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MORTGAGE 101 BLOG

 

Your Mortgage:  Your Mortgage: Leverage other people’s money to eliminate your house payment

by Mike Miles

April 16, 2019

 

By Mike Miles

 

Here’s a question – have you ever thought about owning a home as a primary residence while earning income on it? What if you added the ability to finance upgrades and renovations with someone else covering that expense? You think I’m crazy right?

The idea is this … buy a two, three or four-unit property. Live in one of the units and rent out the other(s). This can be done using normal conventional/conforming or government loan (FHA or VA) financing. Even though you are buying a multi-unit home there is only one loan used to secure the financing. Rents are still increasing and can fetch an average of $400 to $600 per bedroom per month. Depending on the number of units that exist in the property you buy and how many bedrooms are in each unit … you could not only cover your housing expense, but you could earn significant income.

Let’s illustrate this using an average rent of $500 per bedroom:

-Two-unit with 3 bedrooms/unit = $1500 received in rent per month
-Three-unit with 3 bedrooms/unit = $3000 received in rents per month
-Four-unit with 3 bedrooms/unit = $4500 received in rents per month

Now let’s look at the financing. Conventional financing would require 20 percent down when buying a multi-unit property. Government financing allows you to put down as little as 0-3.5 percent down depending if you used VA or FHA as the loan type.

Let’s illustrate using a simple example of buying a two-unit property for $275,000:

Conventional:

Loan amount: $220,000
Rate: 4.5%
Payment: $1500 (with taxes and insurance)

Government:

Loan amount: $265,000
Rate: 3.75%
Payment: $1800

As you can see, the mortgage payment could be completely (or nearly) covered depending on the type of financing you did. Additionally, you can see the power of when a property would yield more bedrooms to rent out.

Let’s add a bonus thought…..what if you did the Homestyle Renovation loan on this property to increase its quality and value? Remember I discussed that program awhile back where you can do a loan (purchase or refinance) to finance all your upgrades/renovations even if you don’t have the actual available equity at present time. Not only do you have rents received offsetting your monthly expense but also to help pay for your improvements.

Someone paying your mortgage and possibly even your improvements for you while you get the equity, value and tax benefits – not a bad idea. 

Mike Miles is one of the owners of Fountain Mortgage. You can find his column in the Shawnee Mission Post every Tuesday.