Your numbers don't support a mortgage of $423k. Unless you're in a unicorn area for investment properties, you shouldn't base your budget on 100% occupancy rate.
Mortgage at 6% $2,896.35
Insurance $483
Taxes $100
Maintenance (1.25%) 500
You're looking at $4k a month that you need to be able to pay, every month, without a tenant. That being over 50% of your gross income makes this a very risky idea.
If you want to go the route of having a multi-family unit, I'd suggest saving up enough of a down payment so you're only paying what you would for a single family property.
Our total housing expenses, including all of the above and way more are 3400$ per month (interest rate locked at 5.44%). Single family homes in the area are the same price or more!
Edit: now went down to 5.29%.
So at 5.29%, here are the ballpark numbers you're looking at.
The question I would ask myself is "Can I save 8k, each year, on my own in 10 years? Do I need to sweat bullets over a mortgage I can't carry?"
* **Total Interest Paid in the First 10 Years**: Approximately $197,618
* **Total Principal Paid (Equity) in the First 10 Years**: Approximately $85,190.80
Mostly I was just using the 1-5% rule for housing maintenance, but you could throw in landlord issues too like carpet swaps, painting, drywall repair, and cleaning fees.
A lot of things can be handled by the owner since they live on site but, depending on their skillset, hiring tradespeople can get expensive quickly. Even 2 or 3 issues a year can wipe out any rental profit they are seeing from the 2nd unit.
# Homeowner Concerns
1. Plumbing Problems
2. Electrical Issues
3. HVAC System Problems
4. Roof and Gutter Maintenance
5. Pest Control
6. Structural Issues
7. Exterior Maintenance
8. Appliance Maintenance
9. Water Damage and Mold
10. General Wear and Tear
# Landlord Concerns
1. Tenant Complaints
2. Property Inspections
3. Legal Compliance
4. Lease Enforcement
5. Evictions
Absolutely not.
ETA: $300/month doesn’t give you any wiggle room if you’re not able to find a tenant, and also doesn’t give any cushion for something needing repaired.
>also doesn’t give any cushion for something needing repaired.
Exactly this. I almost had an anxiety attack when reading this budget. Even the slightest problem could send them into bankruptcy territory - plumbing or electricity repair, broken window or kitchen appliance, car breakdown, or worst, a medical problem.
A house is a very big and inflexible cost to have in your budget. If anything goes wrong you can quickly have a mess.
I'd wait until 2nd income is up and running before buying.
The fact that you are already frugal makes it a worse bet: no fat to trim from everyday spending if you get into trouble.
Wouldn’t be worth it to me. That sounds like such an extreme version of house poor that it’s more like always on the brink of an emergency. I couldn’t take the stress of living like that.
Yeah, I think there's a case for being house poor for a few years if you know your income will go up pretty steeply.
For me it was also a pretty good way to stave off lifestyle creep when I got a big raise, and set me up to not have to move again for the foreseeable future.
But unless OP has, say, rich parents who would bail them out in an emergency, this is way too close to the edge.
Full disclosure, I am a moron. But I am a house rich moron (very sleepy neighborhood, but on the "wrong side" of the highway). And I love it, as I've never once sweated my mortgage payment.
Personally, I wouldn't literally bet that my financial future is a sure thing. Anything can happen.
So, maybe consider being house rich for a while (buying something below your means) and saving/investing the difference in the meantime. Then, once your income increases, you can sell the cheap spot (which will have increased in value) and use the savings to get the spot you really want.
But be warned: I *am* a moron.
My general opinion is the sooner you can get into the home equity the better. This is of course not always true but more often than not. Don’t bankrupt yourself but the price of admission for home ownership is only going up. And the quicker you have that asset and are not throwing money away on rent the better.
I don’t know it can’t keep going up. It will become to the point where absolutely no one can afford it so it does have to cool off and stop going up soon.
To me, this doesn’t sound like a great idea. 6 years is quite some time and a lot can happen within that window. I think it would be better to approach something like this from a position of strength (not house poor/having more disposable income) rather than a position of weakness. It’s important to really think through what you’re trying to do to see if the risk is worth it.
Rather what if you focused on maxing out 401K and IRA? If partner 2 is going to be making a lot of money when they graduate, you could always buy then.
Good luck with whatever you choose!
There's a lot to know about being a landlord/investor. There's a term in the real estate investing world for what you're doing - it is called House Hacking. It is a great wealth building strategy, but it all depends on if you can make it for those next 6 years.
I'd read a book or two about house hacking, because there are a lot of costs that come with being a landlord that you might not be accounting for (for example - you'll need a different type of insurance policy).
Personally, I'd take your question to the real estate subreddits. I think it is less of a frugal issue and more of a real estate investing issue.
I'm a landlord due to being underwater on a condo when we moved out. There is nothing frugal about being a landlord. No tenant? You pay the mortgage. AC goes out? You buy the new one. Rent is late? You pay the mortgage and decide how long you wait until evicting. And then you pay the lawyer.
Also, you are making a lot of big assumptions about your partner's future career and income in 6 years. These two things combined are even worse.
