I want to buy a house within 12 months (March 1st, 2014)
As of the launch of this blog (3/1/13) I have spent $23,550 in rent. I’m not okay with that.
The plan is to buy a multi family home, live in one section, and rent out everything else.
These numbers will change as I get closer to my goal and this plan becomes a reality.
A three family home for $600,000
That’s a pretty good ballpark estimate for Astoria, Queens (where I have rented since 2011).
An FHA loan only requires 3.5% down, which is $21,000.
So I need a loan for $579,000.
Let’s add up the numbers:
Today’s estimated mortgage rate: 3.625%
as of 3/1/13 via Wells Fargo
A 30 year mortgage with $21,000 down will cost $2,640.54 per month (according to this mortgage calculator).
A one bedroom apartment in Astoria can easily generate $1,400 per month (I know because that is what I’m currently paying in rent).
So I occupy one section, I rent out the other two sections at $1,400 each (I can charge more if one section is a two bedroom) .
I pay the bank $2,640.54 per month. My tenants pay me $2,800 per month ($1,400 x 2 = $2,800).
I live rent free in NYC and I put $159.46 in my pocket each month
But I’m not naive. That’s assuming a 100% occupancy rate. It’s better to calculate an 80% occupancy rate. It’s also important to account for repairs, taxes, etc.
So let’s just say that one year’s rent at 100% occupancy would be $33,600 (12 x $2,800 = $33,600). In this scenario, I put $1,913.52 in my pocket (12 x $159.46 = $1,913.52).
But a more realistic scenario is an 80% occupancy rate, which is $26,880 ($33,600 x .8 = $26,880). That changes things a bit.
If I pay the bank $31,686.48 per year ($2,640.54 x 12 = $31,686.48) and I am collecting $26,880 per year, that means I will pay $4,806.48 per year to live in NYC.
So “technically” I won’t be living rent free, but that’s only $400.54 per month! That’s unheard of in NYC.
It’s still a good deal.
I need to learn my market well enough to spot a good deal in an instant. If I can get a discount price…the financial difference can be exponential.
So how do I get $21,000?
I know I must also factor in the FHA insurance premium, closing costs, and operating expenses while finding first tenants, etc.
I currently have two jobs as an interactive designer (web/front end designer & graphic designer). I am also actively freelancing. Combine that with being a newlywed (I got married in September) and there’s not much time for anything else.
Mathematically, I should be there within nine months. But life always has its unexpected turns…so I’m giving myself 12 months to save up $21,000.