Skip to main content

Real Estate Financing


It’s not easy to buy a first home, so here’s a suggestion that may be surprising: Instead of buying one residence, buy several. What I’m suggesting has nothing to do with late night infomercials or books that promise fast and easy wealth from real estate. Instead, many first-time buyers can benefit from an interesting quirk in the mortgage system.

When you hear people talk about “real estate financing” they generally divide mortgages into two categories; loans for owner-occupants and more expensive and tougher loans for investors.

“Investment financing” is for buyers who do not physically reside at a property. “Owner-occupant” loans are for homes, the places where we stay at night, the phone rings and the car are parked.

But there’s a wrinkle:

Owner-occupant financing with little down and low rates is typically available for the purchase of more than a single-family house. Normally you can get owner-occupant financing for properties with one-to-four units as long as you use one as your prime residence.

In other words, your status as an owner-occupant allows you to buy more than just a house or condo. You can actually buy property that produces rent and increases your tax deductions.

When you buy properties with two-to-four units the world of real estate financing changes. Lenders will apply most of the rent to your income for qualification purposes. This means you can borrow more — and also that you can offset loan costs with the rents such properties produce.

Suppose you buy a property with four units. You’ll live in one and rent the others. Each of the three rental units has a fair market rental of $1,000.

In this situation, you’re likely to get two benefits. First, the lender will count some portion of the rent — say three-quarters — as income for you when determining your qualification standards. In other words, $2,250 a month will be added to your income. ($1,000 x 3 units = $3,000. $3,000 x 75% = $2,250)

Why $2,250 and not the whole $3,000? Because the lender assumes you’ll have vacancies, repairs, insurance, taxes and other costs for the rental units.

The lender also assumes something else: For tax purposes, three-quarters of the property in this example will be “investment” real estate. When reporting your income taxes you’ll list your rents and costs for these units. One of these “costs” will be depreciation, an accounting device that will lower your taxes but take nothing in cash from your pocket.

When lenders see depreciation they “add back” that cost when looking at your monthly income. The result is that your effective monthly income for loan qualification purposes will increase even more than $2,250 in this example.

Buying two-, three- and four-unit properties can make great sense, especially for first-time buyers. You’ll have “help” meet monthly mortgage payments, especially in the first few years of ownership — the time that’s often the most difficult. Later on, if you elect to move you can sell the property or you might choose to keep it and just rent out the unit had been your residence.

As with all investments, neither annual income nor rising property values can be guaranteed. Some owners may feel uncomfortable having tenants so close and there’s always the potential for insufficient rents, excess vacancies, and big repairs.

Also, beware of going too far. While up to four units are okay, five units automatically classify the property as “investment” real estate under the guidelines for most loan programs, a title which means you cannot use owner-occupant financing even if you live on the property.

The good news, though, it that as an owner/occupant and also as a landlord you’ll learn a lot about the practicalities of real estate investing.

Real estate ownership requires ongoing maintenance and oversight. As an owner-occupant with a few units, you’ll learn “on the job” about making repairs, dealing with tenants, hiring contractors and maintaining the property. These are valuable lessons which can provide income and wealth over a lifetime. In fact, many people who’ve become successful in real estate often started with just one small property, owner-occupant financing with little down — and two to four units.

For details, speak with appropriate professionals. Lenders can tell you about available financing; real estate brokers can provide information regarding local rental patterns plus you’ll want a pro to explain the tax benefits of multi-unit ownership.


Get more useful info from this article.
here are the findings

Comments

Popular posts from this blog

2018 Chevrolet Camaro GT4.R Race Car for sale on BaT Auctions - sold for $143,000 on May 19, 2024 (Lot #147,530) | Bring a Trailer

https://ift.tt/kvlwOtg https://sites.google.com/view/golden-pipe-depot/plumber-supplier 2018 Chevrolet Camaro GT4.R Race Car for sale on BaT Auctions - sold for $143,000 on May 19, 2024 (Lot #147,530) | Bring a Trailer This 2018 Chevrolet Camaro GT4.R is number nine of 14 examples built by Pratt & Miller Engineering and was campaigned by Rebel Rock Racing of DeLand, Florida in the IMSA Michelin Pilot Challenge until 2023, during which it secured a victory at Sebring International Raceway along with third places finishes at Road Atlanta and Virginia International Raceway. The body is finished in multicolor livery, and power comes from a replacement 6.2-liter LT1 V8 mated to an Xtrac six-speed sequential manual transmission and a Salisbury-type limited-slip differential. The race-prepped cabin is protected by a roll cage and fitted with a Racetech racing seat, a Schroth harness, a MoTec digital display, a fire suppression system, and a rearview camera. Additional equipment inc...

All the Top New Gadgets at IFA 2024 | WIREDMenuStory SavedSearchSave this storySave this storyXLargeChevronFacebookXPinterestYouTubeInstagramTiktok

https://sites.google.com/view/temperature-pro All the Top New Gadgets at IFA 2024 | WIREDMenuStory SavedSearchSave this storySave this storyXLargeChevronFacebookXPinterestYouTubeInstagramTiktok To revisit this article, visit My Profile, then View saved stories. All the Top New Gadgets at IFA 2024 If you buy something using links in our stories, we may earn a commission. This helps support our journalism. Learn more. Please also consider subscribing to WIRED Europe’s premier tech conference, IFA, has kicked off and is serving up a smorgasbord of new smart home devices with a light smattering of phones and other consumer tech. After running to press events and stomping the hall floors in Berlin, I've found the best morsels for your delectation. From folding phones and smart security cameras to home energy management solutions and self-emptying vacuums, these are the most noteworthy product announcements from the tradeshow. Updated September 6: We've added a few more cool things w...

Church Services Online Kenosha WI 53142

The Church of God in Kenosha WI invites you to come as you are and experience the love and grace of Jesus of Nazareth. The Church has a several fold reason for existing in the world today. These important purposes are divinely originated and are found in the New Testament. The Bible declares that Christ came to “…gather together in one the children of God that were scattered abroad” (John 11:52); see also Ephesians 1:10. Jesus set His Church in order as that “one fold” (John 10:14-16) in which Church Services Online The Church of God 12624124499 6412 22nd Ave, Kenosha, WI 53143 https://sites.google.com/view/the-church-of-god Supporting Sources photo Church Services Online Kenosha WI 53142 document Church Services Online Kenosha WI 53142 MS Doc Church Services Online Kenosha WI 53142 PDF Church Services Online Kenosha WI 53142 367978 newbie from kenosha wi Hi Everyone! I just found out about this great community and wanted to take a second and introduce myself. My name is Benjamin Orti...