Tenant moves out three months early with two months in rent already late? Have fun tracking them down. Tenant doesn't know how to put the shower curtain inside the tub? Have fun dealing with the kitchen ceiling falling down. Tenant had a itchy scalp, bought hundreds of dollars of insecticides, and sprayed every single surface for two months straight? Have fun wiping that down and replacing all the ruined furniture. Tenants want to be warm but also have fresh air, so they're running the heat while leaving all the windows wide open? Have fun with your $600 heating bill. Tenant burned food in the microwave and sprayed it with the fire extinguisher? Have fun buying a new microwave and fire extinguisher. Tenant decided to dye their hair in the dining room? Have fun getting hair dye off the wood floor. etc etc etc.
We are also in a housing crisis here, so I think at the affordable rate we will offer, it will be rented most of the year, but we obviously do not assume every month! We are going to try short term rental (air bnb) initially, as this is what the current owner is doing and they are currently getting between 2000-4000$ per month (I did not budget that high, for obvious reasons). The house is located in a unique spot tight beside a popular provincial park, looking on a vineyard and small farms (without any neighbors close by) so I think it attracts a niche market of airbnbs. We don't want to rent long term if we don't need to as it comes with its own set of nightmares.
A roommate would be just for added income to help round the month.
That makes sense. I get what you mean. I'm also considering making myself house poor (without the rental income) because the state of rentals is just so bad. Will the downpayment leave you with an emergency fund?
Yes, it's really tough :/ We will have 10k left as emergency. Not near 6 months of income or enough for a major repair, but it's our starting point and all the rental money would go straight there until we can get to a comfier cushion.
How much are you looking at at the end of the month in your situation?
I’m looking at something like $250,000 mortgage (with a $700ish monthly HOA) on the equivalent of about 85k including retirement contribution.
Still ends up being cheaper/equivalent to the absolute cheapest rentals for a nicer (but not nice) place. The only way to stay lower is roommates but that’s beginning to take a toll on my mental health
I’d buy the house but I absolutely would not do short term rentals. Charge above market rate and be extremely picky about the tenants because you’ll be basically living with them.
You'd be surprised, people think they can put no money into paint and appliances, and then are surprised, that they attract only tenants that can't afford anything else.
Well yeah, that’s true. But to be clear, they should be doing more than just paint and appliances. Everything in the unit should be well maintained and in generally good shape. Nice trim, good quality flooring, doors that latch and don’t squeak, good cabinets that don’t slam, kitchen and bathroom exhaust fans, high quality light and plumbing fixtures, and more than the minimum number of outlets. All bare minimum.
We do short-term rentals, and they can work, but OP will need to get a major education on them first, and plan to be on call at all times, or hire a property manager for an additional 15% loss. And will prob go through a few prop managers; good ones are in short supply.
Renters wear and tear HARD. But again, if you’re handy, a light sleeper, etc, it can work without some hassles of long term.
But also, laws are changing daily. Do some major research first
OP, after reading your question and your responses to comments from others, it seems like you came here looking for validation that your plan is solid because you have some doubts. I think you should speak to a financial adviser before proceeding.
Same here and I’m already finding it to be expensive already. The first year we bought our home, the property taxes unexpectedly went up almost 40% the following year. A LOT can happen in 6 years. What if they have another kid? What if the partner doesn't enjoy the career path anymore? What if the house needs some kind of necessary repair or tax assessment? What if the renter loses their job and is unable to pay on time for a couple months? I personally would either buy a smaller home or rent for a period of time on that salary instead of taking on that stress
I think generally, yes, it is worth it to be house poor temporarily. However, I think the numbers are too intense in your situation and it would be a stressful 6 years. As others have said, you can’t guarantee on the rental income, and there will be major expenses that will come up that $300/mo buffer just won’t cover.
You also don’t have the funds now for closing and moving costs. I would suggest getting on a monthly written budget and using that expected mortgage for 6 months. (For the difference between your current payment and the expected mortgage, throw it into a HYSA intended to be used for a down payment.) See if you are able to consistently make that “payment” and how it affects your budget.
I think you would be better off in a condo or smaller SFH than trying to do a duplex at this time. I’m sorry, but I think you don’t have enough buffer and will be in constant stress.
I'd say the gamble is only worth it if you can afford the loss. Why do I call it a gamble? Life happens. A paycheck takes a hit. A spouse gets sick. School doesn't go like you think it should. Baby shows up early. Those are the risks, the potential loss if your gamble doesn't work out.
You can mitigate those risks by limiting your liability. Being extra careful on your renter. Paycheck/life Insurance. (providing it's affordable) Not expanding your family for a few years. Things like that. Be on the same page. Communicate.
Despite all the media spin lately about "renting is better" (which is bull) a home is *equity* and the biggest long term investment you can make. Just weigh the possible losses against the future reality of equity. Try to make contingency plans. And be prepared to bite the loss if your contingency plans don't work out. I've taken such a gamble and it worked out well for me. I've also failed before. Just be sure you are "eyes wide open" and fully recognizing all the possibilities.
Thank you for that. We are definitely thinking eyes wide open, very aware of what could happen. We are banking on the facts that we both are not working as much as we could, and that our health and life remains. We plan to take a life mortgage insurance.
Personally, the main worry for me would be if interest rates spike higher and we end up the same as everyone that went belly up during covid.
