Author Topic: Need advice on whether or not I should buy a house, please  (Read 3302 times)

cash2001

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Need advice on whether or not I should buy a house, please
« on: January 27, 2015, 12:29:59 PM »
Hi Everyone- I've been reading this blog for a little over a year now and am looking for some advice.
I am a single 29 year old female living very frugally in Philadelphia and debating whether or not I should purchase a home in the $150,000-$200,000 range in an up and coming neighborhood near Center City.

I make a modest 43,000 at my day job and approximately $15,000 teaching yoga on the side.  My monthly fixed expenses are as follows:
Rent: $400
Utilities: $100
Student Loan: $200 ($8,000 left to pay off at 6.5% interest, some of which I can write off)
Food/Travel: $350
Gas: $25 (I bike 8 months out of the year and have no car payment)

I am at the point in my life where I would like to move to a warmer climate in about a year but feel as though having a rowhome as a rental property that my family would generously manage would be a wise decision.  I have $10,000 as a down payment and a near perfect credit score.  I would also plan on paying more than the minimum monthly payment on the mortgage until I was ready to rent it out.  Financial calculators tell me my mortgage would be approximately $700 a month and I believe I could rent the house for at least $1,100 a month.  I suppose it would not hurt to mention that I max out a Roth IRA, have about $5,000 in other Vanguard investments, grow a lot of my own food and only buy second hand but I do love to travel.  I do not plan on having children and my goal is to be FI (spend my days teaching yoga, not in front of a computer) by 40.  I welcome any and all comments/advice.  Thank you to all for the inspiration and personal stories you share on this blog.

neo von retorch

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Re: Need advice on whether or not I should buy a house, please
« Reply #1 on: January 27, 2015, 12:44:20 PM »
So just to be clear, are you 100% planning on buying this as an investment property? (You'll continue to rent at $400/month?)

You mention a $700 mortgage - does this include taxes and insurance? Also - what down payment would you be putting down? Would you also be paying PMI?

Plan for ~1% of purchase price annually for maintenance (i.e. $1500-2000.)

MrMoogle

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Re: Need advice on whether or not I should buy a house, please
« Reply #2 on: January 27, 2015, 12:54:38 PM »
Student Loan: $200 ($8,000 left to pay off at 6.5% interest, some of which I can write off)

Pay this off first, it's a guaranteed 6.5% return.
For the house, I'd ask in the real estate and landlording section:
http://forum.mrmoneymustache.com/real-estate-and-landlording/

frugaliknowit

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Re: Need advice on whether or not I should buy a house, please
« Reply #3 on: January 27, 2015, 01:11:32 PM »
Ok, hug first:)

NO!

Reason #1:  I am at the point in my life where I would like to move to a warmer climate in about a year.

Reason #2:  I have $10,000 as a down payment.

thedayisbrave

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Re: Need advice on whether or not I should buy a house, please
« Reply #4 on: January 27, 2015, 01:41:18 PM »
Read about the 1% rule.  Your rent/price ratio would be 0.73% at best ($1100/$150000).  I would not be considering such a property for a rental. 

So, my vote is for no as well. 

slugline

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Re: Need advice on whether or not I should buy a house, please
« Reply #5 on: January 27, 2015, 02:02:47 PM »
You have family members that are already property managers or landlords and are willing to work for you cheap or free?

4alpacas

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Re: Need advice on whether or not I should buy a house, please
« Reply #6 on: January 28, 2015, 09:16:32 AM »
Ok, hug first:)

NO!

Reason #1:  I am at the point in my life where I would like to move to a warmer climate in about a year.

Reason #2:  I have $10,000 as a down payment.
+1, especially #2

jwilliams0215

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Re: Need advice on whether or not I should buy a house, please
« Reply #7 on: January 28, 2015, 09:27:50 AM »
I would live in this house for 6-12 months before renting it out and the $700 mortgage does included taxes and insurance.  A friend of mine would also be living with me and paying $450 in rent for the 6-12 months that I live there before renting it out.  I am not dead set on making this purchase but if I do I could save  another $5,000 for a down payment in 2 months.  I have a family member that is an attorney with experience in real estate cases that will help me manage the property if I were to relocate.  For those that think this is not the wisest investment at this time, what do you recommend I invest in?  I have 10,000 in an American Express savings account making a paltry 1% and $5,000 in VOO with Vanguard that is doing fairly well.  Thank you again for your thoughts.

I'd vote to payoff the $8,000 student loan for a guaranteed 6.5% return and invest the rest

waltworks

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Re: Need advice on whether or not I should buy a house, please
« Reply #8 on: January 28, 2015, 09:34:38 AM »
The property you propose is almost certainly a terrible investment, you're planning to involve family, and you still owe on student loans at 6.5%?!?

I can't think of a worse RE investment scenario (ok, ok, I can... hyperbole, but still)

Put your spare $10k into paying off those loans. Then spend some time appreciating your cheap lifestyle and stuffing money in liquid investments while you ponder your future.

-W

Ricky

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Re: Need advice on whether or not I should buy a house, please
« Reply #9 on: January 28, 2015, 09:36:14 AM »
I wouldn't. You could do it on that income but those numbers are not nearly comfortable enough considering you don't have many investments or other passive income. I would only buy a house if you're interested in it as a pure investment, not as a place for you and your friend to chill.

If you can buy a 3 bedroom house, rent out two of the rooms and end up paying the same or less in rent as you are now, then yes, go for it. But make sure the numbers absolutely work before doing it.

Do a lot of reading and research if you do decide to make an investment decision. Like others have said, the student loan repayment is the best investment decision you could make right now. The $10k needs to go immediately toward the loan. If your interest rate was more like 2% then I would forget it but 6.5% is a nice guaranteed return on your money! You'd instantly make $650.
« Last Edit: January 28, 2015, 09:40:32 AM by Ricky »