- How's it going today guys?
Welcome back to the channel.
Hope you're having a great day so far.
So in this video today, I'm going to be showing you
how to live with a zero dollar mortgage
or how to live for free.
And no, I'm not going to be telling you guys
to go exercise squatters rights
and find a disheveled old camp in the woods
and move into it for seven years
or however many years you need to
to then own that residence.
I'm going to be showing you guys
how to actually live for free
by purchasing a multifamily property
as opposed to doing what most people do,
which is going out there and buying a single family house.
Now most people when they do this style of video,
they use arbitrary numbers, but I'm actually in the process
of doing exactly this and being an owner occupant.
So I'm literally going to be showing you guys
my exact numbers when it comes to
how much I'm spending on a property,
what my closing costs are,
what my down payment is and all of that.
So if you guys enjoy that transparency,
all that I ask is that you hit that like button
and share this with a friend who might be interested
in learning about this as well.
But first of all, we have to start off by talking about
what it is that most people do.
And most people don't go out there
and buy a multifamily property.
Number one, they either typically just rent
for their entire lives or for most of their duration
of their 20s or 30s.
Or number two, they'll go out there
and they will buy a single family house.
So the first thing I wanna show you guys
is why this is pretty much a guaranteed way to lose money.
So on average houses are selling
for about $300,000 right now in the United States.
And there's typically two different ways
that people will go about purchasing their first home.
Number one, if they have a sizable amount of money
to put down, they will go the conventional route
and put 20% down as their down payment.
So that's gonna be a down payment of $60,000
plus your closing costs and your taxes.
So you're talking about somewhere in the neighborhood
of probably 70 to $75,000 of a down payment,
to buy a house through a conventional mortgage.
And so by doing that, and putting about $60,000 down
plus your closing costs,
that's going to give you a monthly mortgage payment
of $1,600 per month, which includes your mortgage,
as well as your escrow taxes,
and you're homeowners insurance.
Now the advantage of going this route,
as opposed to the FHA route
is that you do not have to pay PMI
or any kind of mortgage insurance.
And that could be multiple hundreds of dollars per month,
if you are in fact paying for PMI.
Now, option number two, if you don't, let's say,
have $75,000 laying around to buy a house
is to take advantage of that FHA loan
and put down that 3 1/2% as opposed to 20.
So on that $300,000 mortgage,
that would be a down payment of 3.5% or $10,500
plus your closing costs.
So probably somewhere in the neighborhood
of 20 to $25,000 of out of pocket expenses
to close FHA on a single family house.
Now, the big downside to this is that now
because you have such little equity in that property,
you do have PMI and it's a lot more expensive.
So your mortgage payment just went
from $1,600 a month to $2,050,
an increase of $450 per month
by going the FHA route over the conventional.
Now, as far as this goes,
as far as owning a single family house,
it pretty much sucks.
Yes, you do have the privacy.
Yes, you do have your own driveway
and you don't have to worry about your neighbors
or anybody bothering you for the most part,
but other than that, financially,
it is one of the worst decisions you can make
next to renting for your entire life.
And so just to summarize quick here,
these are the main problems
with owning a single family house.
Number one, there are absolutely zero tax deductions
and zero tax breaks, you can't write off
any of your expenses associated with your house,
you can't write off depreciation.
There are literally no tax benefits
to owning a single family home.
Second of all, if you want an appealing mortgage
and you don't wanna be paying hundreds of dollars a month
in PMI, you have to go the conventional route.
And it's gonna be about 60 to $70,000 minimum
out of pocket expenses for a house that's around $300,000.
The third problem with single family real estate
is that if you do decide
that you don't wanna put all this money into the house
and you wanna go the FHA route,
your mortgage is going to be a hell of a lot more expensive,
$450 more in this specific case.
And then the main issue with doing exactly this
is that there is zero income potential with this house.
Sure, maybe you could rent out the spare rooms
in your house for an Airbnb
but 99% of us don't want strangers living in our home.
