Should You Buy A Two-Family House?

It's no secret that the cost of living keeps rising, as do housing prices in many major areas. The World Bank even says that most countries will probably enter recession and that we may even see a combination of inflation and stagnant wages, Fortune notes, undoubtedly squeezing pockets further. For some, it can be a scary landscape to make potentially life-changing financial commitments in.

With the dream of homeownership feeling increasingly seeming unattainable, it's tempting to look for unconventional approaches that can allow you to secure a house without taking on such a large financial burden. After all, who wouldn't want to enjoy the benefits of owning a home without most of the stresses that come with not having one? Counterintuitively, one of the most popular strategies seems to be buying a two-family house. But would a two-family house really align with your financial plan? And is it truly a good idea, especially if you can only afford a single-family house? Let's get into the nitty-gritty of whether or not you should buy this home type.

In most cases, a two-family home won't be as expensive as you might assume just by looking at the monthly mortgage calculator. This is because many people who buy two-family homes do so in order to house hack or rent out the second unit to cover the majority of the costs associated with home ownership, Rocket Mortgage notes.

Ideally, house hacking involves properties with as many units as possible, increasing the chances that rent payments will cover your share of the bill. However, even with just one unit, there's a good chance that your tenant's monthly rent will be greater than the difference between a one-family and two-family house's monthly mortgage payment.

Of course, every area has a slightly different real estate and rental market situation. So before purchasing a two-family house for house hacking (or other similar money-saving strategies, like buying a two-family home with another family you trust), double-check the going market rates, HOA regulations, and local laws. The last thing you'd want is to purchase a home only to find out that you aren't allowed to rent it — or that, at the end of the day, it would've been more efficient to purchase a single-family home.

Two-family houses are great when everything works out. Whether renting out the second unit or using it to house a family member, the extra cash and convenience are great in theory. You can build equity, save money, and diversify your income. Things couldn't possibly get better.

Unfortunately, they could get worse. A lot worse. First, two-family homes don't have as much privacy as their completely detached counterparts. Depending on the layout, they may even have less privacy than an apartment or condo complex. If you don't get along with your new neighbors, they might really get on your nerves. Also, if you'll be house hacking, you must carefully consider the financial risk before signing any papers. Sure, it's great when your tenant's rent subsidizes what otherwise would've been a prohibitively large single-home mortgage. But what happens if you can't find a tenant? What happens if they can't make payments? What will you do if rent prices drop?

Regardless of what you'll be doing with the second unit, you'll need a much larger emergency fund. You'll also need a stronger backup plan in case things go wrong or interest rates rise, as per Forbes. Plus, you'll need to budget more for property taxes and other similar expenses. While these can all be major challenges, a two-family house really is a game-changer under the right circumstances. You just need to understand the risks to plan for them.