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Multiple-unit buildings a good start for investors-D&C Article-April 8, 2015

Multiple-unit buildings a good start for investors
Mary Chao, Staff writer

When Matt Handy wanted to diversify his investment portfolio about a decade ago, he began to look around at multifamily properties. As an investor who planned to live in the multiple unit, Handy selected a four-unit Colonial-style home in the Park Avenue area, buying it for $230,000 in 2005.

“It’s a great way for the middle class to get ahead,” said Handy, 57.

For people interested in real estate investing, buying an owner-occupied multiple unit is one way to get started. Living in a multiple unit gives the investor an additional source of income to help pay the mortgage, real estate experts say. And the process of buying a smaller multiple unit if you live in it is fairly similar to buying a single-family home.

A double or triple building is a good option for a first-time investor, said Carmen Lonardo, agent at ReMax Realty Group in Pittsford. Investors with well-balanced portfolios often think of real estate as part of their overall strategy, he said.

Lonardo is representing a client who owns a double family home that is about to be listed at 18 Whitmore St. in the Swillburg area of the city. The area is popular for income properties, with owner-occupants living in doubles while renting out the other side, he said.

The lending guidelines for owner-occupied buildings with up to four units are roughly the same as for single-family homes, Lonardo said. If a buyer qualifies for an FHA loan, the down payment could be as little as 3.5 percent. The rules change when the building has more than four units, he said.

For investors who are not living on the premises, the down payment is typically 20 to 25 percent of the mortgage loan amount, said Kim Chizuk, loan officer at Prospect Mortgage in Brighton. When a lender looks at a loan application from an investor, the lender will check the current income stream on the property and how much money is available to close the deal, she said.

Another way to finance income property that a buyer does not plan to live in is to borrow against a primary residence, Chizuk said. For example, if the investor owns a home with very little mortgage left, the equity on the home could be used to borrow against another property, she said.

Beyond having your financial house in order when seeking to buy an investment property, it’s important to do your research about whether being a landlord is right for you, Lonardo said. Some questions you should ask yourself:

•Can you handle the upkeep of another property?

•Can you do without the income from the property if it is vacated for an extended period of time?

•Do you like dealing with people issues?

That furnace will break at the most inconvenient time, Lonardo said. So it’s important to have the right temperament to be a landlord.

Handy spends his weekends updating his units to increase their value. He charges between $490 to $1,100 a month in the units in the home where he lives and estimates that the building is now worth about $320,000 after a decade of sweat equity.

“It’s a part-time job,” Handy said of being a landlord. “But it pays off in the long run.”

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