So you literally have zero dollars of income potential
with a single family house and every single month
it's going to be costing you anywhere
from 1,600 to $2,050 per month, in this case,
with no income potential, no tax breaks whatsoever.
And that is why most people who fall in the situation
end up being what is called house broke,
which is where your monthly housing payment
literally eats up all of your income,
and you have absolutely no money.
So what I decided to do instead
was to patiently wait on the sidelines renting for a while
until the perfect property came up for me.
So yes, I have been renting for the last year and a half,
I've literally been throwing money out the window
in the form of paying rent.
But I knew that I wanted to find the perfect property
where the numbers just made sense to me.
And if you are somebody who's looking to follow this route
and follow this strategy and have a zero dollar mortgage,
patients is going to pay off for you.
I probably looked at a dozen different properties,
or at least ran the numbers on them,
and they just didn't make sense for me.
And then this property came up and it was a screaming buy.
Now I actually am going to be living there
as an owner occupant,
so I can't really show you guys pictures
just because some people get a little bit weird on YouTube.
And I don't really want people
to see the outside of my house.
But what I am going to show you guys is the numbers
and how much I'm going to be paying for the property,
what my monthly payment is going to be,
and how it will ultimately be a zero dollar mortgage.
Okay, so as far as the property goes,
I found this house listed for sale by owner
in the neighborhood of about $500,000.
Now, right off the bat, people will think,
okay, $300,000 mortgage versus $500,000 mortgage,
you have to be out of your mind to buy a property
that has a value of half a million dollars, give or take.
But I'm gonna show you guys why it actually, in this case,
makes sense to take on a larger mortgage
because of the income potential of this property.
So we ended up settling on a price of $449,000.
And I rolled in $10,000 of concessions
towards my closing costs and taxes.
And while I did have that money that I could
put in towards my closing costs,
FHA loans are what you call cheap money.
And you wanna go ahead and take as much of that cheap money
as possible because it is a very low interest rate.
And a lot of people are not aware of this.
But with an FHA loan, this could be anywhere
from one unit to four units,
you could buy a single family house or up to four units
and qualify for this FHA financing.
Now you only get one shot with the FHA
on your very first home purchase.
So you don't want to waste it.
And what I mean by that is don't go out there
and buy a single family property with your FHA.
In my opinion, which is what I've done,
you wanna wait until you have a really good property
in front of you with income potential,
and really stretch out the maximum limit
that you can with that FHA loan.
So my closing costs on this property
with my $10,000 of concessions rolled in is $22,515.46.
And my mortgage payment is going to be $3,027.87.
Now that includes my mortgage as well as the PMI,
which is about $300 per month,
but we'll talk about that in a minute,
as well as taxes and insurance.
So again, a lot of people looking at these numbers
are going to say, okay, $1,600 per month
to 2,000 a month for single family,
why would you ever spend over $3,000 per month on a mortgage
for a multifamily property?
I'm gonna show you guys exactly why that is right now.
So this right here is a general layout
of what this property looks like.
There's the main house which is around 2,000 square feet,
there is an apartment that is 900 square feet, give or take.
And then there is a second apartment
that is 600 square feet, all attached together
on the main building.
Now not only is there that, there is also a cottage house
on the property that is about 90% done,
that can't technically be a rental because of zoning,
but it can be a short-term rental or an Airbnb.
And then fifth and finally,
there is a garage on the property
that also has the potential to be rented out.
So now what I'm gonna do is show you how
this $3,000 mortgage turns into zero dollars,
when you consider the fact that it's going to be offset
by your potential rental income on this property.
So, first of all, right off the bat, this apartment here,
the 900 square foot apartment
is going to rent for about $1,100 per month
coming off of the cost of your mortgage.
Second of all, the second apartment is going to rent
for around $800, again, coming off
of your overall mortgage cost.
So right off the bat here just with these two apartments,
that's 1,900 dollars per month of rental income,
bringing your mortgage costs down to
just a little bit over $1,100
as far as how much of that cost you are paying for.
