Money While You Sleep

It’s a classic model for wealth building, if you’re old school. We’re talking about getting a building that’s got two or more apartments, living in one, and renting out the other(s). The property type would be called ‘multi-family’, and one can get a residential loan to finance the purchase, up to a 4-unit building. More units than that, and one would need a commercial real estate loan.

So I keep thinking about these two new listings of mine, one at 2609 w Jackson, and the other at 109 s California, in the area of East Garfield Park. We have listed the properties at $160,000, and $150,000.

With Jackson, the downstairs brings in income of $920 per month; the upstairs $950. Both tenants have been there for years, which means they’re happy to stay. Let’s say that an owner, who wishes to occupy takes the upstairs. I’ve been told that, because these properties are in underserved areas, special loans exist whereby an owner occupying buyer can put down as little as 5%, or $8,000. Taxes go for a penny less than $3,700 per year, and insurance, let’s say is $1,200 per year. With the simple math, the monthly payment works out to be around $1,245.

So with the income, the rent covers 76% of the monthly payment.

Over time, rents will increase, which means that percentage increases.

I’m thinking that if one continues to pay ‘rent’ of $950, into like a building fund, the first year, that fund value would be around $7,500. After five years, if nothing is used from that fund, A person would amass $37,500.

Other uses for part of that money, could go towards paying down the mortgage, which would start at around $152,000 the first year, and get reduced pretty quickly with an additional amount, like say $300. Of course once that mortgage goes away, the rental income becomes regular, monthly income, just like payment from a bond.

Pretty sweet deal.


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