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lowering-your-mortgage-by-investing
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5/2/2024

Lowering Your Mortgage with an Investment Property

Purchasing your first home is an exciting milestone. Still, with today's fluctuating interest rates and the competitive real estate market, potential homeowners are seeking innovative ways to lower their mortgage payments. One such strategy gaining traction is investing in properties—specifically, duplexes or homes with separate living areas that can generate rental income. John Stormans, Managing Broker at Olympic Sotheby's International Realty, offers insights into this approach, promising a reduction in monthly expenses and a formidable investment strategy for the long haul.

Today's mortgage rates, as reported by Mortgage News Daily, are significantly higher, sitting at around 7.43%, which elevates the cost of homes for first-time buyers. In the current economic scenario, looking for homes that fit your budget requires creativity, and investing in properties like duplexes appears to be a superb option. This method not only has the potential to lower one's monthly mortgage through rental income from the second unit but also positions itself as a promising long-term investment.

The Traditional Path vs. The Investment Approach

Traditionally, first-time homebuyers look for single-family homes, which can entail hefty mortgage payments given the current market conditions. For instance, a typical $500,000 house could translate to around $4,000 monthly mortgage payments, assuming a 10% down payment and prevailing interest rates.

However, by adjusting this approach slightly and opting for a duplex or a property with a separate living area valued at $550,000, the initial cost and possibly the down payment may slightly increase, but so does the opportunity to significantly reduce monthly mortgage outlays through rental income.

Consider this scenario:

  • Initial Property Choice: Single-family house worth $500,000.
  • Alternate Choice: Duplex costing $550,000.

With the traditional choice, the buyer faces a $4,000 monthly payment. By opting for a duplex and assuming the feasibility of renting one unit for about $1,700 to $1,750, the homeowner could see their effective monthly payment drop to $2,600. This significant reduction also comes with additional benefits:

Equity Building: Each payment made is not just toward reducing housing costs but also investing in a property that can be appreciated over time. This approach accelerates the homeowner's rate of building equity, effectively subsidized by the rental income.

Long-term Investment: Holding onto a multifamily property can yield considerable long-term gains. Real estate generally appreciates, and owning a duplex provides the option to continue generating rental income or eventually converting it into a sole investment property if housing needs change.

Tax Advantages: Investment properties can also offer specific tax deductions, such as maintenance expenses and property depreciation, further enhancing their financial attractiveness.

While the prospect of managing a rental property may seem daunting to some, it is crucial to remember the abundance of resources available to first-time investors. Industry professionals, like those at Olympic Sotheby's International Realty, can provide invaluable guidance through the process—ensuring each decision is well-informed and aligns with long-term financial goals.

Lowering your mortgage payment through investing in a property like a duplex is not just about immediate financial relief—it's a strategic move towards building wealth and securing a financially stable future. This approach allows individuals to enjoy the perks of homeownership while reaping the benefits of being a real estate investor. Those interested in exploring this pathway should consider consulting with experienced real estate professionals to understand investment properties' nuances and tailor this strategy to fit their personal and financial circumstances.

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