Become Home Owner & Real Estate Investor & Landlord While Others Make Your Payment?

Here is an very interesting strategy for becoming a home owner AND a real estate investor at the same time while having most if not all your mortgage covered. How you may ask? The way to do this is to buy a multifamily property using an FHA loan, 5% down conventional loan or a $0 down payment VA loan. This is allowed as long as the borrower/buyer plans on occupying one of the units as their primary residence. Of course it's not quite as easy as it sounds but it really is possible. The best of these loans would of course be the VA loan. But those are limited to our very deserving military Veterans.

The appeal of this approach is twofold. First, when you purchase a multi-family property, the lender allows the borrow to count at least part of the fair market rents of the units which the buyer is not occupying toward the buyer's income. So if a person purchases a four-plex, the lender will count part of the rent (70%) for three of the units toward the buyer's income. This feature allows the buyer to look at properties which they normally would not qualify to buy. In some cases it could enable a borrow who only qualifies for a $150,000 property to be able to purchase up to a $600,000 dollar property.

Secondly, if the monthly rents are enough, they might actually cover the entire mortgage payment. Which means you could live in your own home while someone else paid the mortgage. If they don't cover the entire mortgage, they will at least cover a significant part of it. Usually you will have to have a tri-plex or quad-plex to cover the entire mortgage.

Real Life Example.

I recently had the opportunity to purchase a nice quad-plex property in downtown Prescott for just under $500,000 and after closing, the rents collected would have been more then enough to pay the mortgage and still have money left over. Because I am a realtor, I could have used my commission toward the down payment. My lender and I figured that all I needed out of pocket to buy the property was approximately $7,000. So I could have become the owner of a half a million dollar property in down town Prescott while someone else was paying my mortgage. Unfortunately, I couldn't convince my better half to move into a small 2 bedroom apartment. But hey happy wife/happy life right! Using a VA loan to purchased it, a veteran could have conceivably done it without a penny out of their pocket. Really!

Theoretic Example With Real Property:

Let's say you want to live close to downtown Prescott in the trees but have only been approved for a loan of $200,000 with 5% down. ($10,000) this would give you an approximate monthly payment (PITI) of $1,167.00 (assuming a 4.25% 30 yr fix rate loan.*) Because of the high prices in Prescott, you're not likely going to find something close to downtown Prescott that you really want to live in for $200K.(At least not without doing a lot of work.) But there's hope!

There is presently a very cute duplex property in Prescott not far from the square. It's priced at $389,000. Each side is approximately 1,300 SF with 2 bedrooms 2 bathrooms and has covered parking and rents for $1,100 a month. Theoretically, a person could buy this duplex for $380K with an FHA loan or VA loan. They could then live in one side and rent out the other side for $1,100 and use that money to apply to the $2,152 dollar a month mortgage payment which would effectively make their out of pocket expenses for mortgage servicing $1,052 a month.

So using this scenario one could buy a more expensive property in a better location while paying less a month than they would have for a cheaper property in a less desirable location. One caveat: Since its an FHA loan, the 3.5% down would mean that the down payment needed would rise by $3,300 compared to the 5% $200K scenario. But with FHA loans down payments can be gifted. If one were able to use a VA loan no down payment would be necessary and the monthly payment would go up only slightly.

This scenario isn't for everyone. Being a landlord isn't a bowl of cherries. But for those who want to own a home and who have thought about maybe owning rental properties this is an option to seriously consider. If you would like to talk with me about how this might work for you, give me a call 928.533.2117 or drop me a line Jeff@RealEstateDepot.net