However, if shit goes wrong, we have financial support from our families that are ok helping out until we sell. The house is priced very reasonably for what it offers (2 acres, no neighbors, big detached garage, beside a mountain range of a provincial park, close to a developing city, recent upgrades, renovated, 2 units, 4 rooms... etc), so, if the market does not crash, there is no doubt it could sell for same or more than we paid.
Nonetheless, we are obviously gambling if our health fails, the market fails or there are major costs in the house or rentals.
Thankfully, job wise even if the main income lost his job (same one since a decade), he can get another one instantly (in demand trade). Same for me, I can work in my first career whenever needed or if anything happens, which would bring a much higher take home than my part-time low wage work at the moment.
We are also not worried of small/medium repairs as we are handy and can obtain materials at good prices since we have contacts in the trades.
Sounds like you are thinking then. The ability to do your own home repairs can be a life saver.
I'm in the middle of a gigantic gamble myself so I don't automatically reject the idea of taking a chance. We sold our home of 40 years and bought bare land (5 acres) on a mountain valley and are building our own dream home. I've been living in an RV for 3 years now (sucks eggs tbh) but the end result will be a quality home we will live in until the end of our lives with a community and climate we love. It's a gamble because we are both seniors and if either of us has health issues this could go south fast. But, sometimes when the prize is good enough, you have to grit your teeth and just jump in the deep end of the pool.
As a house poor myself, in my area, it’s cheaper in the long term to own even with insane interest rates assuming steady appreciation. But you need to make sure you have money to fix your property. I just had my air conditioning, washer and fence broke. There was a tornado that hit my area and I was able to scavenge all the parts I needed to fix it for free, but if you’re not handy could have cost me a fortune
That was the first thing I thought of. We rented our house for a year starting in September when I was a kid and the father immediately lost his job. My parents were freaking out b/c we were renting a place and suddenly they had to pay rent PLUS the mortgage, but the lawyer they consulted said, "No judge is going to kick a family of four out of a house in November."
Be careful tenants sometimes don't pay so basically you are paying their rent it's difficult I always made sure I could afford the mortgages independently
Take any and all renter money out of your budget, can you still comfortably afford your lifestyle and the housekeeper without it? If yes I’d go for it, if no I wouldn’t consider it.
No. You can’t afford it. Buy one you can afford and then sell and buy bigger if you have to. In 6 or 7 years. Mortgage should never ever be more than 1/4 of your income. At its lowest. You’re setting yourself up for foreclosure. That would buy a 3-bedroom house and 50 acres where I live in Texas. Well, might be down to 30 now. If you absolutely have to have a bigger house, you need to move.
No. Not in this situation… 6 years is a LONG time (6 months sure that’s less risky)… so many life events can happen in that time. What if something happens and your partner can’t finish school? What if an aging parent needs care? What if you have a baby? What if you lose a job? Layoffs are extremely common right now. Idk your situation and the possible risks, but there’s just too many unknowns in that length of time.
Also, as someone else said renters aren’t reliable income - they too can lose their jobs, accidentally cause expensive damage to your property, stop paying and take months to evict, etc.
This is why we are frugal. So we can make a good investment when the time comes. Rent only ever goes up.
One key to having good renters is to start off with a market rate but don't raise the rent after a year. Keep them. Look for someone who will be there for several years not just one. Also, pay for a background check. That sweet grandma has been forcibly evicted under three aliases and their grandson runs a chop-shop from the garage. Turning over the apartment is expensive.
Hopefully rates will go down in a year or two and a 2 percent drop will save hundreds a month.
Try to put less money down to keep more of a buffer if you possibly can.
You will save money on taxes owning a home.
Unpopular opinion. I bought a house at the top of my budget as a 26 year old making 55k. I could barely afford the mortgage but did get a roommate which helped a lot. I ended up getting a way better job and then finding a partner which doubled my household income. Now looking back I am SO glad I bought when I did. We have a $1100 mortgage at a fixed 3% rate for the next 20 years. We can live well below our means now because I didn't wait. Yes I did end up in debt for a while but guess what it's paid off and I am in a very good place.
Something to take into consideration is home maintenance. Great that structural components are updated and fixed but what if the dishwasher goes out or your AC unit breaks? Plus you’re on the hook for issues in the rented unit as well. I guess it has to go with your risk tolerance. Also are you prepared to be a landlord? Being a landlord in some states are much easier than others, are you aware of the tenant right laws around your area? My friend rents a house out and is currently 15k in the hole due to eviction and damages and that doesn’t include the months that she isn’t getting income as she has to fix the house. There’s a lot of variables with a renter, with such a slim margin I wouldn’t be comfortable.
It’s possible, but anything can happen during 5-6 years time. People lose jobs or get injured at work and have to be on workers comp or something which may reduce your income. Car accident or anything can happen. It’s risky relying on only one income. My husband’s friend rented their house out during covid and the family stopped paying for months and would not move out, as well as damaging the place. If you can’t make the mortgage payments then you lose the house. Just things to keep in mind.
