It Pays to Own

Landlord and homeowner Magda Brown uses her multifamily home to help defray the cost of homeownership

Brown qualified for a 30-year fixed FHA loan at a 5% APR for which she only had to put down 3%. To prepare the home for renters, she used approximately $30,000 to have a gut renovation done, including replacing electrical systems, adding gas to the home, updating plumbing, and other modifications that split each unit’s utilities. Finally, she took an additional $8,000 to finish the basement, adding a heater, a washer and dryer, and making the area more presentable. She sought advice from real estate investment books, such as Real Estate Investing for Dummies, on the renovation process. “I had to fire contractors because I realized that they were wasting my time, supplies, and money,” she says. The end result: three one-bedroom units, with the topmost apartment also having an office space.

Brown settled into the bottom apartment then set out to find two tenants. Since the units weren’t the same size, she decided to charge $1,200 for one and $1,100 for the other, plus tenants pay all of their own utilities. That left only $700 for her to pay to make the $3,000 mortgage, which includes taxes. “You can’t get the space that I have in New York for $700,” she says of her 1,244-foot apartment in an up-and-coming area of Crown Heights in Brooklyn.

Rather than hiring a property manager to handle tenant issues, Brown does the work herself. Most days, there’s not much for her to do, but when she loses a tenant “it is crunch time,” she says. In those weeks, she’s running credit checks, making phone calls, and setting appointments. The rest of the time she has to make sure the property stays neat and orderly. Recognizing that tenant emergencies can come up at any time, she also has to be flexible and on call. “There are times when my tenants have been locked out,” she says. “Once I planned a whole weekend away and I couldn’t go because I was in the basement on my knees trying to figure out how to light the pilot.” She keeps extra money in a money market account for tenant and household emergencies such as a broken window or burst pipe.

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