How to build equity in your home by having someone else pay the mortgage...
Regardless of whether you are graduating high school, college, or just deciding to stop paying rent that goes into someone else’s pocket, buying real estate is a good choice. Real estate is generally the most expensive investment any of us will ever make. Why not make your first (or any home purchase) investment one that pays for itself?
“How do I do that?” you ask. First, consider buying a duplex or other multi-family home. When bought right, the rental income from the unit(s) you do not live in will pay for the entire mortgage. In some markets, where there is a real lack of rental properties, the rental income may even cover the cost of insurance and property taxes, as well as the mortgage.
If you are buying your first home, then you qualify for a first time home buyers loan. These loans are offered at little to nothing required for the down payment. This means that you get to leverage other people’s money. “What does that mean?” Essentially, you get to purchase a home with nothing out of pocket, while reaping the benefits of getting a rental income.
Here is an example to illustrate the this zero cost option:
• You find a duplex for sale for $125,000. After some negotiations you agree to a purchase price of $110,000.
• The $110,000 loan is acquired with $0 down payment, and a payment of $541/month at 4.25% interest.
• $2400/year property taxes = $200/month
• Insurance cost expected to be $1200/year = $100/month
• Rent for 1/2 of the duplex is expected to be $850/month.
• Cost breakdown: (541 + 200 + 100) - 850 = -$9/mo.
The above example shows how a person can purchase a home with no money of their own, and actually come out with $9 per month in positive cashflow. (NOTE: As a homeowner, you will be responsible for any maintenance or repairs that are needed, so I am not saying you will not have any costs, but it pales in comparison to the money you would be giving to someone else if you rented.)
Although there is nothing new or earth shattering here, many people overlook this simple way of building equity and keeping more money in their pockets. If you or someone you know can benefit from this, please share it with them.
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