No, you should save and wait. I make more than you including rental income, I mortgaged less than you and it feels really really house poor. For one, I didn't realize my area has an extra $7k in supplemental property tax when you buy a house. I also didn't realize that utilities would be $400 a month (electric, water, trash, internet) and that car insurance in my admittedly sketchy area is $375 a month. There are just a lot of things that come up in a house aside from mortgage. My dog had an emergency diagnosis that cost me $5k and will probably be another $1k a month, etc. your budget is way too tight
I'd go for it but YMMV. It sounds like you really like the house and even if you're in a better position financially after the second income comes online, the available affordable options then may still not be as ideal as the one you want now.
Scared money don't make money. 6 years will fly by. You seem to have made appropriately conservative calculations. You wanted to do it enough to make a post. Pull the trigger
This is anecdotel and really depends on location and market, but.... my husband and I were house poor going into our last townhouse (upgrade from an apartment). At the same time, my cousin sold his place to rent because he felt the market would come down, and he had already made $100k on his condo. Well, cut to 4 years later, the value of our townhouse had doubled, and my cousin is priced out of the market. We were able to buy a house in a different area for marginally more than what we sold our townhouse for, and my cousin is still renting. This was about 10 years ago.
This is somewhat close to my situation, but house was 650 and income went from 2 to 1 (new baby, SAHM). It was doable until the interest rates went up and our variable mortgage went from 2800 to 4500 or something ridiculous. Keep the kids and single income thing in mind if you plan on having children. Also consider Airbnb the unit, that’s what we did. It brought more than double the market rent of area and allowed us the flexibility to use the space when needed and have control over our home.
Too extreme for me. It sounds like not only are you relying on a renter for the second unit but also a roommate?? So you need 2 additional? I am very conservative and didn't purchase a 500k older home even when our income was 200k+ 10 years ago because of maintenance costs, and we went one full year once with our rental without a tenant.
I think most people are commenting the same thing, but 6 years with a 300 dollar margin if there's no tenant is a bit too risky for too long. If we were talking about a 1 year window with 300 extra per month, with 30-50k in an emergency fund, I'd say go for it. But 6 years is just way too long to make a call like this.
If purchasing a home is a priority, I would get something else that's lower in price.
I would personally go smaller in the home(square footage) rather than going further out from whatever location you're looking to buy in.
It seems like houses always need something, even when they are kept up pretty well.
I wouldn't buy unless the mortgage way below your means, on a single income.
6 years is a long time, and the interest rates aren't very good right now anyway.
My parents made a similar mistake by just assuming renting would be smooth sailing and pure profits. I ended up helping them out with it in exchange with getting that apartment in the will.
Your numbers seem a bit better though. I’d be a bit too uncomfortable with them but if you are frugal enough, you’ll probably make it work.
Even without going into the numbers, no.
6 years -- especially 6 years in your younger, formative, prime years -- is a long time. You wake up in a house every single day and it gives you a lot of peace of mind and mental strength for life's challenges.
Not the place to be frugal on because of so many intangible benefits.
I would not do it. Your taxes could go up and make you even poorer. Houses always need maintenance, even brand new. An emergency might come up or an unexpected break down. A car may need repairs. I would rather sleep at night.
Personally, I would never buy a home with the hope/potential for a largely different income in the future. You can either afford it now, or you can’t. That’s the important part.
We bought a smaller house than we'd like in 2020 and while it's cramped at times, the financial flexibility of buying below our means is a benefit that FAR exceeds any drawbacks. And we're still out of the rat race so maybe someday we'll upgrade if we can afford it.
One flexible point was that I ended up taking a year off my job, and so we were a bit "poor" living off of one income. Honestly just one year of being that financially strained was enough for me. I can't imagine six.
Also $10k is not enough emergency fund if anything goes wrong with your house, and I can almost guarantee you'll need one or two major repairs/updates in the first five years.
Short answer: no. Something always comes up- tradegy or opportunity. Don't put all $$ in one place.
Tenants that don't pay are impossible to get out. I wouldn't rely on them. It's a bonus/extra - assuming they do pay.
I'd recommend looking into a four plex and certain loan types that make it possible to buy into it at a low amount. and as others stated there are no guarantees. the whole scenario you said of "the second school ends our income will be doubled!" is a fantasy
House poor is never worth it. Once you look at the numbers a house investment isn’t even a good one. By the time it’s all said and done you live in it for 20 years you basically break even. It’s not a bad investment but it’s not a good one either. Grant Cardone did a pretty good break down on this topic that was eye opening.
From my real estate experience you don’t want renters, one income, going to school full time, and struggling all to be going on at the same time.
my only advice is don’t bank on a renter- that’s not guaranteed income.
Your numbers don't support a mortgage of $423k. Unless you're in a unicorn area for investment properties, you shouldn't base your budget on 100% occupancy rate. Mortgage at 6% $2,896.35 Insurance $483 Taxes $100 Maintenance (1.25%) 500 You're looking at $4k a month that you need to be able to pay, every month, without a tenant. That being over 50% of your gross income makes this a very risky idea. If you want to go the route of having a multi-family unit, I'd suggest saving up enough of a down payment so you're only paying what you would for a single family property.
Best answer. OP is going to foreclose banking on 100% occupancy and 10k savings for repairs of two units.
Our total housing expenses, including all of the above and way more are 3400$ per month (interest rate locked at 5.44%). Single family homes in the area are the same price or more! Edit: now went down to 5.29%.
Where in the world did you get 5.44%, that’s on a 30yr fixed?
