To buy or to rent? That is a common question that most people ask themselves. Home ownership is the best option because it’s a sound form of investment. Compare the following fact:
Did you know that an average American family has a net worth of $77,300. Out of this amount, about 61.4% is in home equity. When you compare the net worth of home owners and that of renters, you will realize that homeowners have more than 30 times net worth than that of renters.
Also, the average homeowner has a net worth of $174,000 while the average renter has an average net worth of $5,100.
Single Family vs. 2-4 Units Multi-Family
What are the advantages of buying multi-family homes as your primary residence compared to a single-family?
- You can use your monthly cash flow to pay the property’s mortgage
- Lenders typically offers a more favorable loan interest rates to those purchasing a primary residence
- Property management is easy
- It opens you to real estate investing (house hacking)
- Tax benefits
- Depreciation hedge
- Forced appreciation benefits
A Real Case Study Of House Hacking Multi-Family Homes
The formula for NOI (Net Operating Income) is:
NOI = Real Estate Revenue- Operating Expense
Understanding the 1% Rule and How It Works
This simple calculation multiplies the purchase price of the property plus any necessary repairs by 1%. The result is a base level of monthly rent. It’s also compared to the potential monthly mortgage payment mortgage to give the owner a better understanding of the property’s monthly cash flow.
Let’s calculate the 1% of a 2- Family property in Worcester.
Key Features:
- 4 beds
- 2 baths
- 1,320 Square Feet
- Built in 1890
- Purchase Price – $117,000 Rents $2,050
- R/V=$2,050/$117,000 =1.7% – Excellent Return
It was fully occupied by February 2017 (bought in January). Additional repairs that were done including back staircase repair, Unit 1 bathroom repair and painting, gas pipe replacement, appliance repair, chimney repairs, partial roof and ceiling repair.
The property appraisal came out like crazy to $195,000. I decided to cash out and I immediately invested in another property to live rent-free life.
Bought another 3 – Family Property a year later in Worcester with FHA of 3.5% less for $285,900. Rent was $2,600 per month. Total expenses were $400 per month, amortized over 12 years. Expenses are water, common electric, snow removal and repairs though tenants pay all utilities.
Mortgage, interest, taxes and insurance were $2,000 while cosmetic repairs were $10,000.
Net cash flow = $2,000 per month
Today’s value = $370,000
Cash on cash return = $2,400/$20,000 = 12%
So, why not Owning vs. Renting?
Boston Market is hot and offering almost no Cash Flow advantages, however appreciation. If you wish to Cash Flow from day one, The Gateway Cities Like Worcester, Fall River and New Bedford in Massachusetts is your answer to owning a home and living rent free, while breaking into real estate investing. Find Me On Facebook to chat more.
Let’s conclude by a famous quote by Nelson Mandela who once said that “It always seem impossible until it’s done”.
