≡ Menu

Here’s another reader question:

First off, thank you for writing a great blog! Easy to read, understandable, and to the point!

If you may I would like your input on something.

I am 21 years old, getting married this summer and have paid off all student loans and have no debt.

My wife and I will be looking for somewhere to live and we are considering purchasing a home instead of renting. What do you think about us purchasing a larger home than we would normally be able to afford and renting out 3 rooms to counter the more expensive mortgage payments? We live in an area where I am sure we would have no trouble renting rooms. It’s a very high demand in this area, especially for anything under $600/month. Do you know anybody that has purchased a house with intentions of renting it out while living there in order to purchase a more expensive home? We would be happy having roommates for 5 years or so and then we would be able to afford the mortgage payments ourselves.

I receive a TON of e-mails from new homeowners or about to be new homeowners asking about the feasibility of renting out a room given situation A and B.  Here’s an e-mail from a few weeks ago.

For your situation, I would focus on location so that you can aim to get 100% occupancy out of the rooms unless the 3-bedroom house is in a very desirable area. The last thing you want to do is have a house more than what you can afford and not have the rooms rented to cover your expenses. Or worse, you’ll become desperate to find anyone to move in and end up with undesirable roommates.

Some folks argue that you should buy as much house as you can afford because you’ll make more money in 2-4 years from now from promotions and raises. So having roommates as soon as your close will definitely alleviate any financial burden until those promotions and raises kick in.

In my opinion, you should focus on getting the occupancy as high as you can because you’re buying something bigger than you can chew on.

One of my biggest regrets is not renting out my rooms when I first moved in. I was only compelled to rent out a room because I needed money for graduate school and discovered that renting out a room turned out to be a great way to make some extra money.

You also state on having roommates for 5 years or so, but are you ready to make that commitment? Having 2 roommates for 5 years(assuming 100% occupancy) will certainly translate to a nice chunk of change to pay down your mortgage of make improvements. I would focus on the former than make improvements when it’s just you and your wife living in the house.

Anyone in similar situation or was in a similar care to share your thoughts?

{ 5 comments }
  • Mitch February 20, 2014, 11:47 am

    I’m also a young person who wanted to own a home, but prices are higher than I can afford. I bought an apartment in downtown San Francisco, where getting a place to live is super competitive. I’m renting out half of my 500 square ft studio for over $1000 per month. That’s about 1/3rd the mortgage.

    Some things that you need to consider are qualfying for a loan. A lot of banks wont lend you that much money, so you may need co-owners to sign with you. Although I bought the condo with my own funds, my parents are co-owners. A lot of banks wont even take coowners, so that is another issue. With coowners the financial situation is harder so plan for a longer escrow. My parents and I have perfect credit, no debt, but the underwriter still wanted every paper we have with numbers that i keep in the back of the closet. They even made my family’s accountant write a letter.

    If you can get though all of that, close the house, plan a nestegg for the few couple months mortgage, it is highly rewarding, and way better than renting. Instead of throwing away half my salary in sf rent, I’m buying the place.

    Reply
  • Russ February 20, 2014, 1:18 pm

    You folks sound like you’re starting off in really good financial shape. Your plan sounds logical however I would consider that buying a much larger house than you normally would can send you into a downward financial spiral. Consider loss of rental income should your 3 renters at $500/month each fall out. Can you sustain losses of $1500/month? And how long? Having a bigger property means higher utility and maintenance expenses. Whatever decision you make, run the numbers, run the numbers again, and again, and figure out your exit strategies. Good look to your bright future!

    Reply
  • Halle February 20, 2014, 7:16 pm

    I think you and your fiancée are in amazing financial shape. It’s impressive that you’re practically sent free at age 21. I completely disagree with the idea of buying as much house as you can because of the thought of raises and promotions. It is extremely reckless to do that. First of all, I know a lot of people who did that, and with the ups and downs of the economy, with lay offs and so on, they lost their jobs and were unable to keep up with the mortgage.
    Having a roommate is a fantastic idea. However, I STRONGLY urge you to do comprehensive background / criminal /
    And credit checks. And check references!!!!

    Good luck.

    Reply
  • YourHowtoGuide4AirBnB February 20, 2014, 10:02 pm

    I have gone both routes. If one was new to renting rooms then I would say this is over doing it. Mike really hit it on the head when he referred to “undesirable tenants”
    Placing yourself in a position of needing to cover the payment really takes the fun out of the things and significantly increase the chance of a problem with a teanant.

    Reply
  • Daniel February 21, 2014, 8:10 pm

    I would buy a house that no more than 3 times of your and your wife’s income. If you want to save money in the future, find a nice house but don’t go all out. It will pay off in the end because of the lower house expenses. Lower expenses + your roommates kicking in, you could pay off that mortgage as soon as possible and have more money coming in and save for retirement/vacation/emergency fund/other things. I have 2 roommates, but have found good professionals who I can be comfortable around, talk to, and have a drink with. It’s nice to find somebody that you can easily have good conversations with. It’s nice to have roommates, but don’t pick whoever accepts your place, you have to be willing to accept them. If you said you have a lot of requests for roommates, you can pick and choose. Good Luck!

    Reply

Leave a Comment