In preparation for my 4-unit building in the Haight going on the market, I asked Doug Goelz to describe two financial scenarios based on the numbers for 619 Clayton. This property will be in the MLS on Thursday, October 15.

Two Big Advantages of a 4-Unit Building as an Investment Property or as Your New Home

Whether you buy a 4-unit building as a place to live or as an investment property, you will benefit in two important ways:

1. First, the potential rents on the property will help you qualify for financing. Even if the units are empty or rented at below market rents, the lender counts 75% of the market rent determined by the appraiser as qualifying income. If you are going to occupy the property as your home, you can choose which of the units to use for rental income. With the potential rental income from the building, your other income (for example, your salary) does not have to be as high in order to get the financing you need. For example, $9810 in potential rent on a 4-unit property will help will you qualify for almost $500,000 in financing. If you are going to live in the building, the lender won’t count rent from one of the units, but even $6010 in potential rent on a building will help you qualify for over $300,000 in financing.
2. The second obvious big advantage of a 4-unit building as an investment property or as your new home is the cash flow each month. Depending on your down payment (at least 20% if you are going to live in the building; at least 35% if you buy it as an investment property) and loan rate, PITI (your cost of mortgage Principal and Interest, property Taxes, and Insurance) plus utilities for the building will be roughly $9,000 to $10,000 per month. So, a 4-unit building generating $6010 per month in actual rent could end up costing an owner-occupier less per month out-of-pocket than the cost of a market rate apartment in San Francisco. For the investor buyer, actual rents could offset the entire monthly expenses.

Here are some payment scenarios for potential buyers of a 4 unit building in The Haight.

If you live in the building:

Purchase price = $1,849,000
Down Payment = $369,800 (20%)
Loan Amount = $1,479,200

If you buy the building as an investment property:

Purchase price = $1,849,000
Down Payment = $647,150 (35%)
Loan Amount = $1,201,850

Monthly Expenses

Mortgage Principal and Interest = $7716
Insurance = $209
Property Taxes = $1856
Utilities = $405

Total = $10,186

Rents

Unit #1 = $1380
Unit #3= $1750
Unit #4 = $2880

Total = $6,010

Monthly Expenses

Mortgage Principal and Interest = $6452
Insurance = $209
Property Taxes = $1856
Utilities = $405

Total = $8,922

Rents

Unit #1 = $1380
Unit #2 = $3800
Unit #3= $1750
Unit #4 = $2880

Total = $9,810

Net Monthly Out-of-pocket Cost = $4176

Monthly Positive Cash Flow = $888