Choosing to invest your money in real estate can create passive income and wealth for you and your family. I know this first hand.
My great grandmother was born in Mississippi and moved to Gary, Indiana. In her adult life, she began working as a housekeeper and decided she wanted more for her life.
So, much like you, she sat down and thought about what she could do to change her circumstances. She settled on real estate and started saving her money.
When she saved enough, she bout a house with a basement, main level, and upper level. She rented out the basement and upper level, lived on the main, then rinsed and repeated. By the time I came into existence, she owned multiple homes.
You can do that too.
The beauty of investing in residential real estate is that you can purchase a multifamily home (1 – 4 units) with the same loan programs used to purchase a single family home.
This means that you can qualify with the same down payment (3.5% for FHA), the same debt to income ratios and credit requirements and purchase a home with a total of four living spaces. Be mindful to search for properties with 1 – 4 units only; properties with 5 or more units are considered commercial property and have different loan requirements.
What does this mean for you?
Let’s say you purchase a triplex ( a three-unit property) you live in one unit and rent the other two units to tenants. The rent amount required by the tenants will be paid to you and can be applied to offset your living expenses or cover your living expenses in total.
A few examples:
1. The mortgage on your triplex is $1,000.00. Your two tenants pay $500.00 each in rent. You tenants are now paying your mortgage allowing you to free the money that would normally be allocated to your mortgage payment allowing you to save or invest at regular intervals during the duration of the lease.
2. The mortgage on your triplex is $1,000.00. One tenant has moved in and is paying $500.00. You are now responsible for only $500.00 of the monthly mortgage allowing you to leverage the remaining 50% in whatever way you see fit.
3. The mortgage on your triplex is $1,000.00. Two tenants have moved out and only you remain. You are now responsible for 100% of the mortgage. Because you qualified for the home loan, the mortgage payment is accessible and you are not stretched too thin. Once a new tenant moves in, you will no longer have to pay the entire mortgage.
Let’s take a look at available financing options. I’ve included three of the most common options below. I’m including generalized information here, feel free to contact me with specific questions about qualifying for home loans.
Please note: the minimum scores listed are just that minimum aim to get your score as high as possible to receive the best terms.
The FHA loan is an attractive option for buyers because of the low down payment and credit score minimum.
Calling all veterans! If you have served your county and received an honorable discharge, the VA loan may work for you. The VA loan will finance a single family home with up to four units.
Conventional financing offers great options. One reason why this loan is so popular is the option to not have private mortgage insurance (PMI) included in the loan.
As you are starting to set money aside for your real estate investments, also start researching Property Management companies.
Hiring a property manager will enable you to delegate maintenance and management to a separate company allowing you to freedom from day to day needs (no 2am plumbing emergencies for you!).
Property Managers are the tenants direct contact. Managing rent payments, service requests and emergencies are all tasks that fall into the Property Managers purview.
You can create a system with them to provide you with updates and include you in all service decisions that cross a monetary threshold along with monthly reports for your property. This service that can come in handy when you’ve got your hands full living your life.
Making the decision to invest in residential real estate can change your financial life. Due your research, find your team (real estate agent, loan officer and property manager and attorney), and purchase the property.
You can do this!
Article written By: Kaysha Cranon: