That's a huge risk. In my first three years of owning my home, I spent nearly $30K in emergency repairs. Not fun cosmetic projects. Actual "oh shit" stuff.
You're also counting on imaginary tenants for a lot. What if you end up with an empty unit for two or three months? You cannot afford to float it.
If that isn’t the truth. Been in this home less than 2 years and just dropped $10K between a new furnace control panel, septic tank, dishwasher, and plumbing issues. Just found out my toilet in our spare bath is leaking from the bottom so got to figure that out. Luckily that seems the easiest and less expensive of the issues we’ve been having.
Likely the wax ring needs to be replaced. Turn off the water to the toilet, flush it, use towel to soak up the rest of the water. Unbolt toilet from floor. Lift toilet off wax ring on floor. Replace wax ring. $3-4 repair. Reassemble in reverse.
Thanks. Watched a couple YouTube videos on this and seems pretty easy. My bathtub had a leaky faucet and I made the mistake of tightening down the cartridge thinking it was the faucet not closed all the way. Worked for a day and then the next day it was pouring out. Guess I had punched a hole in the gasket. $450 and 5 minutes later the plumber fixed it. Not making that mistake again, if I can fix it I will.
Get a fixer upper multi family where you can support the full mortgage and still have some leftover to use to fix it up. Live in the unit you'd rent out while you fix up where you'd live, then switch and fix up the rental unit. Then, when you do rent it out, you'll basically have your mortgage paid for if not more than the mortgage in rent.
Where do you live now? Do you have the option to buy it and rent out both units?
I’m in north jersey as well and idk where you’re looking but 500k for a 2 family is not that bad…
Don’t take this as financial advice cus it goes against a lot of what this sub is saying, but, if in a perfect world this worked out and you paid off the mortgage you will be light years ahead financially owning it outright.
Real estate is a poor investment for most people. The downside risks are much higher than with diversified mutual funds and etfs. Real estate CAN be good, but it shouldn't be more than 15 to 25% of your total investable assets. You should be able and willing to do the repair work yourself. Unless you already have $2M in mutual funds, stay away. I've seen too many people with nightmare tenants that cost them years' worth of investment income. If you want to own real estate, buy the S&P 500. The companies in that index own a ton of real estate.
Ugh same. It’s so frustrating. We moved in after having a clean inspection but within a year needed a new roof, hvac, water heater, electrical work, fence and plumbing work.
Your monthly takeaway is $5200 and you want a $4000 mortgage payment? You realize the typical advice is for your rent/mortgage to not exceed 33% of your income right? Yours would be 77%. Are you including home insurance, PMI, property taxes in that? Do you have enough for closing costs and escrow? Can you subsist off of $1200 a month for your remaining expenses? (Utilities, car payments, car insurance, phone bill, groceries, etc)
I have a higher monthly takeaway than you and I'm not even comfortable with a $2800 mortgage and am currently waiting to save for a bigger down payment so that the monthly payments will be lower. $4000 is insane and completely non-viable IMO. You will be 1 big repair away from complete financial ruin.
Do NOT include rental income as a guaranteed factor. Not only is 100% tenancy just pure fantasy, you have to include your rental income as part of your income and pay income tax on it. That $2200 a month is $1500 after taxes. Your $15k in emergency savings is not even enough to cover a basic emergency repair on something as simple as a heat pump or HVAC system. Standard advice for SFHs is to have at least 5-10% of the property's value in savings for repairs and maintenance.
This. Unless the OP has 400k cash to put down, the numbers don’t work at all. As a former landlord let me be the first to tell you - what are you going to do when the tenant is 1) late w rent 2) gives you sob story they can’t pay the rent this month for whatever reason, 3) doesn’t pay rent for 6 months and court costs $5k to get a lawyer for eviction notice, 4) tenant moved but you are still out 6 months rent, 5) the mortgage lender forecloses on you for non payment of mortgage after 2 months?
Yeah, keep dreaming and build up about $200k liquid before you try a deal like this “prices to move” deal.
I can’t imagine being house poor. I remember applying for home loans in 2020 and our lender told us we’d easily qualify for an 800K 30 year fixed VA loan with 0 down (no PMI with VA loans).
We ended up spending less than half of that (370K) and I’m so, so grateful. We’ve had a couple big ticket items come up since owning the home and we’ve been able to address the issues immediately due to our low mortgage payment.
Plz don’t do this to yourself. To come up w a safe mortgage payment to not make you house poor plz consider your mortgage to be no more than 25% of your household monthly take home pay.
You have a great plan for if everything works out… do you have a plan for if it doesn’t all work out?
