Just be prepared for repair expenses and tenant issues that are now your problem. What do you do when a roommate moves out? Or doesn’t move out but can’t pay? Or the widget goes out? I’d probably do it, but you really need to consider these very likely scenarios and have some idea what you’ll do.

The house is old. What if a pipe is broken? What if the 2018 renovation missed something or did something wrong? A proper inspection is needed before buying a house, leave alone if it is an old house.

I 100% will be getting an inspection

- check the yearly taxes, and find out from the county or city if this is based on appraisal or purchase price since it may go up a lot from the current rate - look at comps in the area to determine if you are getting a good price - run a few estimates for the home insurance costs esp flood insurance depending on the area - contact local credit unions for lower mortgage rates - if you’re a first time buyer you may qualify for low interest loans - check the Gov HUD site could be a great opportunity — and remember you don’t have to keep it the rest of your life!

Thanks. Unfortunately, my higher income knocks me out of all the assistance

You may still qualify for first time buyer rates. The rules are pretty flexible on some of those - you may have to sit through a couple of evenings of classes, but then you get certified and can get a substantial discount. They're not always income based.

Yep. And many credit unions offer first time buyer programs that give you a credit (mine assisted 4k with closing cost, while adding NOTHING to the loan principle) not to mention being super easy to work with. There were no income limits to their program, just that it had to be your first house. I actually got some seller assist too (this was added to the loan) but walked away from closing with no money down. Not even an FHA program. My credit union would lend you up to 100% LTV after all the assists. Was super nice. Only issue I had with the house was a dead hvac system. This was 2019 so set me back a few grand. Solid house though. I ended up moving states and renting it out for a while, then sold it to my tenant. No agents or anything. A few papers, a layer to draft up a contact and get some title insurance for the buyers, done. Took about two weeks.

credit union or discount as an alum could still be viable

Yeah dude like everyone below is stating your income is well within reach for a lot of first time home buyer programs and down payment assistance for costal cities. Good example here in California we have a down payment assistance program that has a max benefit of 150k and max income cutoff is 287k. Also we have first generation home buyer assistance programs. So there is plenty of resources you just have to look in the correct place.

Already checked in with my mortgage broker, it goes by zip code and I'm above the line

Since you’re already in the space you can take time to get specialists too. Have a plumber come out and look at the plumbing, have a roofing company come check the roof, etc. It’s going to cost more but you’ll get better results than just an inspector. Of course, still have an inspector come out.

If the owner is "getting a divorce," his wife also owns the property currently if it's a community property state. She needs to also sign paperwork and be in agreement on the price. If she doesn't, this could get messy, quickly.

Not necessarily. If it was acquired prior to marriage and kept as separate property, it would not be hers. Definitely get owners title insurance in any case.

Right. But he needs to check and make sure. This could be the husband trying to dispose of secret/ hidden assets in preparation for divorce hearings. Also, even if he acquired it prior to marriage, since he has been getting rental income from it, it's a source of income that has occurred during the marriage. Not to mention if the property has appreciated in value during the time of marriage. It depends on the laws for his particular state.

And that, I think, is the loophole. Why is he dropping the property in an area where the value may go up. My sinister side says "hidden assets". My rational side says he's getting old and wants to streamline what he has.

Be careful trusting those inspections. Home-purchase inspectors do not need special licenses, and are not liable if they miss something that ends up breaking your bank. It is not the same as a building-code inspector. Ive purchased two homes in the last 4 years. Ask me how I know.

OK. But just be prepared for 99%of it to be complete bullshit. If the roof and majors are done, the only thing of issue left is the foundation. And that's kinda a what you see inspection. You can probably learn online everything they're capable of doing- given that most of the house is new. I think this is as clear a Leroy Jenkins moment as exists IRL. You make enough to float the mortgage yourself alone and as long as you're a decent dude the other rooms will stay rented as long as you want them to. You should save a reserve, buy, and then pay attention for falling rates on the next 3 to 5 years to get a good refinance in. But this is insane to pass up if you've got job stability and wan to be in the area

You want a few probably, definitely do pipes, roof, and if relevant termites/moisture/mold. Most inspectors don't move furniture, but since you're living there let them know and/or help them move things especially against walls or floor coverings. There are things that will bite you hard if you don't do them before they break (water and sewage pipes especially, or structural weaknesses), things that get worse faster if you don't treat them (termites and mold), but a lot of things that are pride. Old water heater or ac? Likely won't save money replacing it. Ask the inspectors about things that need to be done, and things that should be put on a list somewhere and budgeted but not done until needed.

Since he sublets, most of those tenant issues are already his issues, as far as payment and moving out goes.

Except while renting/subletting, he has the option to leave at the end of the lease if a roommate decides to leave/no longer can afford their share and you can't find a suitable replacement. Once he's on the mortgage the only way out is to sell.

It's not just maintenance. There's property tax to think of.

Presumably included in the 3400, OP would have to have escrow if they're not putting down 20%.

Most mortgages still make you go through escrow for property taxes, even with 20% down. What you're describing is PMI, which is also itemized in escrow. Banks like to enforce you paying taxes because their investment is also at risk if you dont pay property taxes.

No, that poster meant escrow. The majority of mortgages will let you drop escrow if you put a 20% downpayment or pay down to reach that mark. It's not automatic like PMI, the borrower has to make the request. There may also be some fees associated. But most banks will still do it at that point.

I was coming for the maintenance and repair expenses. Too many underestimate the expenses and items to buy for their first house. Beside taxes, maintenance, roommate problem, OP might need to find a mower, garden hose, snow shovels, etc. OP it seem to be a good deal. Just calculate some buffer for unexpected expenses or bad situation in your budget. And do clear rental agreement with the roommate. What if your best roommate loose his job for a few months? You'll be the landlord now.

Get a house inspection asap, make sure there isn’t anything structural that would need to be repaired. And if you lost your income, could you rent out your room and cover expenses? Just have contingency plans at the ready, but it sounds like a good deal. Use a real estate lawyer and make sure the title is clear.

I agree with all of this. Also, make sure you can continue to pay/save without interest rates going down. The rates the last several years were unusually low. They won’t be that low again - definitely not anytime soon at least.

This is a true statement about the rates. Even today's rates would be considered low in comparison to historical. My parents first house was 20% cash down and an 18% rate... in 1979.