But now we get into the fun part and that is the fact
that there are two additional properties
or buildings that have income potential.
So particularly the carriage house or the guest house there
is very interesting to me, because where I live
and where I'm buying this property,
there is a huge draw for tourism
in two months out of the year for the horse racing track.
Now during that track season,
you can do short-term track rentals.
And that is allowed based on the zoning.
And so in that two months span,
you could rent this property out for around $6,000
for a little 500 to 600 square foot carriage house.
Now yes, I still need to refurbish it and finish it up.
It's about 90% done.
But once that is complete,
that is about $6,000 for a two month span.
Or if you divide it out across the entire year,
it averages $500 per month.
And then fifth and finally, we have this garage,
the garage also has a loft in it
and you have the potential to rent that space out.
And that should rent for around $250 per month.
So all in all here, looking at this property,
looking at the two apartments
plus that short term rental for two months out of the year,
divided out across the year plus the rental for the garage,
this right here would be my cost on that mortgage.
But we are forgetting one last thing here.
And that is the fact that that track season rental
is only for two months out of the year.
And the other 10 months, I can do an Airbnb in that cottage.
So I went ahead and looked at some numbers.
And it looks like the average Airbnb occupancy rate
is around 40%.
But I like to be extremely conservative with my numbers.
And so I'm going to assume a 10% occupancy rate.
So at a 10% occupancy rate, that means
that about three days out of every month,
you have somebody in that particular rental,
and this will fetch about $125 per night.
So on the low end, the lowest end possible at 10% occupancy,
that is an additional $375 per month.
And this again is just for the other 10 months
out of the year when I do have
that track season rental in there.
So it's not going to be for the entire year.
But it's a range of anywhere from $375 on the low end
to up to $1,500 on the high end,
depending if it's a 10% to 40% occupancy rate
throughout the rest of that year.
And again, it's only going to be for 10 months,
not for 12 months out of the year.
But I think you're starting to see here
how you go from a $3,000 mortgage
all the way down to a zero dollar mortgage.
And yes, there are going to be
some headaches associated with doing this, okay?
First of all, you're gonna have to manage an Airbnb,
you're gonna have to manage tenants,
you're gonna have neighbors,
and you may have some issues here and there with that.
But when you look at the numbers
of paying zero dollars for a 2,000 square foot house
on a multifamily property, versus 1,600 to $2,000
out of pocket for a single family house,
there is no question in my mind
that a multifamily property is a better investment.
And there's pretty much no case
for calling this right here a good investment.
And again, this doesn't even factor in
any of the write offs associated
with multifamily real estate,
the depreciation, the tax benefits.
And so there are so many other benefits
to owning real estate.
Now, not every property out there
is going to look exactly like this.
Like I said, I've been looking for about a year and a half,
I've been analyzing the numbers
on at least a dozen properties over the last year and a half
looking at different ones in a very specific location,
because I knew where I wanted to buy a property.
And I was waiting for the right one to come up.
So you don't wanna jump
on the very first property out there.
The very first property I looked at
the numbers didn't make sense.
But I was really wanting to find the right property.
I almost went for it.
But I held off and I waited for the right one to come along.
And that's exactly what I recommend that you guys do.
I wanna circle back now to the PMI
because a lot of people will be wondering
why I didn't do the conventional route here
and do 20% down on this property
to have a lower mortgage and not pay the PMI.
And my argument is, PMI is definitely a waste of money.
But if I'm not paying for it,
I'm not going to worry about it
and I would rather have my cash on the sidelines
for another real estate investment
or a stock market investment or somewhere else
that I can earn a return on my money
rather than avoiding PMI especially
if I'm not the one paying for it.
But anyways guys, that's gonna wrap up this video,
let me know in the comments section down below,
what do you think of being
an owner occupied real estate investor
and having a zero dollar mortgage.
I would love to hear what you guys think.
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And I hope to see you guys in the next video.