By Brian Sacks, Author of The Real Estate Loophole
We all know that rents are rising and so are interest rates. Home prices, however, seem to be moderating, or even dropping in many areas. This has caused many first-time buyers, seniors, and others to evaluate their situations and look for the best alternatives to make ends meet.
In this article I will share with you a legal real estate loophole that very few consumers are aware of, and even fewer take advantage of.
What if I told you there was a way to:
- Have others cover your full mortgage payment each and every month.
- Create a side hustle income without needing to go to a job or go online.
- Purchase an investment property and primary home at the same time.
- Create large income tax benefits that help you keep more of what you earn.
- AND that all this can be done with very little down payment, often as low as only 3.5% and if you are an eligible veteran, you can buy with zero down.
- AND contrary to popular belief, you also do not have to have perfect credit. Oftentimes credit scores in the 600’s can be acceptable.
A few months ago, I had a couple in their 50’s who came to me to be qualified for a home loan. They were very frustrated because they had been searching for months and were not able to qualify for a home in the neighborhood they wanted.
As they searched, rates continued to go up, which made it even less affordable for them to buy. They each had a respectable job but had taken on part-time jobs to try to make ends meet.
During our conversation they also mentioned that they were debating whether to buy a home or continue renting, since their rent was rising each year, or to buy an investment property and continue renting.
The answer to their questions is why I wrote The Real Estate Loophole.
Most consumers go house hunting for a condominium, single family home or a townhome. But there are other properties in each city and state that are multifamily homes.
The Real Estate Loophole is all about purchasing a 2, or 3- or 4-unit homes. Anything over 4 units is considered a commercial loan with different terms than are described here.
Let us take a minute and look at an example of how this works. Let us assume that we are looking at a 4-unit home. You will live in one of the units as your primary residence. The other 3 units will be used as rentals.
SALES PRICE = $550,000
Your mortgage payment on an FHA loan with only 3.5% down at a rate of 7% would be approximately $4,500.00 a month including property taxes, homeowners’ insurance, and mortgage insurance.
The rental rates are:
Unit 1- 2 bedroom – $2,300 /month
Unit 2- 2 Bedroom – $2,300/month
Unit 3- 1 bedroom – $1,500 a month
Unit 4- 2 bedroom – you live in this as your primary home.
Total rents received at 100% occupancy = $6,100
Total mortgage payment before vacancy and expenses-=$4,500
This means that at full occupancy you would have your full mortgage payment covered and have an additional $19,200 in income. That is the side hustle income I was discussing. In addition, since the other 3 units are rentals, you would also have some tax benefits you can use like depreciation and other related expenses to shelter your income. Best of all you can and should raise rents annually while your fixed rate mortgage payment will not change.
So, what is the downside?
Just like any opportunity it is always a good idea to discuss some of the possible downsides.
You will now have other people living in the same building. But if you currently rent in an apartment building there really is no difference other than owning this building.
You will have to maintain the property and make repairs. You will also be responsible for collecting the rents each month and filling units when they become vacant.
If you can deal with these possible downsides, then you should consider taking advantage of the Real Estate Loophole.
Before we conclude let me share with you how the couple, we discussed earlier solved their dilemma and home search frustrations. I mentioned the Real Estate Loophole concept to them, and they were truly overjoyed, since this was not an option they had ever considered before.
It allowed them to find a home and an investment property at the same time. The rents they collect cover their mortgage payment and allowed her to quit her part time job.
But the best part for them was that they were able to buy a 4 plex in a neighborhood that they thought they could never afford since the income from the other 3 units were able to be counted as qualifying income for their mortgage.
Is it time for you to consider taking advantage of the Real Estate Loophole? You can learn more here https://www.therealestateloophole.com/
About the Author
Brian Sacks is a nationally known mortgage and real-estate expert. Since 1985, he has closed over 5,325 mortgage transactions totaling over $1 Billion in production. He has authored courses for the Mortgage Bankers Association of America and has written for numerous industry publications. Brian has conducted classes for realtors in the Baltimore area for over 3 decades and has authored courses approved for realtors continuing credit accreditation. He has appeared on over 43 radio stations as a mortgage expert as well as ABC, NBC, CBS, and Comcast TV as a mortgage financing and real estate expert.