From a lending perspective your best rates and flexibility in qualifying are going to be if you can stay within the High Balance Conforming loan terms. For San Francisco that limit is $934,200 on a 2 unit property, $1,129,250 on a 3 unit, and $1,403,400 for a 4 unit dwelling. Those are the mortgage limits, not the sales price limit. Add your down payment on top of those limits to get your sales price.
Expect to put at least 25% down on a multi-unit property.
Once you go above those limits you fall into Jumbo loan territory and the rate will be higher and the qualifying will be much more difficult.
Whether you can personally qualify is impossible to say. Best bet is to make an application with a lender and get pre-approved. That's the only way you'll know for sure. The cost shouldn't be more than about $20 for the credit report and you are not any obligation to actually take the loan - I tell my clients the pre-approval is kind of like a very high balance line of credit. If you want to use it great, if not just cancel.
If you have any other questions or you'd like help with this feel free to contact us via our profile
For your example of a $1M duplex with you living in one unit and assuming you could rent the other unit for $2,500 would go something like this: For simplicities sake let's say you don't have any personal debt (if you do have personal debt then the loan you would end up with will be lower than the $500,000 you mentioned.
The lender will only count 75% of the $2,500 rent as income or $1,875. The taxes and insurance on the rental unit will be around $650 a month ($650 will also be allocated to the unit you occupy, assuming the two units are about the same size). Lenders assume 25% of the gross rental income will go to expenses to operate such as maintenance, repairs, utilities, landscaping, management, and vacancies. If you don't incur any of these expenses then your actual net rental income will be higher than $1,875, but don't count on it. Over the long run you will have expenses to cover and most likely have some vacancies, too.
The $1,875 less the taxes and insurance for the rental unit equals $1,225 net rental income that the lender will you credit for. Annually that's $14,700 or a 2.94% return on the $500,000 allocated the rental unit not including depreciation which would be about $7,000 a year after deducting the land value. That $7K depreciation will be worth about $1,500 in tax savings if you're in the 20% tax bracket and bump up your return to 3.24%. That 's good for San Francisco.
With this scenario you are looking at a down payment of $500,000 plus closing costs and settlement charges. Costs and charges will be $5,000 to $10,000.
Another way to look at it would be the $1,225 net rental income would cover around a $215,000 mortgage. So, instead of earning cash-flow you could finance $715,000 to break-even and have a $285,000 down payment plus costs and charges.
The risks: 1) San Francisco has rent control laws that favor tenants not the landlord 2) the rent may not be $2,500 3) if you cannot rent for 30 days that's means no income for that time. Alternatives: 1) pay less in an area not in SF 2) get a single family and rent to a roommate or two 3) just get a home for yourself and forget about the rental aspect.
So much of what you can do depends on how much cash you are willing to invest. I specialize in investment property so if you would like to talk, call me at 415 695-0254.
Please call or email me for a referral to a Mortgage broker who specializes in San Francisco and multi unit buildings.
You do have a few options. When purchasing a multiple-unit property where you will live in one of the units, most lenders will count 75% of actual rents (based on current leases/proof of rents), or 75% of projected rents. Depending on the number of units and location of the property, the maximum loan limits differ.
The answer to this question is mainly dependent on 2 things: How much $$ can you put down? You could purchase a multiple-unit property here in SF with as little as 10% down, plus closing costs--of course, this is more than you'd need to put down on a single family home priced at $500k. How much are the actual, or projected rents on the property? A $1million property with $50,000 a year of rental income is very different in the eyes of a lender than a $1million property with $20,000 a year of rental income. What the rents do not cover, you will have to make up for with income of your own. You do also need to consider maintenance costs, utilities, additional liability insurance being a landlord will require, and the larger property tax bill that comes with a more expensive property. Plus, the actual headaches of becoming a landlord. It's not always an easy job.
Most multiple unit buildings are priced to reflect the value of current rental income + the value of the property itself; your Realtor can help you do some preliminary analysis about whether a certain building might be something you can purchase based on current or projected rents.
If you would like to see how much you can qualify for if you were to purchase a particular multiple-unit building based on its list price and rental income (your Realtor can get rental records from the listing agent), please let me know and I'll work up some numbers for you.
Lenders point of view WHEN the tenant moves out till unit is leased you still have to make payments,
Recommend stay within a budget you can afford with OR without tenants
Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
I would contact a lender / loan officer to discuss your options. There are a lot of other factors that need to be considered and just b/c you can afford a $500k mortgage does not mean you will qualify for a $500k loan or $1million for that matter. Your mind is in the right track as far as becoming a landlord and looking for a multi unit property.