For my family, this is one of the best options for buying real estate especially in expensive cities. I believe in buying “forever” properties so that I can minimize realtors fees and transaction costs. (A multiplex refers to small residential multi-units of 2-4 units)
There are a few ways to attain financial independence.
- Paper route– Save regularly over a period of decades usually into investment accounts with 60% equities and 40% bonds. Eventually live on a 4% safe withdrawal rate. So much has been written on the internet about this tactic. I tend to think of this as the “paper route” as it usually involves the public equities market. Many in the FIRE (financially independent retire early) group seems to fall into this category.
- Cashflow route– Generally I see this done with real estate. We are regularly searching for this since we enjoy looking at our local real estate market as a hobby.
- Business route– We have our own practice but the folks who knock it out of the park are small/ large business owners. I am not talking about self employed professionals here. These businesses utilize leverage and the owners could leave the country and their business would still generate income. Professionals tend to only earn money when they go to work.
Currently, we participate in the real estate cash flow and paper routes. Real estate tends to be illiquid but that could be a pro or a con. It has become way too easy to be able to pull the trigger and sell when the equities market takes a nosedive. Sometimes I think it is better to build a barrier around your investments so that it is harder to change your mind. The adage of save me from myself comes to mind.
Here are some reasons why I believe buying a multiplex versus a single family home works better for our situation.
What Are The Pros?
- It Would Cost You Less– You could leverage your renters to help you pay your mortgage. You would be able to learn how to be a landlord as owning a couple of these multiplexes could fund your retirement. Everyone talks about inflation risk- well you would have no better inflation hedge than local real estate where you could increase rent at market rates.
- You Would Own Land– Currently I am seeing so many young people who would rather buy fancy new condominiums rather than living in one unit but own the entire house. People underestimate what can be accomplished over a long enough runway. It might be from watching too many home improvement shows on television. Too many people have been sold that the only home worth owning is one with granite countertops. They really need to see how little of a home’s value is in the house versus the land on property assessments.
- Safer With More People on the Lot– Especially if you are someone who is not home very often, it would be beneficial to have more people watching your lot. It could be a mini neighbourhood watch. Thieves probably tend not to target property with many residents coming and going.
- Who Could You Help Now & Later?
- Your adult children- I am sure they would be grateful for the assistance. Many young adults are having a difficult time getting good paying jobs.
- Your aging parents- Who do you owe more than your parents? Plus so much more efficient when you need to care for them with respect to getting them to their appointments and general checking in on them.
- Continue renting out for income- You could live in your home for free as the ongoing carrying costs would be covered by renting out the other units.
- Out of town guests- Many of us love having visitors stay with us. It is a blast having your close friends use your other unit. We did just that a couple of summers ago and it was awesome!
- Short term rentals- AirBNB anyone?
- House swap while you travel- This is something we often think of doing. We could swap them into our rental multiplex unit and have more privacy in our own home.
- Sharing! There are a plethora of things you could share.
- Internet- You know by now how much I dislike ongoing costs.
- Cars- Have your own car share program with your adult children.
- Gym- We have a room that everyone can use with free weights and racks. Plus you can have plenty of people to work out with.
- Yard Care/Snow Removal- need I say more?
- Gardening- more help with the garden and more people to help to eat all the extra food grown.
- Skills- baking, shopping, networks, etc since everyone has different things they are gifted at.
- Healthier- The evidence continues to mount of the importance of being part of a community! Do not underestimate the power of having loved ones check in on you regularly.
- Better location– Especially in a lovely urban community which could harness better public transportation options, better work & educational opportunities and better healthcare. Many millennial prefer to live in the city if they could afford it.
- More environmentally friendly– Multiplexes are a very efficient way to live with using one piece of land to house multiple families. The land is the most expensive portion of the purchase price so why not be more efficient?
- Options for different ways of living– You can build a laneway house as the popularity of tiny homes abound. Busy urban cities are beginning to increase density in some popular neighbourhoods.
As with almost anything in life there exists yin and yang however.
What Are The Cons?
- More expensive to buy– This is not always true however, it pays to be patient and wait for the right property that fulfills your criteria.
- Live smaller– But seriously who wants that much space since it only tends to invite clutter! Also I recommend you buy these as early as you can at a time in your life when you have better things to do than stay home all day.
- Probably live in an older place
- More hassle– Being a landlord is not for everyone. But you could gain useful knowledge if this ends up being part of your cash flow retirement plan.
- Less privacy– Depending on the age of the home, some walls are paper thin for sound travel. However, I have also been in newer condominiums where I have found this to be true as well.
All in all, I love multiplex homes. Currently my children live in our downstairs unit. This allows them to begin living as independent young adults with their benevolent “dictator” close by- that would be me! It has been wonderful to watch them grow into self sufficient adults.
My biggest investment regret is that I wish I had bought another multiplex when I purchased my first one. I would have lived in the smallest unit and rented out the other units. And once I could make one property positive cash flow, I would have repeated the process again with another multiplex. When I run the numbers you only need 2-3 of these to retire. How simple would that have been?
I have learned that I prefer control and I like tangible investments.These are insights you gain about yourself after investing for 25 years. You learn what you have a preference for and how straightforward it could have been. Investing is about the process for me. I think the goal is to learn from my mistakes and hopefully get smarter the next time I deploy capital.
Everyone needs to decide which asset class or combination they wish to use to pursue financial independence. We all have different values, goals and strengths. What works for someone else might not work for you. But starting small and learning is available to everyone.