Let’s say you build a 3-bedroom 2.5 bath home with an unfinished basement and borrow $400,000 to get it – and you want to pay for the home for half the cost. Using the guild mortgage calculator (https://www.guildmortgage.com/mortgage-calculators/total-mortgage-payment-calculator/), you borrow $400,000 for your home at 6.5% interest, your monthly payment with PMI and Escrow comes in around $3,200.
The home for half the cost: How To Do It.
Now, let’s say you build the same home with the same conditions, but pay $50,000 to finish the basement for a rental (make sure to put an outside or garage entrance to the apartment).
Let’s do the math (https://www.guildmortgage.com/mortgage-calculators/total-mortgage-payment-calculator/). Your monthly payment rises to roughly $3600 per month, but you rent the basement to a couple for $1200-$1800 per month (depending on the market). ßMake sure you know the rental market before building the home.
Because you finished your basement and made an apartment, you now have 2wice the home for half the cost!
- It may not cut your payment in half, but renting almost always makes your payment less than an unfinished basement without renters.
- You must share your home, but…you can have almost anything you want as long as you are willing to share it. ßRead that again!
To keep the costs down, build as small a home as possible. Both floors can be similar or identical to each other.
Then… as soon as you can, build another home…perhaps like your first home with a few improvements…and perhaps in the same neighborhood. When it is done, move into the new home and get renters for your new home’s basement apartment.
Also, rent the top floor of your first home to a couple (Most cities consider four unrelated people as a family, so you can move four roommates into your first home, or two couples).
Make sure your home pays for itself with renters before you design and build any of the homes.
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Start as soon as you can while you and your family are young and agile. You can see the difficulty of this strategy when you are forty with three children. But for the young and agile, it provides many opportunities and multiple future incomes.
Remember, you pay very little as a down payment when you move into a home as compared to the 20% down required by banks when you don’t move into the home. That is why you want to make these moves when you are young, able, and willing to move.
On the other hand, if you can afford to put 20% down you will not need to pay the PMI.
You may also want to figure in a 10% property management fee, so you don’t need to worry about finding tenants and maintenance of your properties.
Why build your home as small as you can? Because this keeps your mortgage payments as low as possible. You cannot house families in your homes because only four unrelated people can live in each home.
In other words, you cannot have a family of five and a family of three living in a home. This violates city ordinances. You can have only four unrelated people per home (two on each floor).
Young couples make great tenants because they are seldom home, and they do minimal damage to the home.
Keep your rental homes nicer than most (this is why you buy new ones) and try to keep your price a little lower than other apartments in the area. It is always good to help others, and with slightly lower rent, your tenants may stay for several years. They literally cannot afford to move 😊.
If the market is right, try to sell your properties after seven to ten years. At seven to ten years, the homes still look new, but after ten years, the homes look out of date and often need major repairs such as flooring, a new furnace, water heaters, or appliances. Use the profit from the sale of your homes to buy more new homes. (Think of the game “Monopoly”).
Even if you build a “forever home,” you can design the home with an apartment in part of your basement or above your three or four-car garage, getting the home for half the cost. You cannot hear your tenants if they live above your garage.
Have access to your apartment in the garage with a wall separating your garage from their apartment entrance. By finishing an apartment, you pay more for your mortgage, but with renters, you knock $1,200 to $1800 per month off your mortgage payment.
Remember, don’t worry about having tenants, because you are the one who vets them 😊. Yes, you can get a home for half the cost!
At Poulsen Home Design, we can help you do this. Contact us today!