2 To 4 Units Property Purchase

2 To 4 Units Property Purchase And Managing Tips

Gustan Cho Associates are mortgage brokers licensed in 48 states

This Article Is About 2 To 4 Units Property Purchase And Managing Tips

What Are 2 To 4 Units Property Purchase And Managing Tips For A First-Time Homebuyer? One of the greatest benefits of an FHA loan is that you can purchase a 2 to 4 unit multi-family building with a 3.5% down payment. Many two to four-unit multi-family homeowners often pay most of their mortgage and housing expenses from the rental income they are getting. One of the units needs to be occupied by the homeowner. The homeowner can rent the remaining units and spend the rental income paying for the mortgage and/or expenses. This is a great way to start investing in real estate and get landlord experience.

Maximum Number Of Units Considered Residential And Eligible For FHA Financing

What is the maximum number of units considered residential and eligible for FHA financing

Any residential properties under 4 units are considered residential properties. Home buyers can purchase 2 to 4 units property purchase with government and conventional loans. First time home buyers can qualify to purchase 2 to 4 unit residential properties with a 3.5% down payment with an FHA loan. Buying a to 4 units is an excellent investment as long as the homeowner is ready to tackle the job of being a landlord. If buyers play cards right, they can live with very little mortgage payments or no mortgage payments due to the rental income offsetting monthly housing expense. In this article, we will cover and discuss the benefits of buying a 2 to 4 unit multi-family home.

2 To 4 Units: Are You Ready To Be A Landlord?

Before we discuss 2 to 4 unit mortgage qualification requirements, let’s discuss the idea of being a landlord.  Homebuyers need to realize the responsibility that comes along with being a landlord.

  • The risks versus reward factor apply here
  • Having a tenant is great because of the rental income
  • But there are risk factors associated with being a landlord
  • Whenever there is a problem such as furnace problems, plumbing, and electrical issues, the tenant will contact the homeowner

The homeowner needs to either fix it or hire a janitor to correct the problem.

Duties Of Being A Landlord

Some issues might be minor such as a clogged sink or toilet. But there are major issues that arise such as a furnace breakdown during the middle of winter where it needs to get corrected immediately.

  • Furnace and air conditioning repairs can be a high ticket repair issue
  • It may be as simple as a thermostat replacement
  • Or can be as major as the replacement of motors, fans, or even the whole furnace
  • These repairs can cost as little as a few hundred dollars to several thousand dollars
  • Homeowners of multi-unit properties need to realize that a service call visit from an electrician, plumber, or HVAC repairman can cost a minimum of $100, and that is just a repair call service call charge
  • Then there are parts and labor that is on charge of the service charge

This is where reserves are very important.

Reserves Required On 3 To 4 Unit Properties

Lenders may require borrowers to have reserves on multi-unit properties. But even if lenders do not require reserves, having reserves is strongly recommended for a rainy day for those planning on owning 2 to 4 units and being a landlord.

  • For example, we had a winter artic blast that lasted several months here in the Chicagoland area
  • Many areas of the Midwest where many homeowners had furnace problems
  • I had furnace issues also when the weather was 30 below zero and the repairs cost $1,400
  • Actually, it was a combination of furnace and plumbing
  • $1,400 dollars is a lot of money for many homeowners
  • Especially to landlords where the winter season has more housing expenses due to paying for gas
  • If the renter had a situation like mine where their furnace broke down and needed furnace repair for the tenant, do they have the money at hand? 
  • Vendors want cash payment at the time of service
  • Many will not entertain payment plans

Unless owners have ample room on credit cards or reserves, this can present a big problem for those homeowners who have tenants.

Problem Tenants And Non-Paying Tenants

What can often be the problems with tenants and tenants with arrears with payment

A nightmare for all landlords is having problem tenants and non-paying tenants.

  • Owners 2 to 4 unit buildings take on the role and job of being a landlord
  • Screening a tenant is the most important factor in avoiding future tenant problems
  • Just because they come up with a wad of cash for the security deposit and first months rent does not mean they have a good tenant
  • Renting unit to the wrong people can have a nightmare on hands
  • There are federal and state laws when it comes to evicting tenants

Homeowners cannot just throw their furniture and belongings out and change the locks.

