The Two-family revisited

by Kathryn Godby Oram

Two heads are often better than one; the same holds true for houses. In tough economic times we can use all the help we can get and for some, that help can come in the form of a two-family. Garage apartment, side-by-side, duplex or carriage house, all of these options offer income that can offset your living expenses.

The multi-family market, once dominated by owner/landlords, took a very different turn during the recent housing boom. Rising rental rates made multi-family homes very appealing for the investor. As market values and demand continued to rise the multi-family market went through the roof.

Today, overbuilt rental markets, plummeting rental rates and multi-family loan default have created the perfect storm for the multi-unit buyer. Prices on these homes have dropped dramatically yet investors are not rushing in to snatch them up. Consider this; you may be able to have a great house plus a little income to offset your mortgage and taxes. By changing your idea of what your dream home is you may be able to get your home to work for you instead of you working for it. Most recent buyers (pre-crash) got into the residential multi-family market (four units or less) to become landlords. They banked on high rental rates to pay their mortgages and taxes. When the market began to shift the income was just not there and many over-levered two-four families had to be sold at a loss. Those deals are still out in the market. They are good investments and even better homes.

Invest in your new home; Live in one unit, rent out the other. The best part of the current market belongs to the seller that can accommodate the growing number of ‘downsizers’; many of whom may become renters. Historically, in a depressed Real Estate market, the rental market is generally better. That is not currently the case but with interest rates having nowhere to go but up, many buyers will have no choice but become renters. Morris County presently has an overabundance of apartments; which is a worry for fledgling and seasoned landlords. Keep in mind, that renting out half or a third of a home has benefits that renting an apartment may not and most often the perspective tenants are not coming from the same pool. That said, time is needed to absorb the newly built product that is coming to market. So, take your time; start looking into the idea of a multi-unit dwelling. Research rental rates in good areas with low vacancy rates. Make a list of the amenities that your unit(s) can offer that will differentiate you from the competition. Think of this purchase as a step towards your dream house. Use this Real Estate down-cycle to make a smart and inexpensive purchase that will offer a home and an income.

In an age where we are encouraged to re-use and re-cycle, re-think the idea of the multi-family.