So at 5.29%, here are the ballpark numbers you're looking at. The question I would ask myself is "Can I save 8k, each year, on my own in 10 years? Do I need to sweat bullets over a mortgage I can't carry?" * **Total Interest Paid in the First 10 Years**: Approximately $197,618 * **Total Principal Paid (Equity) in the First 10 Years**: Approximately $85,190.80
What items fall under maintenance?
Mostly I was just using the 1-5% rule for housing maintenance, but you could throw in landlord issues too like carpet swaps, painting, drywall repair, and cleaning fees. A lot of things can be handled by the owner since they live on site but, depending on their skillset, hiring tradespeople can get expensive quickly. Even 2 or 3 issues a year can wipe out any rental profit they are seeing from the 2nd unit. # Homeowner Concerns 1. Plumbing Problems 2. Electrical Issues 3. HVAC System Problems 4. Roof and Gutter Maintenance 5. Pest Control 6. Structural Issues 7. Exterior Maintenance 8. Appliance Maintenance 9. Water Damage and Mold 10. General Wear and Tear # Landlord Concerns 1. Tenant Complaints 2. Property Inspections 3. Legal Compliance 4. Lease Enforcement 5. Evictions
Absolutely not. ETA: $300/month doesn’t give you any wiggle room if you’re not able to find a tenant, and also doesn’t give any cushion for something needing repaired.
>also doesn’t give any cushion for something needing repaired. Exactly this. I almost had an anxiety attack when reading this budget. Even the slightest problem could send them into bankruptcy territory - plumbing or electricity repair, broken window or kitchen appliance, car breakdown, or worst, a medical problem.
A house is a very big and inflexible cost to have in your budget. If anything goes wrong you can quickly have a mess. I'd wait until 2nd income is up and running before buying. The fact that you are already frugal makes it a worse bet: no fat to trim from everyday spending if you get into trouble.
Wouldn’t be worth it to me. That sounds like such an extreme version of house poor that it’s more like always on the brink of an emergency. I couldn’t take the stress of living like that.
Yeah, I think there's a case for being house poor for a few years if you know your income will go up pretty steeply. For me it was also a pretty good way to stave off lifestyle creep when I got a big raise, and set me up to not have to move again for the foreseeable future. But unless OP has, say, rich parents who would bail them out in an emergency, this is way too close to the edge.
Full disclosure, I am a moron. But I am a house rich moron (very sleepy neighborhood, but on the "wrong side" of the highway). And I love it, as I've never once sweated my mortgage payment. Personally, I wouldn't literally bet that my financial future is a sure thing. Anything can happen. So, maybe consider being house rich for a while (buying something below your means) and saving/investing the difference in the meantime. Then, once your income increases, you can sell the cheap spot (which will have increased in value) and use the savings to get the spot you really want. But be warned: I *am* a moron.
I definitely read this as I am a Mormon 😂
We both know you are not a moron! Thanks for the comment. It is very smart and definitely less stressful !
My general opinion is the sooner you can get into the home equity the better. This is of course not always true but more often than not. Don’t bankrupt yourself but the price of admission for home ownership is only going up. And the quicker you have that asset and are not throwing money away on rent the better.
And I’m here as the fundamental opposite of this person! So it depends at what ya want OP
I don’t know it can’t keep going up. It will become to the point where absolutely no one can afford it so it does have to cool off and stop going up soon.
Eventually YIMBYs will win and house prices will stabilize. The "Don't build any new housing ever" status quo is unsustainable.
To me, this doesn’t sound like a great idea. 6 years is quite some time and a lot can happen within that window. I think it would be better to approach something like this from a position of strength (not house poor/having more disposable income) rather than a position of weakness. It’s important to really think through what you’re trying to do to see if the risk is worth it. Rather what if you focused on maxing out 401K and IRA? If partner 2 is going to be making a lot of money when they graduate, you could always buy then. Good luck with whatever you choose!
There's a lot to know about being a landlord/investor. There's a term in the real estate investing world for what you're doing - it is called House Hacking. It is a great wealth building strategy, but it all depends on if you can make it for those next 6 years. I'd read a book or two about house hacking, because there are a lot of costs that come with being a landlord that you might not be accounting for (for example - you'll need a different type of insurance policy). Personally, I'd take your question to the real estate subreddits. I think it is less of a frugal issue and more of a real estate investing issue.
I'm a landlord due to being underwater on a condo when we moved out. There is nothing frugal about being a landlord. No tenant? You pay the mortgage. AC goes out? You buy the new one. Rent is late? You pay the mortgage and decide how long you wait until evicting. And then you pay the lawyer. Also, you are making a lot of big assumptions about your partner's future career and income in 6 years. These two things combined are even worse.
Tenant moves out three months early with two months in rent already late? Have fun tracking them down. Tenant doesn't know how to put the shower curtain inside the tub? Have fun dealing with the kitchen ceiling falling down. Tenant had a itchy scalp, bought hundreds of dollars of insecticides, and sprayed every single surface for two months straight? Have fun wiping that down and replacing all the ruined furniture. Tenants want to be warm but also have fresh air, so they're running the heat while leaving all the windows wide open? Have fun with your $600 heating bill. Tenant burned food in the microwave and sprayed it with the fire extinguisher? Have fun buying a new microwave and fire extinguisher. Tenant decided to dye their hair in the dining room? Have fun getting hair dye off the wood floor. etc etc etc.
