A Guide to Buying Multifamily Tacoma Real Estate Properties
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What is a multifamily property?
A multifamily property is a property that has more than one unit. Typically, when we think of a “house,” we imagine a singular home, condo, or unit. When we add at least one more additional dwelling, it becomes multifamily.
Multifamily becomes “commercial” when there are five or more units. So for this article, we will focus on four or less units which keeps us in the realm of residential.
Residential “small-scale” multifamily, then, can be any of the following:
● A duplex, triplex, or fourplex
● A single family home with an accessory dwelling unit (ADU)
● Variations of the above
How to buy a “small-scale” multifamily in Tacoma
Like buying any property, there are multiple financing options available. Assuming you are not buying the property all cash, you’ll need to talk to a lender (we know some great ones!) to compare and learn about various financing options. Learn tips from a local lender here.
One way to get started buying multifamily is to utilize an owner-occupied, low-money down loan that is usually backed by FHA or Freddie Mac. These often have a downpayment as low as 3-5%. Freddie Mac, however, usually requires at least 15% to 25% down on duplex, triplex, or fourplexes, but it’s always best practice to consult a lender experienced in multifamily.
In addition to the perk of a lower down payment, a second benefit of buying more than one unit is that the lender can generally use the income from the other units (excluding the unit you will occupy) to increase the income portion of your debt-to-income ratio. This allows you to qualify for a higher loan amount.
An important nuance to discuss with a lender is the differences between buying a single family home with a permitted ADU vs buying a legally zoned duplex, triplex, or fourplex. The rules may vary on down payment and how the income from the additional unit(s) affects your debt-to-income ratio for purposes of loan qualifications.
Why invest in Tacoma Real Estate and buy a multifamily property?
Perhaps the most obvious and immediate benefit of owning more than one unit is collecting income from the other unit. This income helps offset your mortgage.
A longer term benefit of owning a multifamily property is something referred to as a “buy and hold investment.” For simplicity, this means that owning a property that generates enough income to cover the main expenses (mortgage, taxes, insurance, maintenance, management fees) allows you to hold the property through both the good and bad market times. So even if the value dips to lower than when you bought it, you can rent the property until the market value increases. Of course, this depends on a thorough analysis of current and projected income and all expenses before buying the property.
When should you buy multifamily Real Estate in Tacoma?
Two major considerations for buying income property include 1) cash flow and 2) appreciation.
First, let’s look at Tacoma’s appreciation over the last ten years. According to Best Places, Tacoma’s home appreciation the last 10 years has been 146.5% (https://www.bestplaces.net/housing/city/washington/tacoma) , whew! Appreciation is one of the four wealth builders of owning real estate. The longer you generally hold onto the property, the more wealth is generated through appreciation (along with the tax, loan paydown, and cash flow benefits).
Second, cash flow is the money left over after paying monthly mortgage and other expenses from the rent collected. When you eventually move out of your occupied unit, the goal is for the income from all the units to at least cover your mortgage and expenses. If you have money left over, then you also have the “cash flow” component of the four wealth builders. Additionally, while you live in the property, you offset your housing costs and continue to pay down your mortgage, which you can’t do if you rent or live in a single unit (assuming you don’t rent our bedrooms in one unit). So, there are major advantages to living in a multifamily over renting or living in only one unit.
With that said, the best time to buy depends on many factors but we always recommend taking a long-term approach to real estate investing and performing a thorough analysis of the property will help guide you in making a confident decision in any market cycle. If you’re interested in buying a multifamily home in Tacoma, let’s setup a phone call or coffee date! Click here to setup an appointment.