Multi Family Purchases 5 Things to Consider

Full Video Transcript Below

[00:00:00] Well, good morning. Real estate fans, Alice Lema here, broker John L. Scott back with another edition of the weekly podcast. I am down in Southern Oregon Jackson county, Josephine county, a little bit of Klamath county. And today our podcast is going to be talking about how to determine if a multifamily property would work in your life for you, for your family and also how to make it pencil, that pencil word.

[00:00:29] So before we get started, let's give you a quick minute to subscribe to the channel also was so happy, got an email from YouTube this week, we passed 100 and we think Molly was her 100 subscriber. So I guess that's a big deal to YouTube. It was a big deal to me. It's a big deal to our team. Thank you so much. Thank you. Thank you. You know, give us a thumbs up, give us some comments. If you don't like it, give me give me some feedback. This is an educational endeavor, and we want you guys to be getting something out of it. So keep me informed.

[00:00:57] And now on to the podcast, we've got five ways to see if multifamily purchases would work for you and your family and create wealth building and financial stability for your future. So, first of all, I want to talk about if you see something online or you drive by either a duplex or triplex or fourplex.

[00:01:19] And I guess you could do this with larger units too, but most of us are buying with a residential mortgage, which means you're going to have a duplex or triplex or fourplex because that's all residential mortgages let you do. And the first thing we're going to talk about is if you're going to be buying a house you look at these and say, well, what would it cost for me to buy two houses or three houses? So a lot of these units are main houses and cottages, and at least in our area, a main house could be anywhere from 3 25 to 425k, and then a cottage would be anywhere from probably 315k to close to 370k

[00:01:55] so now you're looking at five, $600,000 to buy two houses. We're in a multi-family situation, you might be able to pick up one of those properties with a main house and a cottage for five. And I know those numbers are huge and I don't want to scare anybody, but all of the sudden you just want to compare what it would cost if you were to buy those houses separately. So that's the first thing to determine is what would you spend on those individually?

[00:02:24] The second thing to ask yourself is if you were a tenant and you did not buy a property at all, then what would you pay and, and look at what those units are renting for in your area and do a little homework on the history, because the rents are kind of high right now in some of the areas, because of the shutdowns and in our area, because of the fires. And so that may or may not be a sustainable rent. And I like to tell people if you're going to look at being an investor at all, a landlord at all, come up with what you can expect for rent that's realistic, and then wipe off 10% or 15% for the downtime and we never know what rents are going to do because they have their own cycle and they are affected by their own economic conditions. And it's a little bit detached sometimes from the purchase market.

[00:03:16] But if you go in and put a big enough down payment or you keep rents, your rent ratio to your mortgage you know, at a good proportion, then you won't have to worry when the down times, down times come because they always do. And you don't want to make yourself vulnerable to the downtimes because you didn't process your numbers correctly. Okay. So make sure you have a good distance between your rent and your mortgage and save a bunch of money when the times are good, if you're the landlord. So that whole section. Math problem is figuring out what you would pay in rent if you didn't buy. And then also what you can expect realistically, in rent, if you become the landlord.

[00:04:01] And if you're going to be a landlord, then deduct 10 to 20%, 10 to 15% just in case you have a downtime with the, with the rental market and you can still make your mortgage.

[00:04:14] Okay. So number three is what if you live in one and rent the other? So this is my favorite scenario, because a lot of times, especially with the low interest rates, you can have the tenant be making all your payment or most of it.

[00:04:30] And that's super great. And I'm not encouraging people to raise their rents to the top of whatever is allowed to realistic. I always recommend more of a medium rent charging about a medium or a high, medium. You also get more traces of tenants. But you also have to, like, we talked about number two, it has to pencil for you and your life, and you have to be able to make your mortgage, but living in one means you qualify for what's called an owner occupied mortgage. And that allows you to put a smaller down payment and get a better interest rate because you're living in it.

[00:05:05] A lot of these mortgage programs do not want to give investors a break, but they'll give homeowners a break. So if you're willing, if you can stay on living in the proximity of your tenants, then living in one and renting out the other is awesome. And it's a great strategy, especially for first time home buyers. And I know a lot of first time home buyers just go right into their own house, but think about it. Think about getting a duplex or a house with a cottage. And I, again recommend living in the smaller one so that you could get more rents out of the big one, but not everybody, you know, wants to live skinny like that, like I do.

[00:05:46] You can get a really nice proportion and it will look good to the lender if you do decide to live in the smaller unit. And then, you know, after a few years you can move out and go on to, to whatever your next purchase is. But that idea of living in one and renting out the other is awesome.

[00:06:05] The other thing is at least in the state of Oregon, The landlord owner who lives on the property may have more rights as a landlord than they do if they don't live on the property. But depending on when you're hearing this broadcast, you'll want to check with the local landlord tenant experts and just see kind of how things are rolling because in Oregon it can change, you know, all the time and does but that live in one and renting the other is great, especially for first time home buyers. So think about that.

[00:06:34] Number four is what if you rent both of them out. So if you're going to do that, and it's a purchase, you're purchasing a duplex or triplex or fourplex, and you're not going to live in any of them, then they're going to want 20% down or more because they're treating you like an investor because you're a business person and their minds at that point. So sometimes that's just too much cash for a lot of us, but if you can do it again, it pencils better because that big down payment makes your mortgage smaller. So that's what a lot of us, you know, hope to aspire to in the future.

[00:07:09] If we're using a rental income as our wealth building our retirement or our financial stability plan then we've got number five, which is living both or live in all of them. And it's not that one person is going to live in all of them, but you're going to have your extended family your near family.

[00:07:27] I think there's rules. The lenders have about when, who qualifies as immediate family. And then at that point, though, if it's rented, you're going to be displacing all those tenants. Sometimes we have to do that. Sometimes that is just part of the natural course of things. It's not a fun, it's not a fun thing to do, but if your family needs that kind of multi unit environment for you to have what you need in your life, then that's what it goes. And I'm really helpful with those tenants. We try really hard to relocate them. A lot of them have been great tenants. So it doesn't have to be a disaster, but what, going back to you we have, sometimes we have people that are terminally ill. And they need the relatives around them and they're doing this group purchase.

[00:08:13] So that's their end of life care. We also have a similar scenario for elders where we have them living in on a property with other dwellings. And that is their end of life care. We also have millennials moving in with their cousins and their like relatives. Close, extended family and that's really, really great.

[00:08:33] Yeah. And then it's, it's security for everybody. And if the rents continue to go up every year, even half of what they have been, then I think the tenant population in general is very vulnerable. And this idea of pooling your resources together so that you all have some financial security and wealth building is a great idea.

[00:08:56] And if tenants are going to be displaced if it's in Southern Oregon, let me know, I'd be happy to help relocate them. I have a list of landlords. I have a list of tenants. We do try to kind of behind the scenes, help relocate them. And then I've noticed a lot of the property management companies if you have good tenants, they will help relocate them too. So those are kind of the five ways multifamily units can be a positive in your life and the different ways you can do it.

[00:09:23] Just a quick note, if you are going to do some kind of group purchase, check out my other videos about doing that. I've got a one that's a mortgage before matrimony buying with romantic loved ones. I've also got group purchases with friends and family. So you just want to kind of go through where the landmines are and also be prepared for the good side and get everything in writing, writing, writing, writing helps everybody.

[00:09:46] All right. Okay. So that's it for this week. Hope you have a beautiful weekend. Hit me up if you want to talk about real estate this weekend 541-301-7980. Thank you again for the a hundred subscriptions. We'll see you next week. Bye.