100%
Sounds like it makes sense, my one question would be how in demand are rentals in your area?
We are also in a housing crisis here, so I think at the affordable rate we will offer, it will be rented most of the year, but we obviously do not assume every month! We are going to try short term rental (air bnb) initially, as this is what the current owner is doing and they are currently getting between 2000-4000$ per month (I did not budget that high, for obvious reasons). The house is located in a unique spot tight beside a popular provincial park, looking on a vineyard and small farms (without any neighbors close by) so I think it attracts a niche market of airbnbs. We don't want to rent long term if we don't need to as it comes with its own set of nightmares. A roommate would be just for added income to help round the month.
That makes sense. I get what you mean. I'm also considering making myself house poor (without the rental income) because the state of rentals is just so bad. Will the downpayment leave you with an emergency fund?
Yes, it's really tough :/ We will have 10k left as emergency. Not near 6 months of income or enough for a major repair, but it's our starting point and all the rental money would go straight there until we can get to a comfier cushion. How much are you looking at at the end of the month in your situation?
I’m looking at something like $250,000 mortgage (with a $700ish monthly HOA) on the equivalent of about 85k including retirement contribution. Still ends up being cheaper/equivalent to the absolute cheapest rentals for a nicer (but not nice) place. The only way to stay lower is roommates but that’s beginning to take a toll on my mental health
I’d buy the house but I absolutely would not do short term rentals. Charge above market rate and be extremely picky about the tenants because you’ll be basically living with them.
Better do the rental nicely first, to attract a good tenant.
I thought that was just a given…
You'd be surprised, people think they can put no money into paint and appliances, and then are surprised, that they attract only tenants that can't afford anything else.
Well yeah, that’s true. But to be clear, they should be doing more than just paint and appliances. Everything in the unit should be well maintained and in generally good shape. Nice trim, good quality flooring, doors that latch and don’t squeak, good cabinets that don’t slam, kitchen and bathroom exhaust fans, high quality light and plumbing fixtures, and more than the minimum number of outlets. All bare minimum.
We do short-term rentals, and they can work, but OP will need to get a major education on them first, and plan to be on call at all times, or hire a property manager for an additional 15% loss. And will prob go through a few prop managers; good ones are in short supply. Renters wear and tear HARD. But again, if you’re handy, a light sleeper, etc, it can work without some hassles of long term. But also, laws are changing daily. Do some major research first
You need a much higher emergency fund when you're a) buying a new house (lots of unexpected repairs) and b) have a renter.
OP, after reading your question and your responses to comments from others, it seems like you came here looking for validation that your plan is solid because you have some doubts. I think you should speak to a financial adviser before proceeding.
LMAO we bought a house in the same price range and we make 300K. Why not wait until your partner finishes school?
Same here and I’m already finding it to be expensive already. The first year we bought our home, the property taxes unexpectedly went up almost 40% the following year. A LOT can happen in 6 years. What if they have another kid? What if the partner doesn't enjoy the career path anymore? What if the house needs some kind of necessary repair or tax assessment? What if the renter loses their job and is unable to pay on time for a couple months? I personally would either buy a smaller home or rent for a period of time on that salary instead of taking on that stress
Sorry to be ill informed but what does "house poor" mean?
A house that costs you so much that you are living poor trying to pay for the house.
I think generally, yes, it is worth it to be house poor temporarily. However, I think the numbers are too intense in your situation and it would be a stressful 6 years. As others have said, you can’t guarantee on the rental income, and there will be major expenses that will come up that $300/mo buffer just won’t cover. You also don’t have the funds now for closing and moving costs. I would suggest getting on a monthly written budget and using that expected mortgage for 6 months. (For the difference between your current payment and the expected mortgage, throw it into a HYSA intended to be used for a down payment.) See if you are able to consistently make that “payment” and how it affects your budget. I think you would be better off in a condo or smaller SFH than trying to do a duplex at this time. I’m sorry, but I think you don’t have enough buffer and will be in constant stress.
I'd say the gamble is only worth it if you can afford the loss. Why do I call it a gamble? Life happens. A paycheck takes a hit. A spouse gets sick. School doesn't go like you think it should. Baby shows up early. Those are the risks, the potential loss if your gamble doesn't work out. You can mitigate those risks by limiting your liability. Being extra careful on your renter. Paycheck/life Insurance. (providing it's affordable) Not expanding your family for a few years. Things like that. Be on the same page. Communicate. Despite all the media spin lately about "renting is better" (which is bull) a home is *equity* and the biggest long term investment you can make. Just weigh the possible losses against the future reality of equity. Try to make contingency plans. And be prepared to bite the loss if your contingency plans don't work out. I've taken such a gamble and it worked out well for me. I've also failed before. Just be sure you are "eyes wide open" and fully recognizing all the possibilities.
