Investing in a Triplex Rental Property – Conventional Mortgage versus FHA Loan

Here is a triplex investment scenario two ways, with a conventional loan and with an FHA loan. Sometimes owner occupying a rental at first makes the purchase more within reach and you don’t have to save as much up for your down payment.

Hey guys this is emily lopez and i am going to kick off our real estate investing series talking about a triplex that sold a couple years ago in our office one of the agents that work in my office um she was the broker owner at the time and she sold a property and i wanted to kind of talk to you about what it sold for and what that scenario probably looks like today

For that property owner so the house that she sold it had in the front there was a property and actually worked on this house as a contractor i was a realtor at the time but i was new so i was doing construction work on the side um for additional income and and i did some projects for the seller on this property so when the property sold it sold for 225 000 there

Was a front house that had an upstairs unit and a downstairs unit the upstairs unit was pretty good size both had access to a shared laundry space but there were two washer and dryers in there and then there was a back house that was completely detached that had a one car garage that was completely separate from the shared front house so it’s three units and two

Of them were attached to each other and one detached unit had a tool in one car garage so a couple different scenarios if this property purchased for 225 so that’s what it sold for that was the purchase price if the buyer would have used a conventional loan and put twenty percent down their down payment would have been forty five thousand dollars that’s twenty

Percent just so you can follow and their monthly payment at the time with interest rates would have been about 975 a month now i know people see these numbers and go this doesn’t work everywhere yes some places have higher property taxes some places have lower property taxes so that’s something you have to consider where you choose where to invest a lot of people

Can’t invest if you live in california it’s really hard to get into that market as an investor so maybe you look at investing in other areas there’s people that own rental property in my community that don’t live here because their money can go further so that’s something to consider but so this is their this is their monthly payment if this was their scenario okay

Now if they would have rented all three units their units probably would have rented just from seeing them and being through the property i’d say the units are running for probably nine hundred dollars a month nine hundred dollars a month and six hundred so this is probably the back house it was a little bit more outdated with the garage but it was detached and it

Had the little garage and then this was the house that had the larger unit upstairs and the smaller unit downstairs so all together the rents that they were probably bringing in for this property was 2400 a month if it’s fully occupied now if you subtract the monthly mortgage the 9.75 that puts us at 14 25 of cash flow now a month of course there are expenses

Let’s just say there’s three units let’s say they have 100 a month in expenses for these units or maybe they’re covering some of the utilities so let’s just take 300 out a month that brings us to 11 25 a month even factoring in those 300 a month now 11 25 times 12 i’m going to come up here so it’s just easier to see that equals thirteen thousand five hundred

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Dollars per year in income but you you might be looking at this saying okay well i don’t have forty five thousand dollars to invest that’s not going to work for me so this is a traditional 20 down conventional loan situation now here’s your other option same property right sells for 225 you don’t have 45 thousand dollars to put down but maybe you’ve been working

Hard saving a little bit of money and you can come up with three and a half percent well three and a half percent if you use an fha loan and you live in one of the units you don’t have to put 25 down or 20 down you can put three and a half percent down as long as you occupy one of the units for a certain amount of time depending on the clause in your loan so say you

Can come up with three and a half percent down that’s seven thousand eight hundred and seventy five dollars now i understand that this is a lot of money and when you’re starting investing the first investment property is always the hardest because once you buy one you can save that money to invest in another one and you have some cash flow but this is always the

Hardest step but let me just ask you how many of you know the new iphone is coming out this month right i know a bunch of you are about to drop a thousand dollars plus on a new iphone or you’re gonna do the payment plan so if you can do the payment plan and set aside 20 extra dollars a month or whatever they charge you to have the upgraded phone set that money aside

And start saving it for a rental property save it for something that’s going to make you money so say you’ve worked hard you’ve set this money aside you’re going to move into one of the units in this property so we did 225 down we did set or we did 225 purchase price 7870 down or three and a half percent because this is our fha scenario so fha here conventional

Loan here now when you buy a home you’re going to have closing costs if you have a loan so in this situation this buyer would have had to negotiate if they didn’t want to have additional fees they would have had negotiate asking the seller to pay their closing costs but you know what’s crazy in certain areas that’s still realistic in my market right now if you’re

In a multiple buyer tons of bit situation you’re not going to get it if you ask for closing costs but at this time it was still very common for closing costs to be paid by sellers and even now we’ll have some people pay a little bit over because you can’t hold your closing costs into your loan but what you can do is you can tell the seller as long as it appraises