2 To 4 Units Property Purchase And Knowing Evictions Laws

There is an eviction process that owners need to go through. Part-time landlords the chances are that they will need to hire an eviction attorney which can cost hundreds, and sometimes thousands of dollars There are professional scumbags who rent apartments. These rats know the tenant’s laws and guidelines better than any eviction attorneys. The eviction process is another big issue. Evictions are not done overnight. There is a process. Landlords need to serve the tenant with notice initially before they can proceed with the eviction process. Owners need to file proper eviction paperwork in court and a deputy sheriff in the county needs to serve the tenant. The tenant then needs to appear in court. However, if the tenant does not appear in court the first go around, there will be other delays. More than likely, the attorney will be handling all this unless they can educate themselves in the eviction process and want to do it on their own.

Government Regulations With Evicting Tenants

Another drawback in the eviction process is that many counties have moratoriums on evictions at certain times of the year when the weather is cold. The eviction process comes to a halt. The tenant is allowed to live rent-free until the eviction program in the county re-opens. There are cases where the eviction process takes six or more months. Owners cannot shut off the tenant’s water or cut off their electricity or gas. Owners cannot harass the tenant for not paying. Remember there are many rights a tenant has even though they are non-paying tenants. Even though owners own the building and the unit the tenant is living in, the tenant has rights that are protected by law and all landlords need to abide by those laws. The best thing owners can do to avoid major problems is to reason with the tenant and have them move out and offer them will not pursue the back rent. Many apartment management companies even offer cash for the deadbeat tenants to move out to avoid court costs and to have the tenant move out so they can rent out the subject rental unit.

2 To 4 Units Property Purchase And Screening The Right Tenant

Home Buyers thinking of a 2 to 4 unit property purchase really need to think about whether they want to be a landlord. There are many advantages of a 2 to 4 units property purchase. 2 to 4 units property purchase is a great way to take off the ground if planning on being a property investor. Buyers can go for a 2 to 4 units property purchase as an owner-occupied unit and qualify for a single-family home owner-occupied unit in a year and rent out the owner-occupied unit on 2 to 4 units. building and keep it as an investment property. Owners can charge a premium on rental units and can probably offset the rental income where housing expenses will be minimal. Many 2 to 4 units property purchase owners live rent/mortgage free because the rental unit revenue pays for the mortgage and expenses of the building. The key to owning a 2 to 4 unit building is to have the right tenant.

Damages Caused By Tenants

Does damage caused by tenants have consequences?

Another case scenario with tenants is having a tenant that pays their rent on time but the tenants can be pigs. They can be pack rats and leave garbage by the doorsteps where it attracts critters like raccoons, cockroaches, mice, rats, and other scavengers. This can be a major problem. Tenant listens and abides by the rules you place on cleanliness, then there are no issues. But there are many cases where old habits are hard to break and they might just yes to you but do not take action to correct the problem. Other nightmare tenant case scenarios are when tenants hold loud parties and not only disrupts but neighbors also. Owners do not want to be popular with the local police force where they get visits from them every other day or every weekend.

2 To 4 Units Property Purchase: The Key To Having Good Tenants Is A Major Asset

The key to having good tenants is to screen them before accepting their rental application.

  • There are third party services where they run credit checks and criminal background checks
  • Make sure to check on references and previous landlords
  • Make sure that they have jobs or have a source of income where the rent asking is not too much of a strain

I strongly recommend that not give them a one-year lease.

2 To 4 Units Property Purchase: The Ultimate Eviction Nightmare

The worst thing that can happen as a landlord is when evicting a tenant, the tenant trashes everything in sight.

  • I have owned and operated just under 3,000 residential units as a real estate investor
  • Evictions were part of business
  • There are a large percentage of evicted tenants that really trashed the unit where they damaged the carpeting and/or floors beyond repairs
  • People can be mean
  • Some left meat in the refrigerator and unplugged the refrigerator so the meat can rot
  • Others broke fixtures and left garbage everywhere where I had to order a dumpster to clean the mess out
  • Still, others have broken everything in sight including drywall, millwork, doors, and anything possible
  • Be prepared to run into bad tenants during the course of being a landlord
  • Screen tenants and make sure to be aware of laws concerning evictions
  • Have reserves, 2 to 4 units property purchase should be extremely rewarding and a great way to start being a real estate investor

Home Buyers who need to qualify for FHA, VA, USDA, Conventional Loans with a mortgage company licensed in multiple states with no lender overlays on government and conventional loans can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

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