This Week's Q & A

Q: We currently own (and occupy one unit in) a two-family home. We’d like to hold on to this property as an investment, but buy a single-family residence for ourselves. Is that possible?

A: There’s nothing illegal about it, if that’s your question. But there are a number of personal and financial issues you should consider. The most important is whether you have the resources to make a down payment on the single-family you plan to buy without selling the dwelling you currently own. If you have the cash you need or can obtain it (refinancing your two-family is one possible strategy) then you have cleared the first hurdle.

The second one may be more difficult, because it involves your ability to qualify for, and afford the payments on, the mortgage you, presumably, will need to purchase another home. If there is no mortgage on your two-family, this shouldn’t be a problem; you will have to worry only about managing the payments on the new home. But if you already have a mortgage and are going to be acquiring another one, lenders will look closely at your ability to manage the combined debt payments. And so should you. You may be able to scrape together the cash required each month to make the two mortgage payments, but lenders also are going to look at your overall debt-t0-income ration; if it is too high, you’re not going to qualify for the new loan.

Affordability and eligibility obstacles aside, there are many sound financial planning reasons for holding on to your two-family residence, if you can. Long term, real estate has proven to be a good investment, notwithstanding cyclical ups and downs in the housing market. And two-family properties in particular tend to hold their value, because of their perennial appeal to first-time buyers trying to enter the housing market.

But all properties are not created equal in the marketplace. So the condition of your two-family will be an essential factor in your assessment of whether it is and will continue to be a good investment for you. Its investment appeal, obviously, is greater if the roof is new and the major systems in good operating order than if you are likely to face thousands of dollars in repairs over the next two or three years. The location of the property also is key; neighborhoods, like people, have life cycles, and it is important to assess where your neighborhood is and where it is likely to be in the reasonably foreseeable future.

Retaining the two-family also means becoming an absentee landlord, with all the responsibilities and potential headaches that can imply. This is as much a lifestyle consideration as a financial one, but the wrong lifestyle choices can make you just as miserable as financial mistakes.