The Myth of the One-Family Home: Income and Security For Young Familes and Retirees

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Most Americans aspire to owning a one-family home with a nice backyard and a white picket fence.  They imagine their kids riding their big wheel up and down the driveway and family barbecues on their back deck.  At face value, there is nothing wrong with owning a one family home, afterall, a home without tenants or extra maintenance comes without worry and strange people living in the same space.  
However, what most people don’t realize is that a 2 or 3 family home can provide tremendous peace of mind when it comes to income sources outside the traditional 9-5 job and later on in life via your 401K payouts.  A multi-family home is, in my view, a more secure retirement vehicle then stocks, bonds, mutual funds, index funds, etc. given that individuals and families will always need a place to live and  you, as the owner, can always collect monthly rent from tenants.  An index fund, for example,  tracking the S&P 500 goes up and down with the market, so for example if you’ve slowly built up a few index funds over a 20-30 year period and are now (in the current economy) looking to cash out the investments to fund your retirement you’ll most likely have less real cash to live on each month.  Investing in multi-family real estate can provide a steady income stream for retirees providing they’ve paid down a good portion of the outstanding mortgage.  The income stream is also not tied, as closely, to the stock market or general economic conditions, so, for example, if you’re charging a $1,000 per month for a 1 bedroom apartment you’re pretty much guaranteed to see that cash every 30 days.
The above scenario is something that I saw first hand, as our family owned a two family home (living on one level and renting out the 2nd floor to tenants).  The two family home continues to provide steady income for my parents and will continue to do so well into their retirement years.  The other added benefit is that a two family home can provide a space to live for the owner as well, so you can both collect income on the property and enjoy your own space.  
For a young couple, a multi-family home can help pay down the mortgage and taxes and eventually generate pure income, as noted above.  However, there are some negatives, including renting the apartment every couple of years (as tenants come and go) and doing general maintenance, but in my view the positives outweigh the negatives and I’d recommend both young familes and couples nearing retirement consider buying and owning a multi-family property (over the traditional one family home).  There are sacrifices with this type of living arrangement, but in the long term it’s a very secure vehicle for monthly income/cash.
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  • http://www.pennyseeds.com/2009/01/make-extra-income-as-an-affiliate-marketer/ PennySeeds.com

    I was just weighing this option yesterday. Though I ultimately aim to acquire both a single family, and a multi-family dwelling.
    The idea was to buy a multi-family dwelling like a duplex, and live in it for a few years. Living in one side, and renting the other. My plan was to apply that which I’d be spending in rent to live someplace else, and the rent money I’d receive from the tenant towards the mortgage. Paying off the loan much more quickly.
    Upon that being paid off I would purchase my own single family home, and then rent both sides of the duplex which would then be mostly income since the loan would be paid. That’s the pipe dream anyway! Would require more calculations for serious consideration though.

  • http://www.rajdash.com/ raj

    I’m weighing this option now. Not easy for a new couple to live with parents/in-laws, but sometimes it’s necessary.

  • Av Harris

    I agree with Vincent. Owning a 2 family home as income property is one of those rare investments that allows you to earn cash every month like an annuity while your investment is gaining in equity and value. Not to mention, it is an incredible write off on your income taxes. It is the only investment I know of where over time it gains in value but on paper it loses value due to depreciation so you can show a loss on paper while actually putting cash in your pocket every month. it is a good idea if you can afford it. but just make sure you know what you are getting into. Make sure electrical, plumbing and heating are in order. It is better to know how to repair some things yourself. and if you have to hire a contractor to repair major things, don’t take the lowest bid. as the Great Tomasso Scordo said, if someone comes in with an unusually low bid on a job, then “Sometin’s cookin.”

  • http://smnphillips972.googlepages.com/ Simon Phillips

    These are very interesting and informative thoughts, Av.

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