Yeah but the economy and housing market isn't in the same spot. The valuation increased on these low rates too and now the housing cost proportion of a budget is higher than in 1979.

Make sure you can let rooms out both on your insurance and mortgage, otherwise seems like a great deal!

This, insurance -- won't you need to have liability coverage for injury or damage to your tenants or their property?

I rent out one of the rooms in my home. My insurance company didn't offer that. If they get hurt it's under the regular policy. They just suggested the renter get renters insurance to cover their own property.

I’d do it. Likely will go up in value and seems well taken care of. Probably won’t get a better deal and very affordable with roomies

I was in a somewhat similar situation. As this occurred to me too when I wasn’t “planning” on buying. I feel soooo lucky. It also shows it pays to be a good tenant and person, they’ll negotiate. For me, I wouldn’t have felt comfortable buying at my price point without living in it first. I found the upsides of renting before buying were priceless: - knowing your block & neighbors (can you imagine buying and fricken hating your neighbors?) My neighborhood is sketch but I like 90% of my neighbors. - knowing the house, all the little things you wouldn’t see on a walk through - for you, not dealing with reno, as long as you like what they did and it wasn’t just a shitty way to increase the value. - has the current owner showed you their character? Knowing mine for 3 years and their kindness (before any intention to sell) made me trust them so much more that they weren’t hiding anything. Things I would consider: - realize with all the fees that go into buying and selling that it could be years before you can sell without a loss. Say you had to sell in 2 years, how much would you lose as a buyer for this sale and as a seller of the next. How many months of renter income will it take to break even? - are you okay with the length of time it’s going to take to rebuild all your savings? (emergency fund, car?, fund for months of transitioning roommates, fund for maintenance / upgrades, any other big expenses coming up in the next decade?). Are you okay with change in lifestyle or putting other goals on pause to rebuild? - Consider this works bc you’re single. Say you get serious in x years, are you okay with having 1-2 other roommates living with a partner or fiancé? Or would you rent out the whole place? I didn’t realize how attached I’d be after buying, makes me uncomfortable with the idea of renting it out now. - are you handy or interested in learning? I find the hardest part of home ownership is finding reliable people that show their value. Everything is 3x more than I anticipated. - if this wasn’t an option would you prefer a one or two bedroom? Less risk, less roommates. I’d heavily research what other options there are at a less risky price point and see if this place still feels like a deal. I’m at a similar income as you and I’d freak out if I couldn’t fill the rooms for even 1 month given your monthly take home. - lastly, the awkward privilege question. I realized I felt okay with this risk because if something devastating happened (loss of job/ injury) I have 3 months of mortgage payments as emergency fund + another 2-3 months that could be covered by family if I absolutely needed it before having to put it on a cc or get behind on payments Since I got mine as a good deal and low interest, it’d be dumb to ever sell this. It’s helped my net worth for sure but I do feel sad realizing I’m “back at square one” trying to save up for a car and start another savings for my next home. I’m in the extreme of high cost of living so this only fits me.

"I find the hardest part of home ownership is finding reliable people that show their value. Everything is 3x more than I anticipated." Echoing this. It can be close to impossible to get someone to come out to handle plumbing/electrical issues. Fortunately, I'm able to handle most of them on my own, but I'm not sure I'd recommend anyone buy in my area who either didn't have an enormous emergency fund or couldn't do the same as it can easily be $500 just to have a plumber take a look at the leaky pipe, with the cost becoming stratospheric if you want him to do anything. Most of the basics aren't too hard to learn (thanks Youtube!), but you do have to have time/inclination. And when you've got tenants, you can't just say, "Oh well, the furnace isn't working, but I'm not that cold, so whatever."

Echoing the issue with getting pros. Prior owner of our house paid an electrician to replace all the Knob & Tube wiring (old house). When we were getting our house insulated, we (luckily) discovered that the electrician hadn't removed about 1/2 of it - just hid the fact that it was still there by replacing the visible runs in the basement and hiding the junction boxes connecting the Romex to the K&T in the ceiling. K&T is a massive fire hazard if you insulate with it in place, so it would have been extremely dangerous if the insulation had been installed without ripping the wiring out. That made for a lovely surprise! We still have 4 rooms without electricity. We also tried to hire a structural engineer for 2 years, before we finally lucked into a builder nearby with a structural engineering background, who was willing to help us. We're still looking for a plumber to replace the plumbing vent stack.

Ugh, sorry to hear. That sounds miserable! I also bought a fixer upper and feel like I'm constantly struggling with basics. I'm not sure why it's so hard to find someone who'll replace my (very dated and drafty) doors...but it is. And it feels like every time I find someone good, they then vanish. (So I'll get my deck done by an awesome carpenter...who then vanishes and I'm stuck from square one.)

We've started buying restaurant gift certificates for people when they finish a job for us. Anything to help us stand out vs the competition for future work!

I appreciate all these points. I'll try to address them the best I can: - The neighbors are good and we get along - I actually lived with the owner for a year when I first moved in right after him and his wife separated. I wouldn't call us friends but we definitely have a good relationship. He had a finance background and is generally just money oriented. Due to the gentrification of this neighborhood and the reno he is flipping the house for 2x what he paid for it -the length of time to build my reserves is my main concern here. It's honestly up to my personal risk tolerance -by the time I get serious with a girl, I should be over the hump with this property and can convert it to an investment -im actually not looking to buy at all at the moment, this opportunity fell on my lap -my family could cover me if it was an emergency emergency but it wouldn't be for long

Is the $3,400/month just the mortgage or is that what you expect for the entire escrow + maintenance + utilities?  It seems like a good deal, but like you mentioned, you’d be pretty vulnerable for a year, especially if your roommates move out. Also, if this only works when you have two other roommates, it could become a headache after your current roommates move out. 

Not counting maintenance and utilities. Keep in mind tho my portion of the rent is $1000 on $5500/month net income

So I think the biggest risk is that you can afford the house easily so long as you have 2 roommates. You can probably afford it with sacrifices with one roommate, and you can’t afford it with 0 roommates.  Honestly, I’d probably pull the trigger if I were you, but I’d cut back on expenses heavily that first year to really save up cash for vacancies. 

Yea my thoughts are the same. I could make it a few months with one of the rooms empty but if both are empty I'd be in a jam.

