First, a little background. My wife an I lived in this community for the last 4 years, moved for a different job six months ago, then realized how much we really loved the community we had left. This town has seen astronomically inflated house and rent prices within the last few years. For example, the rent house we were in prior to leave cost us $525/month. That house is now renting $950/month. Another example, an 1100 sq ft house was purchased in 2009 for $45,000. It is now on the market for $78,500 with little renovations that took place during that time. We've looked at a couple houses, but I can't bring myself to pay the current asking prices. We have luckily found a rent house for $600, which is an absolute steal at this time, and signed a 6 month lease on it buy us some time in looking for a house.
This is what I've found, it's the realtor's description:
$150,000.
The fourplex was built in 1925. The fourplex consists of 5 bedrooms and 2 baths, totaling 1,296 sqft. m/l. There are two apartments upstairs and two downstairs. The fourplex is currently occupied.
Apartment A: 425 sqft. m/l, 1 bedroom, 1 bath, central heat, window units, stove and refrigerator.
Apartment B: 2 bedroom, 1 bath, central heat, window units, stove, refrigerator.
Apartment C: 400 sqft. m/l, 1 bedroom, 1 bath, built in ac unit, forced vented heater, stove, refrigerator, microwave, king bed, and couch
Apartment D: 400 sqft. m/l, 1 bedroom, 1 bath, built in ac unit, appliances, forced vented heater
This property also includes an additional home. This home is 660 sqft. m/l. It is a 2 bedroom, 1 bath home, built in 1928. The home includes 2 window units, a floor furnace, gas water heater, NEW Pex plumbing, and a basement with outside access. To add to this deal, the shingles were replaced April 2013.
I am assuming several things at this point in time:
1) The use of a USDA Rural Development Loan. 30 year, requires 0% down (I'll explain why later), at roughly 4.75%, making a payment of around $782/month.
2) The current apartments are rented at ~$400/each, seemingly a conservative number.
3) My wife and I would live in the 606 sq ft house located on the property and continue to pay $600/month toward the total mortgage.
The property is located 1 block from the downtown area of this town, across from a grocery store, and across the street from the hardware store/lumber yard. All are pluses for biking and a decreased fuel bill.
Monthly Numbers
Fourplex income: $1600
Our house: $600
Total: $2200
Actual Mortgage payment: $782
Net: $1418
1/2 for repairs: $709
Profit: $709
It seems to meet the 1% rule. Since this would be my first home and rental property purchase, I would plan to use the first several months' profit to gain money for rental expenses. After that, the profit would be used to pay down the mortgage. This would bring the total we would pay on the mortgage to $1491/month. Based on some quick numbers that I cam up with, this could potentially mean the entire mortgage is paid off in around 12 years.
THE KICKER: At the present time we do not have enough for a 20% down payment. Our current savings amounts to about $9000, with a potential $10,000 falling into our lap within the next two months. Also, I plan to sell my 2004 Nissan Titan for $5000-6500 once we get moved and start driving a 1995 Ford Probe that my dad is giving me.
We are fairly new Mustachians, but most months we save between 30-40% of our net income. It's not where I would like it to be, but it's getting better.
First, should I do it? I wanted to pay cash for a house, and it grinds my gears to pay PMI. However, the overall deal seems logical at first glance.
Secondly, what other expense do fourplexes incur? I believe I have to pay for water, sewer, trash, insurance as well as cut the grass.
-It's also located in a college town.