I have equity in my home, now I want a multi-plex. How do I get there?

Filed Under Home Owners, Investors, Landlords · Tagged: , , , , , , , ,  

Case Scenario:

You are a single person with a home you have owned for 7 years.  You have roughly $100,000 in equity and you would like to buy a four unit multiplex.

 

How should you go about it?  Take out a 2nd with a mortgage broker or a direct lender bear in mind that the higher the loan to value ratio on your home will be, the higher your rate will be.  That becomes your down payment and you can purchase a 4 unit rental in the price range of $400,000 to $500,000.  I would be inclined to go higher and get larger units with nicer amenities such as 3 bedrooms in combination with 2 bedrooms, garages and fireplaces.  This makes the units attractive to a higher priced tenant and gives you ability to push rents as a nicer unit.

 

What are the pros and cons of this scenario?  Borrowing the equity in the form of a 2nd could increase the debt service “against” the 4 plex so that you do not have any cash after debt service.  Benefit in foreseeable future would be write off and increase cash flow with pushing of rents at turnover or on an annual basis.  4 doors require more energy than 1.  Harder to sell a multi family in a pinch.  Harder to tap the equity of the rental, if not impossible, without refinancing first mortgage.

 

March 29, 2009 by ·