step further and consider a triplex. With rental income covering your mortgage, you can invest that extra cash into your equity, make improvements, or cover other bills. This is the power of multifamily living!
In each scenario I just described, you only had to purchase one property. This means one negotiation, one loan, and one contract-to-close process. You’re managing one physical property instead of juggling multiple homes scattered around the neighborhood.
That’s the beauty of multifamily real estate: you can reap the benefits of multiple income streams with significantly less hassle. Plus, as you acquire higher-capacity multifamily properties, your acquisition costs per unit decrease, improving your cash-on-cash returns.
Thanks to programs like FHA, financing a duplex, triplex, or quadplex can be much simpler than securing a loan for a commercial multifamily property. The terms are generally more favorable, too.
One common hurdle for new multifamily investors is the lack of experience. Without a proven track record, lenders may hesitate to approve a commercial multifamily loan, creating a catch-22. You need experience to get the property, but you need the property to gain experience. However, by using FHA to purchase a multifamily property as a first-time buyer, you can tackle both challenges simultaneously while locking in a manageable monthly debt load.
Managing an investment property isn’t for the faint of heart. It requires both business acumen and emotional intelligence. But here’s the truth: no one is born with property management skills. Everyone has to start somewhere.
What better way to learn than on your own turf? As the on-site manager of your property, you’ll gain firsthand experience with everything that happens in the building, with your tenants, and in the neighborhood. This proximity allows you to monitor and manage your property far more effectively than if it were located miles away.
Learning to be a landlord is one of the most valuable skills you can develop early in your investment career. One day, you’ll hire others to manage your properties, but having built this skill set, you’ll know exactly what to look for in a new hire.
A lot of people shy away from multifamily properties because they think it’s complicated. But as far as investing goes, it can actually reduce your risk. If a single tenant moves out of a duplex or triplex, you still have income from the other units. On the other hand, if you own a single-family home and the tenant moves out, you’re left covering 100% of the mortgage yourself.
Security: Diversifying income streams within a single property helps you sleep better at night.
Owning multifamily property teaches you the ins and outs of real estate quickly. You’ll learn about tenant screening, property management, and basic maintenance with just a few units. That experience is incredibly valuable if you plan to scale your portfolio—and trust me, if you catch the real estate bug, you will want to scale.
Advantage: It’s on-the-job training that accelerates your path to becoming a savvy, confident investor.
If you’ve followed my work, you know how passionately I believe in multifamily investment as a pathway to life-changing wealth. This belief is especially true when you’re just starting out in real estate.
Remember, it’s never too soon to dive into real estate investment, even when you’re looking for your first house. Embrace this opportunity, and you’ll set yourself up for a prosperous future.
If you haven’t yet, grab your free copy of my book, How to Create Lifetime CashFlow Through Multifamily Properties.
Let’s build your wealth together!
If mounting debt has left you overwhelmed and without options, Chapter 7 bankruptcy could offer the fresh start you need....
For years, Arica Gonzalez would pass by a vacant lot in her West Baltimore neighborhood, filled with overgrown weeds, vermin,...
IRA Financial is a self-directed IRA manager that provides retirees, W-2 earners, and self-employed individuals with access to alternative investments, such as...