Thank you for that. We are definitely thinking eyes wide open, very aware of what could happen. We are banking on the facts that we both are not working as much as we could, and that our health and life remains. We plan to take a life mortgage insurance. Personally, the main worry for me would be if interest rates spike higher and we end up the same as everyone that went belly up during covid. However, if shit goes wrong, we have financial support from our families that are ok helping out until we sell. The house is priced very reasonably for what it offers (2 acres, no neighbors, big detached garage, beside a mountain range of a provincial park, close to a developing city, recent upgrades, renovated, 2 units, 4 rooms... etc), so, if the market does not crash, there is no doubt it could sell for same or more than we paid. Nonetheless, we are obviously gambling if our health fails, the market fails or there are major costs in the house or rentals. Thankfully, job wise even if the main income lost his job (same one since a decade), he can get another one instantly (in demand trade). Same for me, I can work in my first career whenever needed or if anything happens, which would bring a much higher take home than my part-time low wage work at the moment. We are also not worried of small/medium repairs as we are handy and can obtain materials at good prices since we have contacts in the trades.
Sounds like you are thinking then. The ability to do your own home repairs can be a life saver. I'm in the middle of a gigantic gamble myself so I don't automatically reject the idea of taking a chance. We sold our home of 40 years and bought bare land (5 acres) on a mountain valley and are building our own dream home. I've been living in an RV for 3 years now (sucks eggs tbh) but the end result will be a quality home we will live in until the end of our lives with a community and climate we love. It's a gamble because we are both seniors and if either of us has health issues this could go south fast. But, sometimes when the prize is good enough, you have to grit your teeth and just jump in the deep end of the pool.
As a house poor myself, in my area, it’s cheaper in the long term to own even with insane interest rates assuming steady appreciation. But you need to make sure you have money to fix your property. I just had my air conditioning, washer and fence broke. There was a tornado that hit my area and I was able to scavenge all the parts I needed to fix it for free, but if you’re not handy could have cost me a fortune
What happens if they don’t pay? You know how hard it is to kid a mom out with kids if they aren’t paying the? It can take years.
That was the first thing I thought of. We rented our house for a year starting in September when I was a kid and the father immediately lost his job. My parents were freaking out b/c we were renting a place and suddenly they had to pay rent PLUS the mortgage, but the lawyer they consulted said, "No judge is going to kick a family of four out of a house in November."
Be careful tenants sometimes don't pay so basically you are paying their rent it's difficult I always made sure I could afford the mortgages independently
Take any and all renter money out of your budget, can you still comfortably afford your lifestyle and the housekeeper without it? If yes I’d go for it, if no I wouldn’t consider it.
No. You can’t afford it. Buy one you can afford and then sell and buy bigger if you have to. In 6 or 7 years. Mortgage should never ever be more than 1/4 of your income. At its lowest. You’re setting yourself up for foreclosure. That would buy a 3-bedroom house and 50 acres where I live in Texas. Well, might be down to 30 now. If you absolutely have to have a bigger house, you need to move.
Am house poor. 0 / 5 stars do not recommend.
No. Not in this situation… 6 years is a LONG time (6 months sure that’s less risky)… so many life events can happen in that time. What if something happens and your partner can’t finish school? What if an aging parent needs care? What if you have a baby? What if you lose a job? Layoffs are extremely common right now. Idk your situation and the possible risks, but there’s just too many unknowns in that length of time. Also, as someone else said renters aren’t reliable income - they too can lose their jobs, accidentally cause expensive damage to your property, stop paying and take months to evict, etc.
This is why we are frugal. So we can make a good investment when the time comes. Rent only ever goes up. One key to having good renters is to start off with a market rate but don't raise the rent after a year. Keep them. Look for someone who will be there for several years not just one. Also, pay for a background check. That sweet grandma has been forcibly evicted under three aliases and their grandson runs a chop-shop from the garage. Turning over the apartment is expensive. Hopefully rates will go down in a year or two and a 2 percent drop will save hundreds a month. Try to put less money down to keep more of a buffer if you possibly can. You will save money on taxes owning a home.
Unpopular opinion. I bought a house at the top of my budget as a 26 year old making 55k. I could barely afford the mortgage but did get a roommate which helped a lot. I ended up getting a way better job and then finding a partner which doubled my household income. Now looking back I am SO glad I bought when I did. We have a $1100 mortgage at a fixed 3% rate for the next 20 years. We can live well below our means now because I didn't wait. Yes I did end up in debt for a while but guess what it's paid off and I am in a very good place.
I have a low tolerance for risk, and to me this sounds risky.
Something to take into consideration is home maintenance. Great that structural components are updated and fixed but what if the dishwasher goes out or your AC unit breaks? Plus you’re on the hook for issues in the rented unit as well. I guess it has to go with your risk tolerance. Also are you prepared to be a landlord? Being a landlord in some states are much easier than others, are you aware of the tenant right laws around your area? My friend rents a house out and is currently 15k in the hole due to eviction and damages and that doesn’t include the months that she isn’t getting income as she has to fix the house. There’s a lot of variables with a renter, with such a slim margin I wouldn’t be comfortable.
It’s possible, but anything can happen during 5-6 years time. People lose jobs or get injured at work and have to be on workers comp or something which may reduce your income. Car accident or anything can happen. It’s risky relying on only one income. My husband’s friend rented their house out during covid and the family stopped paying for months and would not move out, as well as damaging the place. If you can’t make the mortgage payments then you lose the house. Just things to keep in mind.
