Author Topic: Help with the math of renting out rooms to friends  (Read 821 times)

patch45

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Help with the math of renting out rooms to friends
« on: June 25, 2020, 04:00:26 PM »
I live in a M-HCOL city and am considering buying a house, and renting out extra rooms to my friends. I'm fairly certain I could find reliable friends to move in and pay, but I only want to do this if I find something that is a definitely financial win. I'm having trouble figuring out exactly how to do that calculation.

What I think it would be roughly is that it is worth it if the following equation is true (t is the number of months I live in the house):
Code: [Select]
({rent paid by friends} * {room vacancy %} * t) + {rent I would have paid} * t + {how much I sell for}
>
{opportunity cost of money not in stock market} + {closing costs on both ends} + {cost to furnish} + {money left on mortgage} + {down payment} + ({mortgage payment} + {property taxes} + {avg monthly upkeep}) * t

Am I missing anything here? This is all very new to me. I am also having trouble figuring out how much the misc closing costs and realtor fees would be, as well as the avg monthly upkeep. I wouldn't need PMI since I could save up for a 20% down payment on a 400k house, but I feel like I'm missing something else.

Any help greatly appreciated
« Last Edit: June 25, 2020, 05:21:18 PM by patch45 »

socaso

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Re: Help with the math of renting out rooms to friends
« Reply #1 on: June 25, 2020, 04:57:34 PM »
I have never done what you are thinking of but one thing I can tell you is that you should compare whatever monthly rental fee you come up with against other single room rentals in your area. If you are very much below the average cost you should seriously consider charging more. There's no point in being drastically below what the market will bear, even for friends. You can give them a good deal and still be competitive.

chrisgermany

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Re: Help with the math of renting out rooms to friends
« Reply #2 on: June 26, 2020, 12:18:06 AM »
Check and investigate your possible renters professionally, friends or not.
I'd rather rent to strangers than to friends because I would not like to lose friends over unpaid rent, kitchen cleaning etc.
Renting is business.

mozar

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Re: Help with the math of renting out rooms to friends
« Reply #3 on: June 26, 2020, 07:25:07 AM »
It's more important that you can cover the monthly payments by yourself in case there are vacancies. Since you will be living in the house as your primary residence it's not the same as buying an investment property. The bank isn't going to include renting out rooms either. So you should do the math as if you won't be renting rooms. Closing costs and realtor fees will be a percentage of the house price. Monthly with be taxes plus mortgage plus savings for maintenance.

patch45

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Re: Help with the math of renting out rooms to friends
« Reply #4 on: June 26, 2020, 09:08:20 AM »
Yeah I would only rent out to people who I felt very confident would not skip out on rent payments. I'm not too demanding when it comes to house work/kitchen cleaning so don't think that will be an issue. Honestly the near-guarantee that I would enjoy living with friends more than strangers is worth more than the small chance that I lose a few months of rent.

And I would be able to afford the house without renting out any rooms. Even being very conservative, monthly costs would be < 25% of my pre-tax income. So I know I can afford it, which is nice. The part I'm trying to figure out is if it is a major financial win, to make the stress and responsibility worth it. If not, I'll just keep renting

JLee

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Re: Help with the math of renting out rooms to friends
« Reply #5 on: June 26, 2020, 10:25:55 AM »
Yeah I would only rent out to people who I felt very confident would not skip out on rent payments. I'm not too demanding when it comes to house work/kitchen cleaning so don't think that will be an issue. Honestly the near-guarantee that I would enjoy living with friends more than strangers is worth more than the small chance that I lose a few months of rent.

And I would be able to afford the house without renting out any rooms. Even being very conservative, monthly costs would be < 25% of my pre-tax income. So I know I can afford it, which is nice. The part I'm trying to figure out is if it is a major financial win, to make the stress and responsibility worth it. If not, I'll just keep renting

You may also end up with new friends.  I'm still in frequent contact with my old roommates from my house 6 years ago, I'm in a relationship with someone I met as a roommate 2.5 years ago, and our roommate of ~1 year is one of our best friends.  We were all strangers from the internet.

Dicey

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Re: Help with the math of renting out rooms to friends
« Reply #6 on: June 26, 2020, 10:35:56 AM »
Yeah I would only rent out to people who I felt very confident would not skip out on rent payments. I'm not too demanding when it comes to house work/kitchen cleaning so don't think that will be an issue. Honestly the near-guarantee that I would enjoy living with friends more than strangers is worth more than the small chance that I lose a few months of rent.

And I would be able to afford the house without renting out any rooms. Even being very conservative, monthly costs would be < 25% of my pre-tax income. So I know I can afford it, which is nice. The part I'm trying to figure out is if it is a major financial win, to make the stress and responsibility worth it. If not, I'll just keep renting

You may also end up with new friends.  I'm still in frequent contact with my old roommates from my house 6 years ago, I'm in a relationship with someone I met as a roommate 2.5 years ago, and our roommate of ~1 year is one of our best friends.  We were all strangers from the internet.
^^This, 100%^^

Hula Hoop

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Re: Help with the math of renting out rooms to friends
« Reply #7 on: June 26, 2020, 10:43:58 AM »
I agree - don't rent to friends unless you're willing to lose them as friends. I lived in many shared apartments before shacking up with my now husband.  Living with friends never worked out but living with strangers often did and I made friends with them.

We have a friend in another European country who does this.  He's in his late 40s but rents our rooms in his house to foreign students.  He likes it but he's not someone who needs his privacy.  It has allowed him to quit a job he hated to work part time so quite mustachian.