The timing is still right to buy a home, rates are down and it’s a buyers market. Could it get any better? You bet! How about buying your first home that is a 2, 3 or 4 family? Not only will you have an income stream coming in, you will also have a great start to building your real estate portfolio. What many people don’t realize is that they can use the FHA government insured loan to buy up to 4 units as long as they owner occupy one of them. In almost all cases the down payment is only 3.5% and the seller can even pay the closing costs up to 6%. Why such a secret? Probably because what doesn’t get talked about usually gets forgotten.
Let me give you some very interesting and wealth building examples. Lets assume you find a 3-family home selling for $175,000 with yearly real estate taxes of $10,000 and the property allows for a 3.5% down payment (cash flow has to equal total PITI 1 to 1). Your loan amount would be approximately $170,500 with mortgage insurance included. At a 5% fixed 30 year rate, the mortgage payment would be approximately $915.00. Adding in real estate taxes, mortgage insurance and property insurance, your total payment would be about $1,976.00. Assuming rents are in the neighborhood of $900.00 x 2, you could be grossing $1,800.00 in rental income, leaving you a whopping $176.00 that is left to pay on your mortgage payment. Starting to get the picture? Even if you have a vacancy the balance is about $1076.00. Probably not much more than what you would pay in a nice rental.
Not excited just yet? How about using gift funds and seller concessions in order to buy the same house with close to nothing out-of-pocket! And now to save the best for last, maybe down the road you are ready to buy your next owner occupied property and you completely rent this one out. Not considering any increase in rents, which you know is not likely, you could gross $2,700.00 and have a net income of $724.00 per month. This is not counting the deductions you will get from Uncle Sam. So, what are you waiting for? Get pre-approved today and enjoy all the wealth building strategies of real estate.
John, as always, great post. The key of course is finding the right property at the right price and with a positive longterm outlook.
Buyers looking at investment property, even if they are going to occupy one of the units, need to work with an experienced agent who understands the economic dynamics of income property as well as the market and neighborhoods potential for growth in value. Sometimes “the numbers” work when one of the units is owner occupied but then do not when the owner moves on and keeps the property soley as an investment. Also, “the numbers” may work for an owner occupant but when she moves on, they don’t in terms of resale, particularly if the new buyer is purely an investor. Often times this means a lower resale value.
It is also critical to work with an agent who will provide guidance after the sale.
Being a landlord isn’t as glamourous as it looks. If the buyer has never owned income property they should work with an agent who can help them market their rentals, provide applications and leases, screen potential tenants, etc. etc.
I would be happy to meet with any potential buyer, with no obligation whatsoever, to help with the issues I’ve mentioned here and plenty of others that are relevant to income property. I can be reached at carmen.lonardo@remax.net.
Hello Carmen,
Welcome to Rochester Mortgage News and thank you for subscribing. We look forward to hearing from you as we discuss the many financing options that are available in our community. Some topics will be geared towards the Real Estate professional while many topics will be informative to todays first time buyers and step up buyers who are looking for good honest advice. As you know this may be the largest purchase an individual may make in their lifetime and it needs to be made with prudent real estate advice, from pre-qualification to negotiating of the purchase contract. As a professional, you have been accepted in our subscriber community and we appreciate all your knowledge and insight that hopefully will be considered when our clients are searching for the perfect home.