Single family townhouse vs 2 unit multi family

[Allan Quintela]

Hey BP! I need advice on a decision I have to make.

Long story short, my gf and I both applied together for an FHA loan, initially to buy a 2 unit house and we got approved for $385,000 with 20% down. That approval is only valid assuming we rent out the first unit for atleast $1,600/mo and live on the 2nd unit.

If we decided not to buy a 2 unit then our loan would go down to $285,000 with 15% down. We found a nice 2 bedroom town house for $210,000 which is fairly low for the area. Can easily resell for $230,000 in a few month. I can also easily rent out the 2bedroom townhouse for $1,500/mo if I ever move out.

Basically my question is if were in my chose which loan would you chose? Would you take advantage of the full ammount the bank is willing to give or go for something that will keep me more "comfortable " financially? 

I know to answer this question their is alot of variables but I'll do my best to answer (beginner here)

Thanks!

[David Fernandez]

Hi @Allan Quintela,

Why do you think the single family home (SFH) keeps you more comfortable financially? I think it's the duplex the more comfortable option. Have you run the numbers to compare both options? Let's do it:

Buying a duplex:

Monthly mortgage payment = $1,560, assuming a $308,000 loan (80% of 385k); 4.5% interest; 30 year amortization

Buying a SFH

Monthly mortgage payment = $1,012 assuming a $199,750 loan (85% kg $235k); 4.5% interests; 30 year amortization 

Let's assume that the difference in taxes and insurance is $100 higher in the duplex. With this, your PITI is ~$650 higher with the duplex than with the SFH. If you can rent the second unit for $1,600, you will be paying $950/month less at the duplex than living at the SFH.

In addition, by buying the duplex you get some tax benefits from the unit you are renting (deducting expenses, depreciation of half of your purchase price, etc.). 

You also mention that when you move out you can rent your townhome for $1,500/month. Well that also applies when you move out from the unit you are living in the duplex. You can also rent it out and add that rental income to the $1,600/month you are already getting. 

Financially, the duplex makes more sense (assuming that any other costs between the SFH and the duplex are similar).