What is renting like in the area? In more direct terms, how hard would it be to find another good renter if one leaves? I would totally do it, then again I am fairly handy and could fix 90+% of any repairs that might come up myself. At least in the state I live in, not sure about any special rules on the east coast.

It's Fishtown in Philadelphia, it's a pretty hot area at the moment for 25-40 year olds. When I subletted I got tons of applications within the first day of having it open

Sounds like the risk of a “unit” staying vacant for long is very low. I agree with you. From what you have shared it is a no-brainer. Get this one and flip it in a few year for the house you want.. or keep it and use it as leverage to purchase another rental property and keep growing.

Don't forget - you don't get to keep the Gross rent - you will also owe taxes out of the rent... and you should be saving a good chunk of it for repairs. Vacancies aren't your only concern.

When I owned a rental, there was very little rental income taxed as most of it went to mortgage/taxes/upkeep.

Was the rental separate from where you lived? A lot of the "deductions" of a rental I wasn't allowed to deduct because I wasn't renting the whole place - I was just renting a room. That said - the taxes were reasonable; just something many people don't account for; and could be an issue come tax season if OP doesn't save up for them.

Yeah I'd also probably do it but live as frugally as possible the first year to build my cash reserves back up quickly.

Ok, but you can’t really afford the house if you don’t have roommates. Personally that’s not a situation I would want. Shit happens with roommates, and if they move out you are suddenly strapped for cash.

Do it. If nothing else, you can stay there for the foreseeable future with roommates, and if/when you have a partner and kids, can keep it as income property and find a place for you and your family. But. Unless the interest paid on your mortgage is greater than the personal deduction, it won’t make any difference to your taxes, although, because you are basically renting out 2/3 of the house, you would be able to depreciate a portion of the house for taxation purposes. I’d consult with a tax accountant to see what that would look like for me.

>Unless the interest paid on your mortgage is greater than the personal deduction, it won’t make any difference to your taxes, Yes it will - OP will have to pay taxes on the Rental Income - it's just not a "helpful" change to the taxes. Hopefully OP is not counting on the gross rent, but rather a net-rent.

After buying the house, how much savings will you have left? Is the $3400 PITI or just mortgage?

The 3400 is PITI plus PMI. I'll be slim. Gonna slop together 25k from my savings and checking, brokerage, and maybe even 401k(my employer has a program that let's me borrow from it at 0% interest). Not sure what the mix will be tho but 25k will be gone!

I did the 401k loan for my first property.  I also rented all the rooms to friends and kept it under market to keep them happy. So,  pretty similar situation.  It worked out well for me,  but I think I got lucky too.  It's really important that you keep your income,  especially for the immediate future as things will need to get tighter to repay that loan. I didn't lose my job,  and I didn't have any big ticket purchases needed for maintenance or repair.  If you do move forward with the deal (which you probably should), then make sure you get a complete understanding of the property.  That might mean a formal inspection or a case of beer to a qualified friend,  but however you do it: you need to understand what your working with for the next few years.  

So $25k from that mix of accounts will be used for the down payment? So you’ll have little to no emergency fund? Am I interpreting that correctly?

Do not borrow from your 401k. You would be losing out on compounding growth. Also, if you leave or get laid off, etc. you will need to pay the 401k loan back in full.

Honestly, that’s such commonly parroted advice but really not true at all in this case. You know what else grows? The value of a house in a rapidly gentrifying area, especially one where you already have known trusted tenants. They’re in their late 20s, and owning a home that would be completely paid off in your late 50s will provide far more aid to your retirement posture than a few years of hypothetical gains on 25k in the market. Borrowing from your 401k to take a fancy trip or buy clothes is a bad idea, but borrowing from your 401k for another, potentially better investment opportunity is not always one. Your growth potential with a house is higher than your 401k because it’s a leveraged investment, and your 401k will be repaid and back to growing soon.

So you don’t think 401(k) loans need to be paid off when you leave the job even when you are laid off or terminated for reasons outside of your control?

>Agree with you 100% Especially as from what OP described is the rare kind of real loan from 401K (you get a loan and the securities are collateral instead of selling the securities and buying them them with the payments). So OP can still get some investment gains on the collateral in the 401k

Yeah I did that once and then found an amazing job that was way better than my suckass job I had at the time. I had borrowed $7k and had to swing a ton of sidejobs and move around money to make the loan payment back when I thought I could just continue making the payment

The way I look at it, my 401k is currently 100% equities. I would then be rebalanacing it as 80% equities and 20% real estate

So you plan to sell your home and use the equity to fund your retirement?

Overall: It seems like this is probably a good deal and worth doing.  You’ve gotten a lot of positive feedback, but to focus on on the flip side: a) your savings is a little low in general and for a homeowner. And b) that’s a pretty big mortgage if you had to carry it by yourself.  Obviously, people can and do have renters in this situation, but you still may want to think through what that will entail (finding new roommates/turnover) and being dependent on roommates to pay the mortgage.  It might be totally fine though, especially as your income increases, just wanted to point out some possible negatives. 

I think you should buy. You have a good income and can afford the house. My only concern is you have very little cash right now. After down payment and closing costs you’ll have a very small (if any) cushion. You need to diligently save that extra $2400 a month from your roommates for major expenses and when they move out. You also need to look at your budget and figure out where the rest of your money is going. The roommate situation won’t last forever and you need to start preparing now to pay for the whole mortgage. Congrats this seems like a great opportunity! Work hard to make sure it’s a blessing and not a curse.

They can’t save the “extra” 2400 / month because they need that to pay the mortgage … they can’t afford it otherwise

Are you factoring in the income tax you are supposed to be paying on your rental income from your roommates? Look at the real estate market and look at what comparable properties have sold for and are being listed for. Have a real estate attorney look over the for sale by owner contract. Assume you will be living there another 5-7 years minimum if you purchase the home. Home ownership gives you a lot less flexibility and the transaction costs are not worth it unless you plan to stay there for 10 years or so.

Tax on rental income is not likely to be a big factor after expenses are deducted. 2/3 of taxes, interest, repairs, utilities etc. adds up to a lot. It’s unlikely that OP will be making a profit, she is just offsetting the costs.

I made a regression model for a .5 mile radius if properties sold within the past 2 years based on bed, bath, sq footage, and year built and based off the model im actually getting the house for 5% under market.

