Own a Rental Property; Boost Your Affordability and Wealth-Building

For purposes of loan “preapproval,” most loan reps assume that you’re buying a single-family house or condo. The loan rep might say that, based on your income andmonthly payments, the bank would loan you $200,000. If you’ve got $50,000 for a down payment, you could look at houses (or condos) in the $250,000 price range.
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Now see how much more you could afford to borrow if you bought a fourplex, lived in one unit, and rented out the other three. Since your rental income from three units will expand your borrowing power, you could buy a property worth say $600,000 (instead of $250,000).
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If each of these potential properties appreciates at 4 percent per year, and if after five years the mortgage balance on each falls to 92.5 percent of the original balance, you can see in Table 1.1 how your equity would build with each property.
The part home, part rental fourplex expands your affordability and boosts your networth by $173,250 (vs. $70,000 for the house).The fourplex more than triples your original cash investment.Although specific property
Table 1.1 5-Year Equity Buildup

#	Single-Family House	Fourplex
Purchase price	$250,000	$600,000
Amount financed	200,000	550,000
Appreciated value @ 4 percent p.a.	305,000	732,000
Mortgage balance year five	185,000	508,750
Equity	120,000	223,250
Original down payment	50,000	50,000
Investment gain	70,000	173,250