Make Powerful Profit on 2-4 Unit Apartment Rentals

Living With Your Investment(s) As a First Time Home Buyer

There is no doubt that real estate is one of the most lucrative investments you can get started if you have the capital. Buying a duplex, triplex or a fourplex is the best real estate investment options if you are also buying for your own first home. When you buy a multi-unit apartment (under 5 units), you can live in one of the unit and rent the rest out to cover your mortgage. Be sure to use any downpayment assistance that you qualify for when you do it!!

First Time Home Buyer FHA and VA Loan

The American dream is getting harder and harder to reach nowadays in 2022 but there is still hope with first time home buyer’s program. The Federal Housing Administration (FHA) has downpayment requirements for 3.5% – 10% based on your credit. If you have a credit score for more than 580, you would probably qualify for the 3.5% downpayment requirement.

Veterans, thank you very much for your service to the country and VA loan is here for you. I joined the military in 2003 as a reservist and qualify for my first home using my VA with the option of ZERO downpayment for my house. VA loan is available for all veterans and active service members in the military. National Guard members and reservists are also eligible for a VA loan if they have served at least six years of honorable service, are mobilized for active duty service for a period of at least 90 days, or are discharged because of a service-connected disability. Note that there will be fees that is associated with the lower downpayment, but you can lump it with the total loan amount.

You can reuse your VA loan AGAIN if you are planning to use the new home for primary residence. So if you want to buy a duplex to live as your primary residence, you can use your VA loan for it.

Where Should My Capital Come From?

The average cost for a duplex is between $285,000 – $537,000 base on where you live, this number can change significantly. Let say you are buying a duplex for $400,000 and you are using the FHA loan. Your initial capital that you need come up with is 3.5% of $400,000 which is $14,000. You might want to save up $6,000 more just for fees and closing cost. So let say $20,000 you can live in one unit and rent the other out! Live frugal and work hard to save up that $20,000. Seriously that is my advice. Look around what is costing you that is unnecessarily needed.

Do you really need that fancy car that you are looking at? Are you watching all your TV/music/gaming subscriptions? Honestly if you can cut all subscription (get off your TV/gaming addiction) for a year or two, you will find you will have more time for yourself and save up more money to reach the $20,000 goal.

Cook your own food!! Eating out is only for special occasions or celebrations. You will be surprise how much money you can save if you buy groceries and cook your own food instead of eating out at restaurants. It will be more healthier too. It is true that you will use more of your time though, but if you cut your TV time and use that time to cook quality food, you will have a healthy body and prosperous future ahead of you.

If you are lucky enough, you can borrow from relatives/friend for your downpayment. Make sure you pay them back though with interest if possible, seriously. Don’t burn bridges with your love ones.

There is also a hard money borrowing options from banks or online, but I personally really don’t like that idea.

The Numbers and Building Equity

At today’s interest 5%, your mortgage(assuming 30 year fixed), tax, insurance is about $2,800. The good news is that depend on where you live, you can possibly rent out the unit that you are not living for $1300-$2200, which is a big part of the mortgage. Okay if you have a fourplex the return rate would be much better. But now we only look at the duplex option. Even with rent let say $1500 on the conservative side, you still pay $1,300 in mortgage. If you were renting before, you would probably paying $1,300 in rent already. But now this $1,300 doesn’t all goes down the drain as you would for renting; parts of it goes to your own equity. Let say you been paying for this duplex for 5 years and you have $50,000 in equity. The duplex went from $400k to $500k in price, that is 25% increase in value. Your $50,000 in equity now is worth $62,500. That is $12,500 in capital gain!! Since we assume you are doing the 30 year fix mortgage, you mortgage payment doesn’t change, however, you can raise the rent based on the market. Later in your life when you want to start a family, you want to move to a better neighborhood with single house, you can rent out both of the units for maximum profit. These units will continue generate income for you as long as you put good long term tenants in them.

The long Term Game

There is no doubt that real estate is meant to hold for long term. This is not suitable for everyone, but it is one of the best vehicles for profitable passive income for lifetime.