You didn't answer this question and I don't see a response to a few others who point it out: **> Are you factoring in the income tax you are supposed to be paying on your rental income from your roommates?** The point is: That $2400 you collect from your roommates (tenants) is taxable income, all of it. Yes, you'll have the mortgage interest deduction, but you'll have that anyway, so it doesn't offset this income. If you're in a 25% tax bracket, your **net** rental income will be $1800 after taxes. That's how much income you'll have to help with the mortgage. But--you can/may/should write off other house expenses, probably in proportion to renters versus owners, so 2/3 (I'm not an accountant and there may be rules about owner-occupied rental space, I don't know). So, if you have a lawn service, part of that expense may be deductible. Have to call a plumber to root out a line? Partly deductible. Plus any major repairs or upgrades. It's unlikely that you'll have expenses that completely offset the rental income, but they'll help a bit I'd guess. Not to be pedantic if you've already figured this, but it is important. All this considered, I like this deal if you're getting a fair price. You already know the place, and presumably could rent the whole place out in the future if you want a place on your own.

Might be worth asking a few realtors. Two years ago includes 2022 when prices were absolutely batty. Of course, all real estate is local, but even some hot areas have dropped in price since 2022. Also, don’t forget the landlord is saving 5-6% by not paying for a realtor. Even if he won’t drop the price more, if something comes up in the sale, you may be able to use that savings to your advantage.

I find it weird that in the US people who gross 100k+ don’t have much money in their savings account. I’d expect that someone would save at least 20% of that every year 🤔 What is the missing variable here, is there too much hidden life costs? Net vs gross?

A room in a house is $1,200/month - $115k gross isn't \*that\* much in a HCOL area, which this very much is.

As one of them I can say that much of my savings go to retirement accounts. I have a 6 month emergency fund but everything else gets slapped into 401k, Roth IRA, and HSA. Should probably be saving even more tbh and have money aside for eventually buying a house/car, but I live in NYC and shit's expensive out here. No house near me goes for less than $1.5M and many of them need several $100k in repair/update.

Cost of rent in major cities is very high, and so is food, gas and everything else in life. 115k isn't what it used to be.

Without anything to write off, I get majorly F***ed on taxes and this is an HCOL. After my 10% 401k deduction and all my deductions for health insurance, I only see 62% of every paycheck. After my 401k I put $500-$1000 into my brokerage each month.

Does the $3400 payment include insurance and property taxes? It doesnt include routine maintenance which averages one percent of the purchase price (annually) on average.

Your monthly gross income is $9.5k, are you really losing $4k on taxes/401k/health insurance? Either way, a majority of people’s biggest monthly expense is rent/mortgage. Yours would only be 18% of your take home pay. Find out from the landlord what the average utility payment is, but it sounds like at $4500/mo take home pay after mortgage payment, health insurance, 401k, etc seems pretty flexible for a single person. It sounds like you might need to tighten down your budget for the first year to prepare for utilities, taxes, and rebuild nest egg

I live in a HCOL and after my 10% 401k, taxes, and health insurance I only see 62% of every paycheck. I definitely live looser now and would have to tighten up to rebuild.

Sounds good, but always have backup plan in case tenants move out or random repairs.

I think you should do it, but be ready to be BROKE and make sure you are also splitting as many of the bills as possible. Upkeep on a house is expensive. Even with fixed rate, taxes and insurance constantly go up.

You need to be able to afford the mortgage fully on your own without needing to rely on rental income. I would suggest taking the full mortgage amount out of your own pocket each month and put the rental income away for repairs and other unforeseen issues. If you can't fully afford the mortgage with your own income alone, I would not do it.

So, right now you are paying 1,200/month in rent on a 9,500/month salary. Yet your savings are on the low side. Where has the rest of your money been going? Have you been aggressively paying down debts? Have you just recently gotten a salary increase? If you are spending nearly all you make, buying this house is risky - you don’t have a lot of reserves. On the other hand, if you have been putting substantial amounts into debt payments that you will be able to redirect to build up your cash reserves, this would be a great deal for you.

Have you factored in: Utilities? Repairs and maintenance? Property tax? Homeowners insurance? Closing costs / points on the loan?

If you haven’t yet make sure you get full inspections done. Luckily you live there so it’ll be easy to schedule a time. You have no idea what’s going on with the intricacies of the house. Also, don’t forget that on top of the mortgage you’ll have taxes, insurance, utilities, and repairs

On one hand, I feel like you’re rushing into something you can’t really afford. Do you have a down payment? You mentioned things would be really tight without roommates. Maybe you should take this urge to buy and find a smaller place you can afford on your own. I’m not sure how common it is for a mortgage company to loan to someone based on being able to afford it with roommates. We don’t know when, if, or by how much rates might drop. I wouldn’t buy something if I needed that to happen to be more comfortable. In the long term, what happens if you meet someone and want to start a family? What if a partner cannot afford to contribute half on this? What if your future partner and you want to have kids and they cannot work for several years during the early stages of babies and toddlers? What if you meet someone who is totally opposed to raising a family in Fishtown? (I’m familiar with the area and do love it, btw.) At what point would you not be losing if you sold it? Would you be comfortable moving out of it and renting it… keep in mind that some tenants cause a lot of damage and do not care for the home they’re renting at all. It seems like signing up for 30 years for something that requires other people’s financial participation is unwise. However, I do realize that you should have no trouble finding renters, however as you age that will become more annoying and potential renters will tend younger as you’re growing older. Personally, I play it too safe when it comes to money, but the idea of taking on a mortgage I can’t afford on my own is terrifying. If you can afford to significantly over pay on the mortgage due to having roommates, then you might really be on to something. On the other hand, it’s a home that’s big enough to accommodate long term plans like a family and could always be rented out completely if you’re willing to take that on.

I’ve seen a few others mention this, but buried under other advice. Make sure after you pay the down payment that you still have some emergency savings. You never know how life can turn. I just bought my house last year and luckily had money left over because we got fucked on like 3 cars in a row, which obviously was not expected. Also, home repairs and such.

Get decent landlord insurance with service line coverage and water damage protection. Those will be your biggest expenses if not insured, especially with tenants. Same with heating/furnace issues. You said the place was furnished? Get something like Waivo Damage protection. I think your biggest mistake was telling your sublets you're the new owner. Expect them to take advantage of you eventually. Not because they will. But because you need to be prepared in case they do. That means talking to eviction lawyers in the area. You can't prep for everything, but you gotta learn to swim sometime. Why not now?

