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Purchasing a 3 flat
I am 24 years old, part of the united states air force reserve and a correctional officer for the state of illinois. i would like to begin my journey to wealth with the purchase of a duplex or 3 flat building, and would like to know if anyone knows what the best route to doing so would be.

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Know your economics!

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My wife and I own rental real estate and we think it is a great way to financial stability and a comfortable retirement.  It is great that you are thinking about your future at such a young age.

Buying property for investment comes with higher requirements to get the mortgage.  When buying a home you can purchase with very little cash down through a variety of different lending mechanisims.  With investment property, the mortgage company will want to see a lot more money up front.  As a rule, they want to see 20% cash to give you the loan.  I suggest working with a mortgage broker to find out what the best financing options are for your situation.  (If you intend to buy a multi-unit building and live in one of the units, this can become easier).  The broker can give you an idea of what amount you can qualify for and I always suggest not trying to max out what they say you can qualify for.

Once you know what you can afford, start researching the real estate you want to invest in.  Start a spreadsheet and figure out what your costs will be versus the rent you can reasonably expect to collect.  Here are a few pointers on the type of costs you need to collect and consider in your economics:

Mortgage costs - That bill shows up every month, so make sure you can pay that first

HOA dues (if any) - Make sure you understand how much they are and how much you should expect them to go up over time.  Talk to your real estate agent about how to get a copy of the financials and get insight to historical increases.  (If the HOA is broke, don't buy in)

Utilities - Depending on the property, if you have common areas you may have a bill for water, sewer, electric, and/or trash removal.

Property Taxes - The tax man comes every year, make sure you can pay him.  Commonly this is put in escrow on your mortgage, but not always.

Property Insurance - This will be required by the mortgage and can have a huge impact.  Talk to your insurance agent before you make an offer on a building.

Liability Insurance - It sucks, but you really have to get a liability policy to cover you.  Commonly called a Personal Umbrella Policy (PUP) it will help insure that someone slipping down your stairs won't ruin you financially.

Maintenance - How much to put back?  Well, that all depends.  Are you going to mow the lawn, trim the bushes, and plunge a plugged toilet?  If not, you need to budget money for the repair man.

Maintnance Reserve - Today the hot water heater is fine, but over the next 10 years it will probably have to be replaced.  The heater may last another 20 years, but it won't last forever.  You need to assess the condition of these long-life, high-cost items and make a plan to pay for them when they need to be replaced.  A HVAC system can easily cost $4-$5,000 to replace.  If you have to pay for that all in one lump sum it can really hurt.  If you put away $20/month into a reserve account and the HVAC system lasts 20 years, you'll have the money to pay for it in the bank.  Make sure you think about everything:  Roof, exterior painting, stove, fridge, etc

Once you pile up all of these costs, take the expected rent and multiply it by 11 and divide by 12.  Always make the assumption that your renter may leave after their lease is up.  When they do, you'll likely lose at least one month to getting it cleaned up and rented to someone new.  If you expect that your income will only be 11 months out of every 12, you'll have a more realistic view of what your rental income will be.

Now take that calculated rent income and subtract all of the costs.  Does buying the place make sense?

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