I’ve already rented an article showing the benefits of owning a home vs renting a home. You can read that article here. This time, I want to focus on renting vs owning the multi-unit property. For this article, I’m only going to use talk about owning a 2 unit property, or a 2 flat. Owning a building with more units would obviously be more profitable, but the costs are a lot higher as well. 2 flats are a lot easier and cheaper to purchase, which makes them a great starter investment.
Like in my previous article, I will use the Auburn Gresham neighborhood in Chicago as an example (60620 area code). The average rent for a 2 bed apartment is 1000 per month. To compare, lets take a look at the costs of a 2 flat that has the same 2 bedroom apartments. The average price of a 2 flat apartment in the Auburn Gresham neighborhood at the end of 2018 was around 195,000 (this is not including foreclosures & REO properties). With taxes for 2 flats averaging around 3500, The estimated mortgage on such a property is around $1350 per month. Owning a 2 flat at the beginning is a lot more expensive than just renting, right? Think again!
Rental Income
For starters, remember that you can rent out the 2nd unit for $1000. That alone will bring your out of pocket costs down from 1350 a month to only 350 per month! Imagine only paying 350 to live in the exact same apartment as you would be if you were renting there! Even if the apartment was vacant for 2 months (which can happen), you would still save a lot of money by owning the 2 flat instead of renting there.
Now I know you may have heard all the horror stories about tenants, and how bad tenants can trash your building. While is definitely true that a bad tenant can ruin your profits (I’ve been there), there are ways that you can protect your investment. A simple and free to do so is to screen any prospective tenants using smartmove. All you have to do is open a free account on smartmove.com, then send anyone you are thinking about renting to a link to the website where they fill out a background & credit check. Smartmove is ran by Transunion, so it is a trustworthy website. Also, you don’t have to deal with any confidential information, the website takes care of it all for you. This is a great way to weed out any potential bad tenants from getting into your property.
Repairs
An additional cost that you will have to think about when owning (especially with a 2 unit where the tenant may not take care of the home as well as an owner would) are for repairs. When renting, for the most part you just call on your landlord to fix the problem. When you are the landlord, however, you are responsible for the majority of the repairs. If I were to put repairs into a monthly cost, however, how much would it be? My personally, I like to set aside 10% of the rental income I receive for repairs. So with an apartment that rents for $1000 per month, one should set aside $100. This is usually more than enough to cover any repairs that may come along. It also helps if you are handy and learn how to repair some things on your own. You would be surprised on what you can learn to do on youtube!
So if we follow the previous example, with the repairs added on, you will be responsible for coming up with $450 per month if you owned the building. That is a lot better than paying $1000 for rent, and not getting any of the wealth benefits of owning property. Any questions or comments, please feel free to reach out to me on my website. Thanks and have a great day!