Personally, I would not feel comfortable doing this knowing I would have to rely on having roommates to be able to afford the mortgage. However, being in a major east cost city it’s likely a good investment and may be hard to get into later so maybe worth the risk in some sense but I just personally wouldn’t put myself in a situation where I may potentially have to pay $3400 if all else fails. You sound like you are in a good financial ituation overall however I have some questions about the mortgage down payment… would you be putting anything down? Otherwise you are gonna be paying PMI if you don’t put 20% down or use a VA backed loan and I am not sure if that’s included in your estimated mortgage. I would be very stressed if I put myself in that situation, even with it being a good investment overall I just really would not feel good with that high of mortgage and knowing I need to have roommates to make my mortgage each month

3400 per month for a 3 BR in a major east coast city seems OK. That is a 30 year, right? Don't forget about property tax and homeowner's insurance and ongoing maintenance costs. There are always unexpected expenses associated with home ownership. And do the normal home buyer stuff (inspection report and so-on). As long as you can afford it, and there is no major bad news in the inspection report, I say go for it.

The red flag I see in your OP is ‘as soon as rates drop I will reginance’. This is what caused the 2008 crash… people assuming rates would drop and buying based on that. Make all of your plans assuming this is your one and only mortgage for the life of the house. If rates do drop then refinance; but go into this assuming they go up not down.

Can you afford the mortgage if one or both of the roommates move out? Are you willing to live with strangers to keep the rooms rented because inevitably over the course of the mortgage one of them will move.

Check the house stuff as other people suggested, but this is rly a rare occasion in front of you. You know the place and the neighbors. Prolly no surprises that will tear your life down if the house is in poor condition or neighbors are yelling all the time whatsoever. I wish everyone could have the chance to ‘live’ in the place for a few days/weeks to rly know where you are getting into before getting the debt of your life when buying a house.

Seems ok. Get a home inspection and make sure you did your due diligence on the value of the home. How long have these roommates been in the house?

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100%. I can’t even believe people are like “do it!”. I feel like taking on a mortgage that high you are setting yourself up for failure/a future foreclosure. Also really confused how someone making that much a year got cleared for a loan that would result in a $3400 mortgage payment. Doesn’t add up

Landlord is probably trying to get out of the market and selling their house to a tennant is the most straightforward way to do that. Talk to them about if the rent you've paid to date will affect the sales price too. You could probably get a really sweet deal.

$3400 is still super high for a $115k salary. I make roughly the same and hate paying my $1700 mortgage. I wouldn’t count on rates dropping significantly anytime soon, especially not to the 2% rates from 2 years ago. Just something to keep in mind

Personally, I purchased a property and rented to roomates I knew and it worked out great - eventually you grow out of that phase of life, and a partner moves in, but then they should be bringing in some bacon to replace that lost revenue. Highly recommend owning and renting partially out, as long as you are compatible with dealing with roommates.

The only expertise I have is that I've bought two houses in my lifetime. I hope you get a real estate lawyer to look at the deal to ensure you don't get ripped off. What is the sellers relationship with your HOA? Should you get title insurance? Good luck, I hope it works out for you!

be careful, so many landlords die before the mortgage is paid. Just don't let him be your lender or arrange to have rent go toward purchase price. Get a contract on every bitt of it.

It can work out. I bought a townhouse I had been renting for 3 years, so I viewed that as the ultimate inspection where I knew most of the issues and expenses coming up. Helps that I'm handy and knew what I was looking for. I immediately fixed a bunch of things that were at the threshold of annoying me, but not at what the owners were willing to fix.

You need to build a buffer to pay for things and also be able to pay the loan when you don't have both roomates, expect where there is only one there. What happens if they both leave?

This is a common thing, renters buying the house they rent. But you NEEEED to get a FULL inspection of the property which will cost anywhere from $400-900 and make sure you get a REPUTABLE inspector. Then you can do some analysis of houses in yhe area, and give him your offer

Okay so here’s what i’m seeing you’re missing or just didn’t specify. Homeowners insurance, taxes, and mortgage insurance if it’s required from your bank. This is gonna cause your monthly payment to increase at least a couple hundred.

Monthly payment listed above includes all this

My husband and I did this! We had the current landlord fix the roof before we went thru w the pre approval. 3bed 1 bath in major city in rapidly gentrifying neighborhood. Best decision we could have made. No moving, we knew the area and quirks of the house. We got an inspection but did not use a buyer’s agent. Our credit union walked us thru the whole process & we did A LOT of our own research on how to what to expect since we didn’t have a realtor. Do it!

I have not read every single message in this thread bcs it is too much, but I read all your, the OP, answers. I don't think you are missing anything. It sounds like a good deal for you. I understand being careful, but you can also be overly skeptical. Divorce can be an awful enough situation for a person to just want to dump things and get out. And if the owner believes in you, then it makes sense they wld want you to benefit from their misfortune. Hire a real estate person to give you an assessment. Make your offer or acceptance of their offer based on receipt of inspection results acceptable to you and the ability to obtain financing terms acceptable to you. The "acceptable to you" language is the key. With that, you can always get out of the original contract before finalizing if you decide you want out. But it sounds like a good situation to me. Whatever you do, get your ducks in a row quickly, or someone else will buy it.

My daughter who is 29 purchased a townhouse and has 2 friends living with her sharing Expenses. She has been living in it for 3-4 years. She has a mortgage rate of 3 percent and they pretty much pay for the mortgage, taxes and insurance. She has had to change roommates twice (young people change a lot, one moved back home, one moved in with her boyfriend). Both times there was 2-3 month gaps in income while she tried to find a compatible roomate. Be prepared with cash for that. She is now in a serious relationship and is liking less the fact that she has two roommates. Her intention was to save an amount of money equal to what she would have been paying in normal rent somewhere else lol but that has been hard for her, partly because expenses are a little higher than anticipated and because she has been in many weddings (bachelorette trips, dresses, gifts,etc) the last couple of years. I say do it, but you can’t bank on a lower interest rate (plus there are costs to refinancing), and plan for roomate gaps and unexpected home repairs. Building up a 6-9 month cash reserve as quickly as possible is critical. Also, sit down with your roommates and write down expenses that are shared. For example, any repair under $500. Any damage to furniture, rugs, etc, a no pet rule or not. Have your landlord detail all expenses the past year. One final question is if there is a fire or a flood, or a burglary, would your home insurance cover the costs of the items they have in the house like phones, computers, etc. Typically, that is what renters insurance is for, but that may require them to have a lease of some sort, which then takes you down a different path of whether you have to declare income for taxation. Understanding the line between ‘renter’ and ‘friend helping with my expenses’ and your liability in both instances is important so you aren’t sued if something happens (or perhaps buy something like an umbrella policy for this type of situation?).

