"The Future ain't what it used to be"-Yogi Berra
As the quote mentions, the times are changing and in real estate, we find ourselves constantly searching for ways to help our clients reach their next goals. As most of you know, the rental market continues to reach new heights with reports like these from San Francisco, but what if I told you there is a solution. . . Ok stay with me, for this week’s newsletter I wanted to share a “hack” that has helped several clients buy a property in the Bay Area while receiving the benefits of being a property investor.
The strategy is referred to as an owner-occupied multifamily property but commonly called “House Hacking” because of the clever way to invest. When meeting with clients, I will always tell someone who is open to the idea of landlording to buy a multi-family home because of the opportunities for cash flow. The house hacking that I refer to involves living in one of the units while renting out the other two or three to tenants. By living in the multi-family property and having tenants pay for a majority of the expenses, you can potentially save money when compared to your current rent! Additionally, when you do decide to buy your next home, you can rent out the unit you were occupying and add that as additional income to continue to generate more wealth in the future (not to mention the great tax benefits that your accountant can dive into with you).
“But Ryan I can’t afford a multi-family property because of my current income. I can barely afford a single-family home”
A borrower has the ability to utilize rents from the additional unit(s) to qualify. These rents are valued by current leases or a fair-market rent survey completed by the appraiser. The determined rental amount is then deducted by a 25% vacancy factor. This can help borrowers increase their purchasing power as the additional income helps offset a higher mortgage payment (loan programs available with as little as 3.5% down payment are available).
Here is an example listed below (the numbers provided are simply an example and not a specific quote):
1-Unit Property listed at $700,000: Assume a gross monthly salary of $8,600 and a monthly mortgage payment of about $3,700.
2-Unit Property listed at $845, 000: The same gross monthly salary for the borrower of $8,600 and at the higher price the monthly payment is about $4,430. However, the market rent is around $2,200 (after some vacancy factors) that puts your net effective monthly payment closer to $2,230!!
For a detailed review of your loan purchasing capability, feel free to reach out to me or Alex (from the previous newsletter).
So who wants to start searching for properties?
Feel free to read more here!