If you’re thinking about buying real estate as an investment, you’ve probably debated between a single-family home and a multi-family property. But here’s the truth—multi-family homes (especially three or four-unit properties) can give you way more financial flexibility.
In this post, we’ll break down:
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Why multi-family homes minimize your mortgage burden
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How rental income offsets your costs (and why two-family homes often fall short)
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What FHA’s "suitability" rule means for financing
Step 1: The Power of Multi-Family Properties
When you buy a single-family home, your mortgage approval is based solely on your income—what you and anyone else on the loan can afford. But with a multi-family property, lenders factor in rental income to help qualify you.
Here’s how it works:
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Two-family home: You get approved for what you can afford plus 75% of the rent from the second unit.
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Three-family home: Now you’re adding 75% of the rent from two additional units, which drastically lowers your out-of-pocket costs.
Example:
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A $1M home with a $10K/month mortgage.
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If it’s a two-family, and you rent one side for $4K/month, you’re still paying $6K/month yourself.
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But with a three-family, renting two units at $4K each means you only pay $2K/month—saving $4K/month!
Key takeaway: A three or four-unit property reduces your financial risk because rental income covers more of the mortgage.
Step 2: Why Two-Family Homes Often Don’t Work
A two-family home might seem like a good middle ground, but here’s the problem—the rent from one unit usually doesn’t cover enough of the mortgage.
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If you’re still paying most of the mortgage yourself, it’s not a true investment—it’s just a more expensive single-family home with a tenant.
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FHA loans have a "suitability" rule—if the rental income doesn’t significantly offset your costs, they may not approve the loan.
Why? Because FHA wants to ensure the property is actually an investment, not just a financial burden.
Step 3: What to Look for in a Multi-Family Property
If you’re hunting for a multi-family, here’s what matters:
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Bedroom Count & Layout
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At least 7 bedrooms total (so one unit can be a 4-bedroom for flexibility).
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Look for double parlors or living/dining combos—these can be converted into extra bedrooms.
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Square Footage
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3,000+ sq. ft. minimum for a three-family. Anything less means cramped units (think 800 sq. ft. per floor—way too small).
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Location & Rent Potential
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Avoid areas where rents won’t cover costs (like East Bridgewater in the video—the numbers didn’t work).
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Focus on high-demand rental markets (near Boston, but not in the city if your clients want space).
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Watch for Hidden Issues
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Attic ventilation—many older homes lack it, which can cause roof damage. (A $500 fix with a 203K loan!)
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Parking—no off-street parking? That’s a dealbreaker for many renters.
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Step 4: Financing Tips for Multi-Family Buyers
If you’re using an FHA loan, keep these in mind:
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Minimum credit score: 580 (but aim for 680+ for better rates).
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Down payment: 3.5% (plus ~3% for closing costs—so budget 5% total).
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Debt-to-income ratio: Must be under 43% (student loans can trip you up here).
Pro tip: A 203K loan can help finance repairs (like adding attic vents or fixing peeling paint).
Final Thoughts: Is Multi-Family Right for You?
If you want lower monthly costs and real rental income, a three or four-unit property is the way to go. Just make sure:
- The rents cover most of the mortgage (so you’re not stuck overpaying).
- The layout works (no tiny bedrooms or missing parking).
- The location supports high rents (or future resale value).
Watch the Full Discussion
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