When you invest in single family homes as rental properties sprinkled around the city, the operating expenses are higher and management is more intensive than it is if you owned a 2 to 4 unit investment property where all the units are on one piece of land.
You are able to deduct the mortgage interest for the unit you live in. If it is a duplex, you deduct one-half of mortgage payment, For a triplex, one-third and a fourplex, one-fourth. The mortgage interest for the rented units will be listed on schedule E.
Always make the sure property has decent cash flow when purchasing. If the mortgage is $400,000 at 4.25% is $1,967 each month, property taxes are $468 and insurance is $125 and the rental income is $1,400 for each unit in a triplex, you are cash flow positive without factoring in vacancy loss or capital expenditure. You can comfortably predict that your rental income will be higher in 5-10 years as tenants move.
Having 4 separate groups of tenants might bring a whole new level of problems than a single-family home tenant consisting of a couple or small family. Tenants in multifamily properties are typically more prone to move and live in the units for shorter time frames, which likely translates to higher expenses.
Higher potential for emotional tension among tenants. As the landlord, you are responsible for some of those matters. Recently, some local law enforcement departments and cities are sending bills to the property owners when they respond to calls for nuisance by tenants. A good background check of your prospective tenants and having guest rules written into the lease can do wonders for peace of mind.
If you have one irresponsible tenant, their single problem can easily blow up and trigger additional problems for your other tenants. This would include a shower, tub, or dishwasher leaking into other unit(s) damaging the flooring.
If the thought of actively managing a building frightens you consider using a property manager which is usually an expense of 10 percent of the monthly rental income.
Currently, there are no mortgage loans that offer 5% down for a 3-4 unit property. Although, with an FHA mortgage, a 3 1/2 percent down payment may be possible if the rents meet the self-sufficiency test.
The important takeaway is that making an investment in a duplex, triplex or a quadplex is surely among the list of choices available, and for some investors it is a smart move. Be aware of your own personal finances, your strengths and weaknesses, to figure out if being an owner of rental property is the right choice.