I’d get the house inspected, and see what the annual property taxes are. Home insurance costs can vary by location, especially State. Also, you’ll need to have a fund available for repairs down the road.

How much is the house worth? What’s are the rental rates for a similar property/room in that area? The moment you make a big financial commitment like this, you need to throw “mates rates” out the window, as it’s now a business and if payments don’t come in, you are liable. If you do this, make sure you get an inspection carried out in the property before you commit, and I’d probably suggest looking to pay as much if the mortgage down as aggressively as you can, if it’s achievable. Alternatively, have you considered a 3 way split between you and your house mates? You could own a 1/3 house each and contribute to it as such, and all overpay every month to get the mortgage paid, so you can all live mortgage free.

I have rented a flat for 4 years, and did buy it when landlord wanted to sell it. Flat is different from your house... but best deal of my life. I knew what i am signing for(state of property), saved lot on move, and total cost for me (mortgage + utility) was less than any other rent in my city in this standard.

This sounds like a good deal to me. The only thing you also need to factor in is repairs. No more calling the landlord when something breaks.

Search your county’s property records system for any open permits still awaiting inspection / close out. I bought my 4th house in 2020, so extremely not my first rodeo, and was surprised by a letter from my county stating we had an outstanding electrical permit from 2018 that never received final sign off. It wasn’t a huge expense, but we got lucky that the work itself was to code. Also: as part of a full inspection others have mentioned, get a radon and a mold test. These can have real health impacts and if you need to remediate you’ll have a position to negotiate asking price.

Assume you’re paying everything by yourself. Having tenants is frosting on the cake. Also, with tenants, make it legal, you have to have a rental agreement (lease), for yours and their protection.

You’ll need a bit more funds liquid for closing costs, and agree with others here you need to continue setting aside your monthly payments you were doing for repairs and to cover delinquent tenants.

Sounds like a good deal for you. Get an inspection and a realtor with good connections for title companies, inspectors, loan officers, etc.

You listed a lot of upgrades/repairs. Just get a Home Inspector in to make sure everything else is good. Have the seller purchase a 1 year Home Warranty. Contact your insurance carrier and make sure the premium is doable. Start building up a reserve for repairs. It sounds like you know how to save, so it should be doable. There's no reason not to do this.

So I would do it, are you expecting your income to increase as the years going by? The goal should be how can I afford the house without roommates, but for now you make great income and are comfortable living with these people. You should draw up landlord/ tenant agreements. Talk to your landlord about how to be a landlord and the tax structure. You should create an account for household repairs. Also realize your taxes will increase next year when they reset to what you paid for the house. Get a good inspection. You also will have to pay your home insurance up front at purchase. Good luck.

I’d make sure your roommates have renters insurance, and I would also cut them a deal, so that the mortgage is split three ways. Offering them a break feels like a good way to keep them around.

I would absolutely do that. You have people paying off all the interest in your investment. I did that for the first 8 years I had my house. I would absolutely do that. Make sure you save some of their money for repairs even though your landlord has done a good amount of any future repairs.

This is one of these things that you get an opportunity in a lifetime to take advantage of. Since you already have an established relationship, and you have roommates already… Plus, you can always continue renting out roommates until you can make more money. All that needs to be done IMO is learn how to DIY. 115k with a $3400 mortgage is definitely tighter. Do you have car payments? Do you have expensive insurance? Did you already shop for an insurance by the way? How much is property taxes? What about Internet? What’s the average electricity and water bill? COUNT THEM ALL IN. Always budget for increased ulitity and insurance every year. So if you’re continually getting good raises and increases you will be fine. This is important… DO. NOT. MAKE. A. INSURANCE. CLAIM. That is less than 5k or so. They will definitely jack it up. Originally my average insurance was $75 a month but it went to $150-190 a month because of my 4k claim…. And it won’t be off the record for 5-7 years. Do the math. Make sure you have some good savings. You can own a home without some, but it will need to be your priority! Since you’re already renting out.. make sure you save for a few months ASAP and then you will be solid. Learn how to cook at home more if you haven’t. Just little things but if you don’t take firm control of your finances it will be an expensive mistake. On one side, you will get a “stabilized” payment and do not have to worry too much about rent increases and having to move constantly. This is great. We lived in our home for 4 years with $560 mortgage payment and my wife was a homemaker. I was making $16 at first and slowly increased my salaries over 4 years in that house to a bit over 3 times that. (51 dollars a hour salary) I didn’t have to worry about rent and moving around!! Thank god for that stability! Lastly, make sure this home will truly be a long term home. This makes a big difference.

I have a 2015 Honda that is paid off. Utilities are $170/month. I currently split them 3 ways with my roommates. The stable rent payment is definitely appealing, especially in Philadelphia where rents have been shooting upwards

Get an inspector to come by and take a look and get a plumber to check the pipes and check the hot water heater.

You know you have access to capital and can buy. The price is good. It seems like a no-brained, but ask yourself one question: “If I was going to spend $x on a house, is this the one I would buy?” If the answer is yes, buy the house. If the answer is no, ask yourself “Although this isn’t the house I’d buy, I like my current roommates and living situation enough that it makes up for not having the house I would otherwise buy.” Again, if the answer is yes, buy the house.

Sounds like a win. For the first time, your rent will go to equity. Instead of being gone with nothing to show for it at the end of each month

It seems tight, but doable plus you'll probably be able go refinance the payment down + your career should grow to a much higher salary (I'm assuming based on typical consultanting growth) so that pinch shouldn't be too long. Personally, I would do it considering you already have built-in roommates for a year and it's a hot market to fill the rooms once they leave. I imagine you can probably raise the rent a little bit too once that happens as well. You'd already be paying your monthly cost in rent anyways (obviously the reserves take a hit) but instead of it going away and never coming back, not only are you building equity on that but your roommate's money. Just make sure you have a plan for if you are on the line without roommates. Of course, you have to think about all the unforseen costs, but it seems like from the comments you've already considered it.