I’ll pay above list price so you can pay my closing costs and then you walk away you net the same but i’m not having to fight the expense so keep in mind for this scenario because otherwise you’d have to be coming up with like 5 000 more dollars this person has asked the seller and the seller has agreed to pay closing costs or these numbers would be a little bit

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Different so keeping that in mind this is our scenario so this monthly payment this is going to be a little bit different because if you don’t put 25 down this is about that means not exactly equals if you’re not familiar with that this payment is going to be higher one because they’re not putting as much down so they’re paying interest on a larger balance but

Also they’re going to have what’s called private mortgage insurance what pmi is or private mortgage insurance is if you don’t put 20 down you are a higher risk to the lender so they’re every month gonna charge you an additional fee because you didn’t put as much down because you’re a little bit riskier it’s not insurance for you it’s insurance for them it protects

Them for taking a risk on you so you’re gonna have a higher payment so let’s say that this monthly payment was about two hundred fifty two dollars and twenty four cents but remember you have to live in one of these units because you’re doing an fha the loan a loan but three and a half percent down so you’re not going to cash flows months but say you’re smart and

You’re like you know what i’m going to sacrifice for a while and i’m going to live in the unit that cash flows the least so i’m going to live in the basement apartment in the front house and i’m going to rent the two units at cash flow more so i can have more income come in so your income is you have the back unit you have this guy right for 900 and you have

The top unit of the front house for 900 so your total rent collection a month is 18 a month 1800 a month that’s still pretty good because you know what your mortgage is only this much a month so you’re gonna make some money but you’re also living mortgage free or rent free basically right so if you didn’t have to pay your rent we’re all used to what our rent is

Or we’re all used to our mortgages if you didn’t have to pay it you could save it to invest in the next thing so if you have 1800 a month right minus the 12 52 24 mortgage then that has us at 5 47 76 a month in cash flow on top of living for free so these two units are covering your mortgage and then this is going into your pocket now maybe we had talked

About this might be for some different things right like that might you might be covering some utilities maybe it’s for some repairs sales repairs say you’re charging your two tenants their utilities and you’re on site so when the faucet needs a little repair or something needs fixed you’re doing that yourself so say you’re not paying that or that’s not as much

There’s always expenses but it’s going to be different for every unit so say you can just sack this away 547.76 a month on top of living rent free so that times 12 is 6 573 dollars and 12 cents a month or a year sorry so that was a month this is your total for the year that you could save if you did this scenario so you might not be able to start your rental

Property investing journey like this that’s a lot of money to come up with but if you start it like this and you’re living rent-free and you’re collecting and saving this money and you’re deducting all your expenses and repairs on the property when you do your taxes every year and you’re setting this money aside to be able to save up for your next property that

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You don’t live in this might be the way you have to start right i’ve heard this called house hacking where you live in one of the units um that’s a really good way to do it because if this is your scenario and you live here for a while maybe your mortgage says you have to live there a year or two years and then you move out then you rent that unit with wherever

You go next right and then your cash flowing that larger amount again on this unit so this this might be the way you have to start it but you guys i know people that have if you go to this scenario i know people that have truck payments or really fancy expensive cars and they’re paying that much a month on their car payment and your car is a depreciating asset

Unless you’re using your car for a business it doesn’t make money for you it literally loses value every single day every single month every single year right they say as soon as you drive it off the lot if you get a new car you lose a ton of value so if you wanted a new car you said you know what i’m gonna do this first and then when i have the cash flow i’m

Going to use that i’m going to invest in a property with the money i’m going to use the money i’m making this could be a car payment 547.76 a month so say you just do this and go you know what i just want an easier life i don’t want tons of rental property i just want to live run free you do it this way your mortgage is covered you’re providing someone a place

To live you’re providing them a service they’re providing you money for that this could be your car payment or this could be you know your kid’s school if you have your kids in a you know school that has some fees or their sports or whatever like there’s so many things you can do with rental property if you put your money into investments that work for you so um

Think about it this way you can’t almost start here but this is a lot more realistic it’s a lot more realistic to save this than that so i hope this was helpful for you guys this is just a start this is a triplex scenario so obviously multi-units usually cash flow a little bit more than single family units do but also like more tenants more problems right um so

It’s a little bit harder to manage multi-unit properties and shared walls and stuff like that but um there’s a lot that run property can do for you guys so i hope this was helpful um please go ahead and hit that subscribe button to this youtube channel please like this video comment below share this with your friends share this with your husband share this with

Your wife your partner um what can this do for your family and your lifestyle if you start thinking about making your money work for you so like and subscribe and um see you guys on the next one

Transcribed from video
Investing in a Triplex Rental Property – Conventional Mortgage versus FHA Loan By Emily Lopez