Buying a Triplex: Step by Step Guide for Beginners
One creative way to increase your return on investment is living in one unit and renting other units. This is called housing hacking. You can only practice this investment strategy if you own a small multi-family home. A triplex in this case.
A triplex will help you penetrate the real estate market easily. You don’t have to incur the costs of renting a separate residential home. You can instead live in one of the units of your investment property. The remaining two units can be rented out.
Use the rental income from your triplex to pay your mortgage payments and cover other expenses of the property. With a triplex, you live for free. Let your tenants pay for your mortgage.
A triplex remains a good choice when trying to decide what types of rental properties to purchase. It gives you a smooth transition to multifamily investing without feeling overburdened.
Overtime you can scale your business to larger properties like big apartment complexes, but for now the simple triplex investment property type is one beginners can handle with low stress.
Are you interested in investing in a triplex but don’t know where to start? Continue reading to get all your questions about triplexes answered in this step by step guide.
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What is a triplex?
This is a home with three separate dwelling units consolidated into one property. The units are segregated by one or two common walls.
The units are self-reliant. In a triplex, each unit has its own exit, kitchen, bathroom, living room, and unit number.
Here’s an example photo of a triplex where one structure is actually split into three units, each with its own garage and front door.
Why invest in a triplex?
A Triplex is a sensible purchase because of the following reasons:
Increased rental income
As compared to a duplex, a triplex has an extra unit that means more income. If you decide to rent all three units you will earn significant cash flows. With the rental income, you can offset your monthly mortgage payments.
Also, you can manage to pay maintenance expenses and utilities. Even better the cash flows can pay for your separate home to live in.
Practice house hacking
This is the best part of owning a triplex. There is no hustle of getting a different home to live in. By closing one deal, you have a home and you have graduated to a landlord. The beauty of a triplex is living in one unit and renting the other two to get regular rental income.
An investor uses typical residential lending to buy a triplex. Residential mortgages have lower down payments with smaller interest rates. Lenders finance triplexes because they are less risky.
When one unit is vacant, the other can still generate income. You can use the rental income received from the other units to increase your loan amount.
Maintenance costs, repairs, and utilities are written off in addition to normal deductions. This significantly reduces the tax amount. Selling a triplex you live in, exempts you from paying tax on capital gains.
Systematic guide in buying a triplex
When buying an investment property it is crucial to follow the relevant steps. Apart from getting the right property, you win a profitable deal.
#1: Get the relevant knowledge
Before investing in a triplex you need to decide if it’s the best choice for you. Research and learn what buying a triplex entails. The potential advantages and the risks involved. You can get this information from websites and listening to podcasts.
With enough digging, you will have enough market information on acquiring a triplex. These facts will give you an upper hand when negotiating and analyzing deals. Quality exploration will guarantee you a successful and profitable acquisition.
#2: Outline your preferences
Knowing that you need to invest in a triplex is not enough. At this stage define your search. This is in relation to where you want to invest. Have a specific locality in mind. Your environment should consider factors like the social amenities available, the crime rate, and the local economy.
Examine the amount of finance at your disposal. Have a budget to work with. This will guide you on triplexes you can afford. Do you want a dilapidated house to fix or a ready-to-live property? Depending on your investment objectives select the condition of the house you want.
#3: Talk to a real estate agent
These are gurus in the real estate industry. They are the thesaurus of information on properties in a given area. With a good real estate agent, you will have the best experience in buying your triplex. An agent will hold your hand from locating your house to giving you the best closing.
Not all agents have the relevant expertise. Choose one that has comprehensive experience in triplexes. An agent who understands what you are looking for will make your work easy.
The best thing is you won’t pay a dime for the services. The agent gets paid a commission by the seller of the home.
#4: Find a triplex
A real estate agent has access to multiple listing services (MLS) where you can start your search. The MLS has all properties in a given locality which a comprehensive description. You will get all the features of prospective properties.
Conduct a search on your own by using online websites such as craigslist and Zillow. Select your preferred area and you will get all triplexes on sale. Alternatively, explore offline methods like walking around specific neighborhoods checking for triplexes with “on-sale” signs.
Real estate investment groups can give you the best leads for getting a house. Search for them on Facebook and join one with members you have common interests. Attend regular meetings. You never know you might be taking coffee with a potential seller.
#5: Evaluate the property and make an offer
Analyze the property in relation to your preferences. Check on the location to ensure it is desirable. Good locations attract quality tenants. Be sure the house in the condition you want. If the acquisition price is in line with your budget, it is a property to consider.
Do a profit analysis. Calculate the expected returns.
Depending on a given locality you can estimate your rental income. Take away all the possible expenses including mortgage payments. If the results are satisfactory to you make an offer. Negotiate to get the best offer.
#6: Finance your purchase
Triplexes have flexible financing. The first and best option is using cash. It might not be as affordable as a single-family home. Using cash has fewer procedures and complexities. If you don’t have the financial ability using a mortgage loan is the way to go.
For a triplex, you can use a conventional loan. These are loans from ordinary banks. They are easy and stable. This is because they have fixed interest rates. Check on your credit score to be sure you qualify. To get this loan you require a down payment of 25%.
Another option is using an FHA loan. The good news about FHA loans is they need a small down payment of 3.5%. Yet, you must live in one of the units for a minimum of one year. Choose a financing option that fits your investing approach.
#7: Close the deal
Select a title company to help you with the closing. On the other hand, you can use a real estate attorney. Ensure he has experience dealing with multifamily homes. Pay the required loan closing costs and sign the required paperwork. Acquire title insurance to cushion you.
Carefully choose the date of the closing, preferably right at the beginning of the month. Being a rental property, you will receive the month’s rental income. Move-in and enjoy your property.
It is satisfying when you buy a good triplex and enjoy cash flows monthly. To achieve this you need to practice every step correctly.
Do thorough research and engage a professional to guide you through the process. Be cautious with the location you invest in. With a triplex, you are holding the key to advance your real estate career. Use it to open your doors to personal excellence and real estate prosperity.
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