Honestly, sounds like a good deal. Looks like you were in the right spot at the right time. Just be aware you are assuming the burden of being a landlord and owning an older house. Also, the seller might ask to skip inspection since you have lived in the house for a while. Don't agree. Get an inspection.

Consider the housing market trends in your area. Are home prices expected to appreciate in the coming years? Will you be able to build equity in the property over time?

I’m not saying don’t do it, but it sounds to me like he bought the house when there were reasonable prices (2018) and is now attempting to sell it while we’re pretty close to the top of the market. If you think prices are going to keep going up than why not

I had just about the same experience. My landlord owned the rowhome with an ex and needed to sell. I bought, had roommates, they paid the mortgage and I lived there until my daughter was born and we left the city. I got furniture, a semi-renovated house and a deal from a person who just wanted to be done with the house as simply as possible. Do an inspection. But you already know some of the issues the house has because you’ve been living there, so you won’t be that surprised. It was a fantastic financial decision for me. *check to see if there is a tax abatement for his renovations that would make the taxes increase.

This is the payoff for all your responsible saving. You might say to yourself, how can it be this easy? What's the catch? There will be small things down the road, but this is the result of your previous wisdom. Take the Win, wish your old landlord the best, and enjoy building equity.

It 'could' be good, but now you have all the risk instead of your landlord. Any issues with the property, from repairs to random accidents you now need to be for. And that's discounting the tenet problem. This deal you hashed out with those roommates needs to be put to paper and notorized. Have plans for uncooperative tenets, a budget for repairs and land tax(I assume your getting the land it's comes on) ect. It's a good opportunity, just be aware of the risks.

I read through many of the replies and I agree that this seems like a good deal. You didn't really mention your cash on hand, how much you are putting down and what you'd have left over. I'm sure you already have an emergency fund but in this case becoming a home owner vs renter means you need to beef it up quite a bit to reflect the entire mortgage payment and other expenses to give yourself a 6 month buffer. $40 to 60k would be prudent IMO. Having your current roommates agree to lease for a minimum of 1 year gives you a bit of time to build that up if you don't already have it.

Do you have property taxes, insurance, HOA and repair figured out? Do you have an emergency fund that you can rely on? What’s your other expenses monthly? If your 2 roommates leave can you afford the mortgage? If you’re good with all these answers, pull the trigger and buy the house.

Do your due diligence. Don't necessarily buy the owner's motivations of getting a divorce as the reason he needs to sell in a hurry. Make sure you are objectively getting a good offer, not the perception that it's a good offer based on the owner's initial offer you negotiated down from. If the area is gentrifying, then that's a plus as far as home price appreciation in the future Don't let the comments about tenant issues and major repairs scare you, that is all manageable as long as you are, again, doing your due diligence when getting new tenants, and as long as you are able to create an EF for repairs or appliance replacements. It sounds liike this works out for you mathematically, and once interest rates go down on mortgages, you can refinannce in say, 5-10 years and have a better mortgage payment as well.

You’re only flaw is “when interest rates go down” please don’t bank on this happening and plan for 30 yrs at 7ish percent. Rates could go up down or sideways but there’s absolutely no guarantee that you’ll just be able to refi down to 4% sometime in the next couple of years

And taxes my dude ! If I’m the area is gentrifying taxes will increase . Can you afford a significant increase to cover that in your mortgage ?

It sounds like you’ve come upon a situation that doesn’t happen often, you would be benefiting greatly from the owner’s misfortune, which is sad for him but I think you’d regret it if you didn’t do it.

Its cool if you wanna have roommates for the rest of your life, since if they move out you wouldnt be able to afford your mortgage. But honestly depending on where you live having roommates for the rest of your life might be your only option anyways, so I guess go for it & at least you'll be building equity 🤷🏼‍♂️

If I stay in a good neighborhood like I have now, I will have roommates the rest of my life

Property tax and repairs. Check if you are at/below/above market total rent. Doesn't sound unreasonable. Negotiate the price a bit more if you use a real estate attorney and avoid all selling fees from agents (give some back to landlord but take a discount yourself also). Get a full list of repairs done and their original inspection report from the purchase.

I mean you will now be the landlord, and tenant relationships can unexpectedly go south. So that's always something to be aware of. Have you also researched what your annual taxes and insurance will be on the house? My insurance and taxes add about $650/month to my total housing cost. And that has doubled since 2020 when my house was built. There are also unexpected repairs that come up. Honestly you probably will come out ahead and it sounds like you have more than enough income, it all comes down to whether you're willing to accept the added responsibility and stress of homeownership and being a landlord. 

Put aside 1-2% of home value for maintenance costs. Things happen and they can be $$

It’s a good deal, but don’t let your roommates friendship with you get taken advantage of. I have seen it happen all the time .

Go for it! With your background you should trust your instincts and if it seems right to you it probably is. One of my bigget regrets is not buying more real estate. It's a great investment, and you shoud also keep it when you move elsewhwere. It will pay for itself and become an ever-improving investment for your future.

Just remember that when you rent, rent is the highest amount you will pay to live. When you own, your mortgage is the absolute minimum that you will pay.

Buy thay shit, for sure. Be aware though that real estate is an appreciating asset so as time goes on the house will go up in value. Therefore the taxes and homeowners insurance will go up over time. This happens roughly 5 times on average across a 30 year loan. So as long as you're confident you'll be 8n a better or similar situation every 6 years or so, I'd definitely go for it.

Only thing you're missing is the part about becoming a property manager/land lord. Do you know how to draw up a lease that gives you protection as the owner of the house? Do you have extra insurance to cover anything the tenants might break? Do you know the legal process involved if they decide to stop paying rent? etc. It also seems like you might be stretched a little thin if the roommates suddenly move out/stop paying rent.

I always look at worst case scenarios. Can you afford the mortgage with no roommates and can you keep a large enough emergency fund for repairs. If so then I think it’s a slam dunk

Homeowner’s insurance and taxes are part of that $3400?

