My husband and I bought our first home in 2004. For several months, we looked at both single family and multifamily properties as we struggled over which would be a better fit for us. After much debate, we ended up purchasing a duplex, which turned out to be one of the best money saving decisions we've ever made.
Owning a duplex allowed us to save money each month towards the down-payment of a single family home and continues to yield us small monthly profits. We also look forward to paying the property off and putting the monthly rents toward college tuition for our children someday.
Our Initial Savings
We purchased the property for $170,000 and put 20% down to avoid paying for private mortgage insurance (PMI). That brought our 30 year conventional loan amount down to $136,000. At an interest rate of 5.9%, our monthly mortgage payment after escrow was $1,129.
We immediately found tenants to rent the upper 2 bedroom apartment for $600 per month, which left us to pay only $529 per month. This was great because not only were we building equity each month, but our renters were helping us do it. After living in the duplex for 14 months, we were able to save $8,400 simply by renting out the upper unit.
We then purchased a single family home, and decided to keep the duplex as an investment property. The money we were able to put into savings as a result of paying less than half of our mortgage for over a year and the equity we had built up helped us to do so.
After moving into our single family home in 2005, we were lucky enough to find tenants to rent the lower portion of our duplex immediately. Their rent was set at $750 per month, while the upper tenants continued to pay $600.
For 5 months after the new tenants moved in, our duplex mortgage was $1,129. During that time period, we collected $6,750, and our mortgage payments equaled $5,645. Our resulting profit after 5 months was $1,105 ($221 per month). Our monthly mortgage payment was then adjusted.
Every year, when property tax assessments are completed, we are notified of an adjustment to our mortgage payment based on escrow adjustments. Our fluctuating monthly mortgage payments and yearly profits are as follows:
2006 - $1,177 (Rent $16,200 - Mortgage $14,124 = Profit of $2,076)
2007 - $1,177 (Rent $16,200 - Mortgage $14,124 = Profit of $2,076)
2008 - $1154 (Rent $16,200 - Mortgage $13,848 = Profit of $2,352)
2009 - $1,205 (Rent $16,200 - Mortgage $14,460 = Profit of $1,740)
2010 - $1,243 (Rent $16,200 - Mortgage $14,916 = Profit of $1,284)
2011 - $1,177 (Rent $16,200 - Mortgage $14,124 = Profit of $2,076)
Our current mortgage payment is $1,177 per month and is scheduled to increase to $1,205 on June 1. This means that we can anticipate our profit for 2012 to be approximately $1,900.
It has been 8 years since we purchased our multifamily property. Because we make bi-weekly payments on our mortgage and pay a little bit extra each month, we anticipate paying it off within 15 years.
Our oldest child will turn 18 in 11years. As a result, we may not be able to use profits from our duplex to cover very much of the college tuition costs for him. However, we will be able to use our profits to cover most of the tuition for our other children since they will start college after the property is paid in full.
Purchasing a multifamily property started out as a way for us to save money on our monthly mortgage payments. Now it is a way for us to save extra money each month or pay a little more toward our single family home mortgage. In the future, it will yield even bigger savings by helping us pay for our children to attend college.
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More from this contributor:
- Real Estate
- private mortgage insurance