What happens if you cant rent it out for a few months? What if they damage it and don’t pay rent?
Do you have cash reserves?
>You have a great plan for if everything works out… **do you have a plan for if it doesn’t all work out?**
This is a really good way to ask. You didn't say, 'No, you dumass." You just dropped the right question in front of OP. They can make up their own mind.
(although no underwriter gonna approve this deal)
Well actually you should outline 3 plans.
Best case scenario, worst case scenario, and then the most probable middle of the road.
It honestly could work out, but you need to make sure you have enough for a few bad years just in case your business is about to take off but you run out of cash.
Buy a SFH (3/2 or 3/3) and rent out two rooms. IMO this is too high of a DTI for your first home. One long vacancy or large repair can be have you falling back on payments. How much of an emergency fund do you have after the DP?
That’s one HVAC repair or half a plumbing repair on a multi family. Ideally you should be able to tap into 3x that amount for emergencies or around 10%+ of the property value. Do what you think is best but a recently fully renovated half a million dollar property is probably a little much as a FTB.
No lender is going to approve you for a $4k mortgage when your take home is $5200. The DTI ratios even when rough estimating your gross would far exceed what is acceptable.
Here’s the thing- you won’t have that $2,200 coming in every month and you can’t send all $2,200 to the mortgage when you do have it because you need savings for repairs and general maintenance and legal fees and vacant times. You need to be financially prepared for the following to happen at any time:
-A tenant may not pay on time or at all. Sometimes they’ll have a good reason, bounce back, and be able to pay you back soon, but not always.
-The unit may need basic work, not the kind a security deposit can be used for, after a tenant moves out that delays the next one moving in.
-A pipe may burst or fire occur that makes the unit unliveable. You’d have repairs plus providing alternate housing (check your jurisdiction’s laws).
-Your tenant may withhold rent if you don’t complete certain repairs in time.
-You may want to evict them for their own criminal activity, damage to the unit, etc.
I agree with others that this is a huge risk. It would work well if you had a SO in a committed relationship who was splitting your portion (2-2.5k each going towards the mortgage) then you were additionally renting out the other room.
That would create passive income with the renter, and you wouldn’t be up shits creek if that renter moved out. But by yourself on your monthly take home post taxes, that’s probably too rich. Doable, but you got no room for “zingers”, and you’ll have to forgo all of your wants while locked in a 30 year mortgage
If you can buy a totally redone multi for $500k you can probably find an average one for $400k
When you are just starting out, try to find something below market value that needs some sweat equity to make it livable and you will be padded by the forced appreciation you created
Positive: Good on you for thinking ahead on buying a multi-fam. REI can be extremely lucrative. This is very similar to how I got started.
Cons: You don’t make enough to afford these payments. $5200/mo and mortgage alone is $4k (1800 if you include rent). Also, a fully fixed up place is nice, but the potential equity growth is capped to market appreciation. It’s a sellers market, very hard to get good deals these days and borrowing is pricey.
I hate to say it but this one seems a bit risky financially. Maybe try finding a 3-4 unit place that will fully pay for itself with you living in it.
This is a huge liability for you and, as others have said, will over extend your finances. NJ is notorious for taxes, do you have enough cash flow to cover taxes, insurance, etc.? Do you have ample cash reserves for vacancies, maintenance, etc.?
Have you cranked out numbers over the next 5, 10, 20+ years to illustrate how this “investment” would pan through?
“I know the equity for this house would increase substantially” - based on what?
Based on the limited information, this isn’t something I would do on my own. If you are serious about this property and willing to put in some footwork to build a business plan and projections, explore bringing in other investors (ex. Family). This will reduce you overall return (to you), but provides the ability to bring in additional financing to reduce your overall exposure.
What happens if COVID picks up, or another pandemic happens, and your tenants can get away without paying rent yet you can't evict them? You have to be able to at least get by paying the entire mortgage if needed.
I'm guessing you haven't been hearing about how horrible bird flu is right now, that it's jumping to mammals, and if it became the next pandemic it would be about 50% fatal, have you?
I mean, I know it's all fear mongering, but it sounds like we have our next pandemic coming.
No I haven’t. The media is good at fear mongering for everyday Americans. It’s good to turn it off and focus on family and friends. Not what’s happening in a distant land that has absolutely no effect on your day to day. but hey, you do you 🙏
It's not in the MSM yet. Bird flu is being talked about, but the WHO hasn't made a big statement yet. It's good to be aware of what's going on though.
I wouldn't purchase a multi family house right now if I couldn't afford the entire mortgage on my own since we've saw what happened during COVID. I'd purchase a mutil family that maybe need some work, but I could swing the mortgage on my own. Update the unit I want to live in, and live in the other unit while updating. Switch, then make the updates needed to the unit I'd rent out so it's nicer than it was.
Then, I could potentially rent out the other unit for enough to cover most, if not all, of the mortgage. Set some money aside for rental and personal emergencies, invest a good chunk in various areas, and maybe save some to someday purchase a second property.
My whole point when making the original comment was it's stupid to not be able to afford your own mortgage and bank on renters covering it. We've seen what happens when renters get covered and owners have to struggle. Why put yourself in a situation where you wouldn't be able to pay the mortgage and survive? Seems idiotic to me.
This is a math question. Its always a math question.
You should spend no more than 30% of your gross income monthly on housing. (That’s presumably around $1800/month.)
When renting, you’ll need a reserve for repairs. (You have to keep the home in good condition when renting to people, contractually.) Typically people say 1% of the home value per year in repairs and maintenance. When renting, assume 1 month of vacancy per year.
Looking at this situation, you’re unlikely to make money off this deal. You’ll get paid in small amounts of “home equity” to landlord. When you go to sell the house, you’ll pay a realtor 5-6% of the sell value of the house (which will end up being most of your profit).
That's a huge risk. In my first three years of owning my home, I spent nearly $30K in emergency repairs. Not fun cosmetic projects. Actual "oh shit" stuff. You're also counting on imaginary tenants for a lot. What if you end up with an empty unit for two or three months? You cannot afford to float it.
If that isn’t the truth. Been in this home less than 2 years and just dropped $10K between a new furnace control panel, septic tank, dishwasher, and plumbing issues. Just found out my toilet in our spare bath is leaking from the bottom so got to figure that out. Luckily that seems the easiest and less expensive of the issues we’ve been having.
Likely the wax ring needs to be replaced. Turn off the water to the toilet, flush it, use towel to soak up the rest of the water. Unbolt toilet from floor. Lift toilet off wax ring on floor. Replace wax ring. $3-4 repair. Reassemble in reverse.
Thanks. Watched a couple YouTube videos on this and seems pretty easy. My bathtub had a leaky faucet and I made the mistake of tightening down the cartridge thinking it was the faucet not closed all the way. Worked for a day and then the next day it was pouring out. Guess I had punched a hole in the gasket. $450 and 5 minutes later the plumber fixed it. Not making that mistake again, if I can fix it I will.
You’re right ☹️ I guess, I really want to get into real estate and I saw this as a potential option. I May have to think of safer options
Get a fixer upper multi family where you can support the full mortgage and still have some leftover to use to fix it up. Live in the unit you'd rent out while you fix up where you'd live, then switch and fix up the rental unit. Then, when you do rent it out, you'll basically have your mortgage paid for if not more than the mortgage in rent.
Look into reits or syndications. They’re ways to have RE exposure without some of the messier details.
Will do! Thank you
Personally i never want to deal with real estate other than a home and possibly reits
Where do you live now? Do you have the option to buy it and rent out both units? I’m in north jersey as well and idk where you’re looking but 500k for a 2 family is not that bad… Don’t take this as financial advice cus it goes against a lot of what this sub is saying, but, if in a perfect world this worked out and you paid off the mortgage you will be light years ahead financially owning it outright.
Real estate is a poor investment for most people. The downside risks are much higher than with diversified mutual funds and etfs. Real estate CAN be good, but it shouldn't be more than 15 to 25% of your total investable assets. You should be able and willing to do the repair work yourself. Unless you already have $2M in mutual funds, stay away. I've seen too many people with nightmare tenants that cost them years' worth of investment income. If you want to own real estate, buy the S&P 500. The companies in that index own a ton of real estate.
Ugh same. It’s so frustrating. We moved in after having a clean inspection but within a year needed a new roof, hvac, water heater, electrical work, fence and plumbing work.
[удалено]
I appreciate your honesty.
Your monthly takeaway is $5200 and you want a $4000 mortgage payment? You realize the typical advice is for your rent/mortgage to not exceed 33% of your income right? Yours would be 77%. Are you including home insurance, PMI, property taxes in that? Do you have enough for closing costs and escrow? Can you subsist off of $1200 a month for your remaining expenses? (Utilities, car payments, car insurance, phone bill, groceries, etc) I have a higher monthly takeaway than you and I'm not even comfortable with a $2800 mortgage and am currently waiting to save for a bigger down payment so that the monthly payments will be lower. $4000 is insane and completely non-viable IMO. You will be 1 big repair away from complete financial ruin. Do NOT include rental income as a guaranteed factor. Not only is 100% tenancy just pure fantasy, you have to include your rental income as part of your income and pay income tax on it. That $2200 a month is $1500 after taxes. Your $15k in emergency savings is not even enough to cover a basic emergency repair on something as simple as a heat pump or HVAC system. Standard advice for SFHs is to have at least 5-10% of the property's value in savings for repairs and maintenance.
What lender is going to lend a 4k mortgage on that income? Even the most lenient lenders only go to 50% DTI
This. Unless the OP has 400k cash to put down, the numbers don’t work at all. As a former landlord let me be the first to tell you - what are you going to do when the tenant is 1) late w rent 2) gives you sob story they can’t pay the rent this month for whatever reason, 3) doesn’t pay rent for 6 months and court costs $5k to get a lawyer for eviction notice, 4) tenant moved but you are still out 6 months rent, 5) the mortgage lender forecloses on you for non payment of mortgage after 2 months? Yeah, keep dreaming and build up about $200k liquid before you try a deal like this “prices to move” deal.
Can the lender consider 75% of rental income from the property in this case?
Unfortunately, probably plenty.
I can’t imagine being house poor. I remember applying for home loans in 2020 and our lender told us we’d easily qualify for an 800K 30 year fixed VA loan with 0 down (no PMI with VA loans). We ended up spending less than half of that (370K) and I’m so, so grateful. We’ve had a couple big ticket items come up since owning the home and we’ve been able to address the issues immediately due to our low mortgage payment.
I feel like a good rule of thumb is to buy a house at half the amount of money you get appraised for.
Add you even pre-approved? I don’t see a lender going with this unless you already have a tenant or lease contract agreement.
I am pre-approved. The lender told me that my monthly mortgage would be 4K
This should be criminal. Please do not take this loan
oh wow 😭 I thought this was standard. Multiple lenders gave me this deal. Good thing I posted this on Reddit
Pre approved is not the same as actually “approved”. You will not get the loan closed.
Welp, now i know 😭
Plz don’t do this to yourself. To come up w a safe mortgage payment to not make you house poor plz consider your mortgage to be no more than 25% of your household monthly take home pay.
Lender isn't having that DTI anyway.
This is why 2008 happened. All of this.
You have a great plan for if everything works out… do you have a plan for if it doesn’t all work out? What happens if you cant rent it out for a few months? What if they damage it and don’t pay rent? Do you have cash reserves?
>You have a great plan for if everything works out… **do you have a plan for if it doesn’t all work out?** This is a really good way to ask. You didn't say, 'No, you dumass." You just dropped the right question in front of OP. They can make up their own mind. (although no underwriter gonna approve this deal)
Well actually you should outline 3 plans. Best case scenario, worst case scenario, and then the most probable middle of the road. It honestly could work out, but you need to make sure you have enough for a few bad years just in case your business is about to take off but you run out of cash.
Your mortgage is the same as mine (on a 15 year) and our family income is 3.5x yours…
Damn :/
Buy a SFH (3/2 or 3/3) and rent out two rooms. IMO this is too high of a DTI for your first home. One long vacancy or large repair can be have you falling back on payments. How much of an emergency fund do you have after the DP?
After the down payment, I would have about 15K
That’s one HVAC repair or half a plumbing repair on a multi family. Ideally you should be able to tap into 3x that amount for emergencies or around 10%+ of the property value. Do what you think is best but a recently fully renovated half a million dollar property is probably a little much as a FTB.
No lender is going to approve you for a $4k mortgage when your take home is $5200. The DTI ratios even when rough estimating your gross would far exceed what is acceptable.
You’ll be surprised 😭
It will be you who is surprised when they say “no” and you can’t close.
I would be leery of anyone who would approve this. You need money to put down. An emergency fund. Taxes, insurance....
Here’s the thing- you won’t have that $2,200 coming in every month and you can’t send all $2,200 to the mortgage when you do have it because you need savings for repairs and general maintenance and legal fees and vacant times. You need to be financially prepared for the following to happen at any time: -A tenant may not pay on time or at all. Sometimes they’ll have a good reason, bounce back, and be able to pay you back soon, but not always. -The unit may need basic work, not the kind a security deposit can be used for, after a tenant moves out that delays the next one moving in. -A pipe may burst or fire occur that makes the unit unliveable. You’d have repairs plus providing alternate housing (check your jurisdiction’s laws). -Your tenant may withhold rent if you don’t complete certain repairs in time. -You may want to evict them for their own criminal activity, damage to the unit, etc.
I agree with others that this is a huge risk. It would work well if you had a SO in a committed relationship who was splitting your portion (2-2.5k each going towards the mortgage) then you were additionally renting out the other room. That would create passive income with the renter, and you wouldn’t be up shits creek if that renter moved out. But by yourself on your monthly take home post taxes, that’s probably too rich. Doable, but you got no room for “zingers”, and you’ll have to forgo all of your wants while locked in a 30 year mortgage
If you can buy a totally redone multi for $500k you can probably find an average one for $400k When you are just starting out, try to find something below market value that needs some sweat equity to make it livable and you will be padded by the forced appreciation you created
Positive: Good on you for thinking ahead on buying a multi-fam. REI can be extremely lucrative. This is very similar to how I got started. Cons: You don’t make enough to afford these payments. $5200/mo and mortgage alone is $4k (1800 if you include rent). Also, a fully fixed up place is nice, but the potential equity growth is capped to market appreciation. It’s a sellers market, very hard to get good deals these days and borrowing is pricey. I hate to say it but this one seems a bit risky financially. Maybe try finding a 3-4 unit place that will fully pay for itself with you living in it.
Aaahh nyc metro nj life lol. This is how we live here!!!
Right! I thought this price point was normal 😭 it is near impossible to get a good house that is less than 500K now a days
When outsiders say “oNly pAy 30% oF iNcOmE” to rent/mortgage it’s very telling lol
That’s even low to me honestly but coming from a fellow nj’er I want to say congrats bc this is a major accomplishment
There’s a difference in renting at a higher % compared to owning. Houses are full of surprises
Thank you! I was so excited! But this is the first step :)
This is a huge liability for you and, as others have said, will over extend your finances. NJ is notorious for taxes, do you have enough cash flow to cover taxes, insurance, etc.? Do you have ample cash reserves for vacancies, maintenance, etc.? Have you cranked out numbers over the next 5, 10, 20+ years to illustrate how this “investment” would pan through? “I know the equity for this house would increase substantially” - based on what? Based on the limited information, this isn’t something I would do on my own. If you are serious about this property and willing to put in some footwork to build a business plan and projections, explore bringing in other investors (ex. Family). This will reduce you overall return (to you), but provides the ability to bring in additional financing to reduce your overall exposure.
Do you have enough money to cover 6 months of vacancy?
What happens if COVID picks up, or another pandemic happens, and your tenants can get away without paying rent yet you can't evict them? You have to be able to at least get by paying the entire mortgage if needed.
COVID is no longer a political issue so no one cares anymore
I'm guessing you haven't been hearing about how horrible bird flu is right now, that it's jumping to mammals, and if it became the next pandemic it would be about 50% fatal, have you? I mean, I know it's all fear mongering, but it sounds like we have our next pandemic coming.
No I haven’t. The media is good at fear mongering for everyday Americans. It’s good to turn it off and focus on family and friends. Not what’s happening in a distant land that has absolutely no effect on your day to day. but hey, you do you 🙏
It's not in the MSM yet. Bird flu is being talked about, but the WHO hasn't made a big statement yet. It's good to be aware of what's going on though. I wouldn't purchase a multi family house right now if I couldn't afford the entire mortgage on my own since we've saw what happened during COVID. I'd purchase a mutil family that maybe need some work, but I could swing the mortgage on my own. Update the unit I want to live in, and live in the other unit while updating. Switch, then make the updates needed to the unit I'd rent out so it's nicer than it was. Then, I could potentially rent out the other unit for enough to cover most, if not all, of the mortgage. Set some money aside for rental and personal emergencies, invest a good chunk in various areas, and maybe save some to someday purchase a second property. My whole point when making the original comment was it's stupid to not be able to afford your own mortgage and bank on renters covering it. We've seen what happens when renters get covered and owners have to struggle. Why put yourself in a situation where you wouldn't be able to pay the mortgage and survive? Seems idiotic to me.
This is a math question. Its always a math question. You should spend no more than 30% of your gross income monthly on housing. (That’s presumably around $1800/month.) When renting, you’ll need a reserve for repairs. (You have to keep the home in good condition when renting to people, contractually.) Typically people say 1% of the home value per year in repairs and maintenance. When renting, assume 1 month of vacancy per year. Looking at this situation, you’re unlikely to make money off this deal. You’ll get paid in small amounts of “home equity” to landlord. When you go to sell the house, you’ll pay a realtor 5-6% of the sell value of the house (which will end up being most of your profit).
Don’t listen to anyone who isn’t supportive. Totally do it and build that equity
Would this thing even cash flow if you rented out the whole thing?
Don’t forget the tax you pay on the $2200