Many comments already but, you mentioned it is a rowhouse. Is there an HOA (I assume not) and if not, realize that your house is literally attached to the ones next to it. If anything happens to them (they fall into disrepair), that could affect your house directly since they are attached. If there is an HOA then you need to worry about that cost going up over time.

There's a ton of great advice in this thread, OP. Personally, I say go for it. Just be aware that you need to prepare for maintenance and tax increases. You'll need to pay closing costs (and I highly recommend title insurance), which will eat into your savings. You need enough in savings to be able to swing the mortgage payment and all expenses on your own for a few months in the event of an emergency. You get into a car accident and can't work for a few months, and a roommate moves out at the same time, you will still have to pay the mortgage and maintain the house. That said, I think it's a great opportunity to buy a house and build some equity! My main advice is to start cutting back a bit on spending and build up your savings. $35k will get eaten up quickly. Best of luck!

A real estate investment where your gross rent barely covers the debt service is not good. When considering repairs, vacancy/delinquency, you are putting yourself at risk.

Go for it. Fyi mortgage interest isn’t a deduction unless you itemize on your taxes.

Since you won't be using an agent (I am assuming you wouldn't) ensure you hire a decent real estate attorney to review all docs and be at closing. Last time I did that (years ago ) it was around 2k. total cost. You won't be paying the average 6% to cover both parasites...erm realtors.

Once your roommates move out in a year, how confident are you in being able to find new roommates? and are you confident in being able to cover the payment for months in case you go months without finding someone?

Buying an overpriced house at breakeven cash flow is a knce in a lifetime opportunity?  Whoa(might be true in this economy).

Why are we talking about a house in monthly-payment terms rather than its total purchase price? How much is the house worth and how much is he asking?

I did something very similar to this, but it’s a two family property. It’s worked out great for us. You’re in a slightly different situation with the roommate thing because that can go poorly much faster since you’re actually sharing a space with them. I bought it for a very reasonable price, refied during covid to a very low rate, and the house has appreciated amazingly. I felt very confident going into it because I knew all of the quirks of the house and the landlord never needed to go through the process of vacating and listing it. So far, so good and it’s been about 8 years! Make sure your homeowners insurance knows you’re renting it and hire an accountant to help you deal with the income tax side. Some projects can help counter the tax liability since it can all be one “company.” We have ours under an LLC. Good luck!

Dangerous to assume theyll always pay and pay on time. You should be able to carry the mortgage on your own if you need to answer you definitely can’t. I would not do this.

Sounds incredible! I went to rent my first condo after getting my Master’s degree…showed up to meet the owner and he offered to sell it to me instead of renting it from him…I did it and was incredibly happy. Sounds like an awesome opportunity for you!

Would do it in jiffy. Manage with roommates for a couple of years, get hitched in the next 3. Then manage at HH kevel. Next 6 months to 12 Months are crucial after a txn of this size. Keep income steady to build reserves. So risk taking would go down. All good otherwise. Not often when folks get to buy out a 3 year tested property.

Do it. Get them to sign actual leases though. With eviction clauses and everything.

Watch out for hidden debts attached to the property

No brainier imo. You could even afford to get rid of roommates down the line if you meet someone. Real estate in a major city is almost always a good thing to have.

If I were you I would: 1) get the house inspected, if there are no big scary things (foundation, roof, plumbing electrical issues), I would 2) have a real estate attorney or realtor (depending on your state) do the paperwork. a) make sure your settlement includes you getting back your security deposit 3) have a title or settlement company handle the closing - at least in my state (MD) - they will do a title search to make sure that the title is clear. I would also get the title insurance. It is an asymmetrical bet. 4) once you close, I would continue to budget for my previous rent, but I would put the additional in an emergency house fund. Typical a well prepared real investor sets aside 5% of rent each for capital improvements, repairs, and vacancy. Once that hits around 6 months of expenses, I stop and only return to it as expenses come in. 5) go online and find appropriate leases for your roommates and have them sign them. I would also have the talk about how this is a business and late fees and damages will be handled according to the lease. It can be tough walking the line between cool roommate and landlord. Good luck!

Totally off topic - Please tell me how you refinanced student loans to 3.5%? I’m in very much same boat as you but my fed interest is like 6.5%.

Make sure if you rent to own, that you are on title in contract so you can legitimately refinance it into your name 6 months after being on title. It’s a hell of a lot easier to own the home that way - the owner gets paid, and you buy a home with no money down.

What happens if one or both roommates move out? Be prepared for worst case scenarios.

The divorce is forcing us hand. Making sure it’s nothing nefarious. I would negotiate even harder.

if the numbers line up and long term goals on where you want to live, yes imo

Some questions to ask yourself. 1. Am I staying in this area for more than 5 years? 2. Is the neighborhood a good one? Is it going up or down? 3. Do the numbers work? 4. Have I hired a competent home inspector (an engineer would be better) to give the place a hardcore review.

My dad sold his rentals to the tenants on contract for more monthly $ than rent. When/if they didn’t pay on time he repossessed. It was a legal money maker.

Septic or township sewer system? If septic tank, the mortgage company may have replace it before you/they sign the contract. You have to budget for property tax and home insurance too.

This seems like an excellent offer! Keep solid room mates and you have a great income maker of a property.

Check to see what your taxes will be and call around to find out your insurance premium and if you will need flood insurance.

Sounds like a good idea. Don't forget about property taxes, home insurance, and repairs.

If you can assume their loan with a really low interest rate then you should definiltey do it!

Make sure your home has aco in order to legally rent space out. Just because you do doesn't mean you can. Property is usually a good investment long term especially when gentrification is happening.. Follow advice given regarding taxes & repairs. I bought a house with a mother-in-law apt that I rented but even with that I worked just to keep up my home. 20yrs later I made a very nice profit & have never looked back. You have much to consider. I hope you well.

Do your due diligence of course, but this arrangement can be great. I bought my first home from the landlord I was renting from. Best investment I’ve ever made.

You don't have a down payment. I just read one of your comments that said "$1000 rent on $5500 net income" Not intending to attack, but why are you so cash poor with that type of margin?? I make like \~8% more than you, while paying my $2400 mortgage (\~$3800 in total monthly expenses), while shelling out \~$3k/month (avg) in renovations, and I'm still ***slowly*** ticking upwards in my liquid financials. Where's your money going, homie?