Is $50k/year gross too little to own a multi family?

14 Replies

Hello Fellow Investors,

I make $50k/year gross. According to Nerd Wallet, I can allegedly afford a $1500/month mortgage. I want to get an owner/occupied a multi family unit in MA, no further West than Worcester (I work in West Newton.) That puts my mortgage in the $289k range (I have excellent credit.) 

If I only make $50k/year, is this realistic? I know I will have tenants paying the mortgage, but do the numbers add up? Am I making enough money to really support a multi-family unit when it comes to evictions and maintenance and vacancies?

Also, it would take me 6 years to put 20% down on the mortgage. Is there a way I can put 10% in three years, or will that increase my mortgage payment to make the numbers even less realistic?

Thanks for your responses.
 

Originally posted by @Reese Millican :

Hello Fellow Investors,

I make $50k/year gross. According to Nerd Wallet, I can allegedly afford a $1500/month mortgage. I want to get an owner/occupied a multi family unit in MA, no further West than Worcester (I work in West Newton.) That puts my mortgage in the $289k range (I have excellent credit.) 

If I only make $50k/year, is this realistic? I know I will have tenants paying the mortgage, but do the numbers add up? Am I making enough money to really support a multi-family unit when it comes to evictions and maintenance and vacancies?

Also, it would take me 6 years to put 20% down on the mortgage. Is there a way I can put 10% in three years, or will that increase my mortgage payment to make the numbers even less realistic?

Thanks for your responses.
 

Is your income set in stone? It's hard to imagine that you would still be making $50K 6 years from now. 

Find a way to increase income (better job, side business, etc.)

@Reese Millican Good for you to be thinking this way! You can build wealth and have a roof over your head if you go about it the right way. There is tons of knowledge here on this site. Be conservative, have money set aside for reserves, and don't skip any steps in your buying process! All the best! Screen, screen!

@Reese Millican

Step 1: Meet with a banker. Or 2, or 3. Or a mortgage broker. Get preapproved for a fha Mortgage at 3.5% down.

Step 2: Meet with a realtor and tell them the dollar range and area you’re looking for a multifamily home.

Just your annual salary doesn’t tell us much. Mortgage lender will want to know debt to income ratio and many other things to preapprove you for a loan. No sense in shopping around for $300k if you can only get a loan for $200k.

Good luck in your search!

@Reese Millican have you considered real estate syndications? You can invest in this opportunities as a passive investor. Depending on the sponsor you may be able to invest 25-50K as the minimum into one of these deals. You'll be pooling your capital together with other limited partners to take down a larger asset. By taking this route you then will have passive income to fund your own personal portfolio. 

If you are owner occupying vs paying rent jump in. If it's a second investment property is when you would need more reserves and a lot larger down payment.

@Reese Millican i bought my 4 family for 415k with only a 40k a year job. They take into consideration the rental income that will be generated by the property assuming your owner occupying it. Talk to a mortgage broker and get pre approved.


@Reese Millican  

1. As others have mentioned, step 1 is to get financing in order. If going below 20% down, talk to your lender about getting a conventional loan. Compared to FHA, the rate will be slightly lower and the Private Mortgage Insurance is less. You can only have one FHA loan at a time. Also worth mentioning the lender (at least in my area) will recognize 75% of the current scheduled rents as income which will help with qualifying for a higher loan amount.

2. The returns realized in an owner occupied multifamily go beyond just the cashflow. Being it is your principle residence and also a rental you have to decide for yourself where are you going to draw the line for expenses? For example, if water/sewer is combined and you're paying the bill for both units, do you count the water bill from you side as an operating expense? Its easy to convolute the benefits when the line is not drawn somewhere. 

See the attached analysis outlining an owner occupied duplex in my market and additional comments below: 

The above analysis shows a $415,000 purchase price and scheduled monthly gross rents of $2450, 5% vacancy (this market has sub 1% vacancies) . Assuming the owner tenant pays half ($1225) and operating expenses of just under $7800 year 1, notice the (1) Pre-tax Cashflow of $1051. That number divided by 12 months ($85) is the actual out of pocket per month after expenses when subtracted from the owners original $1225. So actual out of pocket, including taxes, insurance, half of owner paid utilities (I am drawing the line there), repair/maintenance  and insurance. 

The borrower sees some other underlying returns. The first major one is the cost of your pay down. The year 1 pay down in this scenario is almost $6500. Not bad for a monthly out of pocket of $1140. The borrowing is paying down the loan for less out of pocket than if they bought a single family home. The other benefit comes in the form of appreciation. This can be done by keeping rents at market, updates, and other means of forced appreciation. 

note: The total return looks oddly high because the returns are based off the "invested equity" or down payment. Since the investor put only 15%, the denominator in the equation is low, therefore skewing the total return.