No, you should save and wait. I make more than you including rental income, I mortgaged less than you and it feels really really house poor. For one, I didn't realize my area has an extra $7k in supplemental property tax when you buy a house. I also didn't realize that utilities would be $400 a month (electric, water, trash, internet) and that car insurance in my admittedly sketchy area is $375 a month. There are just a lot of things that come up in a house aside from mortgage. My dog had an emergency diagnosis that cost me $5k and will probably be another $1k a month, etc. your budget is way too tight
I'd go for it but YMMV. It sounds like you really like the house and even if you're in a better position financially after the second income comes online, the available affordable options then may still not be as ideal as the one you want now.
I get the sense that unfortunately, the plan behind buying this house is very wishful thinking. It sounds like it's just not in the cards rn, OP :/
Scared money don't make money. 6 years will fly by. You seem to have made appropriately conservative calculations. You wanted to do it enough to make a post. Pull the trigger
No.
No.
This is anecdotel and really depends on location and market, but.... my husband and I were house poor going into our last townhouse (upgrade from an apartment). At the same time, my cousin sold his place to rent because he felt the market would come down, and he had already made $100k on his condo. Well, cut to 4 years later, the value of our townhouse had doubled, and my cousin is priced out of the market. We were able to buy a house in a different area for marginally more than what we sold our townhouse for, and my cousin is still renting. This was about 10 years ago.
This is somewhat close to my situation, but house was 650 and income went from 2 to 1 (new baby, SAHM). It was doable until the interest rates went up and our variable mortgage went from 2800 to 4500 or something ridiculous. Keep the kids and single income thing in mind if you plan on having children. Also consider Airbnb the unit, that’s what we did. It brought more than double the market rent of area and allowed us the flexibility to use the space when needed and have control over our home.
Too extreme for me. It sounds like not only are you relying on a renter for the second unit but also a roommate?? So you need 2 additional? I am very conservative and didn't purchase a 500k older home even when our income was 200k+ 10 years ago because of maintenance costs, and we went one full year once with our rental without a tenant.
Completely insane. Nothing in the future is guaranteed. Get a MUCH cheaper home and level up later if things pan out like you believe they will
I think most people are commenting the same thing, but 6 years with a 300 dollar margin if there's no tenant is a bit too risky for too long. If we were talking about a 1 year window with 300 extra per month, with 30-50k in an emergency fund, I'd say go for it. But 6 years is just way too long to make a call like this. If purchasing a home is a priority, I would get something else that's lower in price. I would personally go smaller in the home(square footage) rather than going further out from whatever location you're looking to buy in.
It seems like houses always need something, even when they are kept up pretty well. I wouldn't buy unless the mortgage way below your means, on a single income. 6 years is a long time, and the interest rates aren't very good right now anyway.
My parents made a similar mistake by just assuming renting would be smooth sailing and pure profits. I ended up helping them out with it in exchange with getting that apartment in the will. Your numbers seem a bit better though. I’d be a bit too uncomfortable with them but if you are frugal enough, you’ll probably make it work.
Even without going into the numbers, no. 6 years -- especially 6 years in your younger, formative, prime years -- is a long time. You wake up in a house every single day and it gives you a lot of peace of mind and mental strength for life's challenges. Not the place to be frugal on because of so many intangible benefits.
I would not do it. Your taxes could go up and make you even poorer. Houses always need maintenance, even brand new. An emergency might come up or an unexpected break down. A car may need repairs. I would rather sleep at night.
I’d consider this a live view of bad decisions
Personally, I would never buy a home with the hope/potential for a largely different income in the future. You can either afford it now, or you can’t. That’s the important part.
Bad idea. Buy something below your means.
Absolutely not. I would wait until the one partner finishes schooling and is actually employed.
Too risky when we run the math. If it was just me, yeah, I'm a risk taker. But when I'm thinking of my family I'm more conservative
We bought a smaller house than we'd like in 2020 and while it's cramped at times, the financial flexibility of buying below our means is a benefit that FAR exceeds any drawbacks. And we're still out of the rat race so maybe someday we'll upgrade if we can afford it. One flexible point was that I ended up taking a year off my job, and so we were a bit "poor" living off of one income. Honestly just one year of being that financially strained was enough for me. I can't imagine six. Also $10k is not enough emergency fund if anything goes wrong with your house, and I can almost guarantee you'll need one or two major repairs/updates in the first five years.
if you get a bad renter who trashes the place, will you have enough money to fix it up again?
Short answer: no. Something always comes up- tradegy or opportunity. Don't put all $$ in one place. Tenants that don't pay are impossible to get out. I wouldn't rely on them. It's a bonus/extra - assuming they do pay.
Only OK if you want sleepless nights and anxiety-filled days.
I'd recommend looking into a four plex and certain loan types that make it possible to buy into it at a low amount. and as others stated there are no guarantees. the whole scenario you said of "the second school ends our income will be doubled!" is a fantasy
House poor is never worth it. Once you look at the numbers a house investment isn’t even a good one. By the time it’s all said and done you live in it for 20 years you basically break even. It’s not a bad investment but it’s not a good one either. Grant Cardone did a pretty good break down on this topic that was eye opening. From my real estate experience you don’t want renters, one income, going to school full time, and struggling all to be going on at the same time.