First off- congratulations on first contemplating this step in purchasing your first home! Nothing drives us crazier than people committing themselves to rentals for the rest of their life. However, those that do, thank you for paying our bills and helping us grow our rental properties! For those that are renting for now to get prepared to buy, guess what we have ways for you to live paying half the amount you are currently paying in rent for a mortgage payment!
Going into any home, there is a lot to consider from the purchase, taxes, maintenance, and getting it suited for you and your family. Single family homes these days can be considered more of a liability than an investment. These responsibilities on all properties, so let’s talk about off setting the costs. On average, people usually only own a home for 7 years before moving again. At that rate, your mortgage payment has barely gotten past the interest and little equity is paid down. You will be lucky to walk away from the closing table 7 years later without owing money towards realtor fees and closing costs. Let’s weigh out your options to get the most out of your money!
There are several options: Residential multi-families are 1-4 units. These properties can be detached and appear as if they are separate single family houses (we have one and its nice!), attached side by side, up and down, and two up two down/two up one down. Each option have different values that we will dive into on another blog.
I want to share an example that is currently on the market. Let’s take a look at our triplex numbers.
8 bed/4 bath at 4300 sq ft. It is currently valued around $560k after our renovations. An FHA mortgage that would include PMI (property mortgage insurance) would be about $3563 a month. This place already is already rented upstairs for total of $2800, the downstairs is estimated to be able to be rented at $1800 a month. You are looking at a monthly mortgage from $763 a month, if you lived in the 2200 sq ft 4 bed/2 bath unit, or you could live in the nice 2 bed units for $338 a month. You would have someone else paying over half of your mortgage and thus allowing you to live in your own home and save money that you would be paying towards the mortgage. Just for comparison- a single family home at $1200 a month mortgage is around $175,000, which is nearly impossible to find try to find in Anchorage.
I know what some of you are thinking being a landlord is miserable, you have to deal with tenants and other people’s drama. Let me let you in on a secret; if you screen the tenants properly it will be like you don’t even know they were there, you will look at your bank account or open the mail on the first of the month and see a check addressed to you. We have a few properties that we barely talk to the tenants. Our houses are taken care of and money is in the bank account every month. However if there is something wrong, make sure you fix it, this is a relationship that goes both ways so don’t ruin it for a good tenant!
You also may be thinking that investment properties are too expensive and I cannot afford a house at $400,000 plus! There are many low down payment loan programs out there. An FHA requires you to only put 3.5% down. When getting pre-qualified for a home, let your broker know that you are considering multi-family homes. They add 75% of the rental income of your proposed property to your income! Say you were only bringing in $2500 gross income a month on this property, they would add another $2100 totaling your gross to $4,600 a month! Calculating your debt to income ratio is important and knowing your personal financial limits.
If you eventually want to get your own home and out of the apartment living, you can save up all the money that could have been tossed into rent for a nice down payment and turn around and rent the owners unit and make an extra $1400 a month. It can pay half the mortgage of your single family home!
The numbers increase with more units and it also helps you sit more comfortably at the end of the day. When we lived in our detached duplex, we paid $200 a month towards the mortgage! While this triplex is valued at $560k we have built sweat equity into the property and are generating amazing numbers living here! Think of the possibilities!