Buying a Home with a Rental Unit

Buying a home can be full of difficult decisions; and as interest rates rise, some buyers may experience more difficulty planning financially for the property they envision buying.  For people looking for a different way to help pay their mortgage every month, choosing a multi-family property or a home with an attached rental unit might help offset costs and provide the monthly income that makes their mortgage payment a little easier to accomplish.

What Is an Attached Rental Unit?

An attached rental unit, formally called an Accessory Dwelling Unit (ADU), is typically a smaller living space adjacent to a main home. It might be a tiny house in the backyard, or something more like a self-contained mother-in-law apartment attached to the house. It can even be a small apartment over the garage. In many cases, it is even a 2-Family Home where the owner lives in one unit and rents the other.  There aren’t a lot of rules about what an ADU has to be, except that it should be a fully autonomous dwelling.

The reason for autonomy is that this is what it takes to really have solid rental income potential from a secondary dwelling. Imagine if you were renting an apartment somewhere, you’d certainly want to have your own kitchen and bathroom, wouldn’t you? It’s difficult to rent units without these features, so typically, they’re part of any successful ADU.

Benefits to Having an ADU

Having a rental can be a lot of work, but there are also a lot of benefits to owning an ADU. Not only does the rent help pay the mortgage every month, it can also act as flexible space for whatever life might throw at you down the line.

For example, when you first buy your home, maybe you really need help with the mortgage payment, so you use the ADU as a long-term rental unit with a tenant who has signed a year-long lease. This tenant not only pays the utilities for that unit, but they also help out with the mortgage their rent. It’s a great situation while you’re trying to pay down your mortgage and ramp up your income.

As time goes by, you might get tired of dealing with a long-term tenant, but you can still use that unit for short-term tenancy, if allowed by your neighborhood and city. Airbnb, for example, gives you the option to rent by the day or week, so you never have to stick with a tenant for too long. You can turn off being a landlord for a few weeks and go on vacation yourself without having to worry.

If AirBnB isn’t your thing, your ADU can still be used by your grown child or to keep an aging family member close by. Remember, these are self-contained apartments, so they should provide a great deal of privacy and autonomy to anyone living there. ADUs have long been favored by people with aging parents, hence the former popular nickname “mother-in-law apartment.”

Financing a Home With a Rental Unit

If you’re looking for a house with a rental unit, you may also wonder how you’re going to finance it. Do you need a special kind of loan or is this edging into the realm of commercial financing? Not at all. Most mortgages will allow you to purchase a property that has up to four units on it. That’s a lot to handle if you’ve never had a rental, but a single ADU is pretty easy upkeep.

All you need to do is choose a property that you like and ensure that it will pass any requirements from your lender (we can help with this!). Certain programs may include specific inspections and financial qualifications, such as (FHA or VA) so you definitely want to let your lender know that you’re looking for a property with an ADU before you commit to your loan.

In conclusion, many home buyers find great success when investing in a multi-family or property with an ADU.  Our team is well-versed in the many facets of income-produing properties, so reach out to us anytime to discuss this great financial option!

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