Author Topic: Rent a House with Roomates Vs. Buy and rent to roomates  (Read 5014 times)

bobthetree

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Rent a House with Roomates Vs. Buy and rent to roomates
« on: April 30, 2012, 10:10:47 PM »
After graduating college and moving out on my own it is time to get the boys in a House again.  At first I lived with my parents while my friends all found jobs and have been lucky enough to be on a simple month to month lease recently with a co-worker who already owns in the area (50 minute commute from my parents house was terrible, now I only pay $450 + 1/3 bills w/ no cable! so it's pretty sweet).  I'm in the North Dallas area right now and both options have some great appeal.  Renting is cheap, not too hard to find something for $400/room if you look a little, and I there will either be 4 or 5 total of us in the house so bills will be super cheap, even if I probably will be wrangled into some cable :( Buying also seems to just be an optimal time as well.  I am in a position to put down 20% on something I would consider which should allow a good mortgage rate (3.5%?) and looks like I could snag someones cookie cutter house in the sprawl out here for like $240k on a 3000sqft house made in early 2000's late 1990's.  That's not even considering some sweet deal I might find on a foreclosure.  Property taxes look like $4-$5K around here and I would try to steer clear of HOA, but that might not be a reality in some areas.  I've gotten 2 trains of thought from people pushing 40 in my office area and am trying to decide who is right.  One train of though is to just not worry about buying because houses always end up expensive with repairs and unexpected expenses, dont want to deal with the hastle, and another group goes on about how things are cheap (i think they are right on that) and how I can write of the depreciation of the rent against my salary, and its a great idea.  Kind of on the fence about which direction to go, leaning towards just renting cause it's so cheap and only commits me for 1 year.  On the other hand, it might be nice to go ahead and start making equity and doing improvements on a slightly outdated house while prices seem to be on the absolute floor.  Chime in with your thoughts/experiences please.  I think I'm going to do a full on retirement calculator spreadsheet with both paths on it.  I'll put that up when I get it sorted.

gooki

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Re: Rent a House with Roomates Vs. Buy and rent to roomates
« Reply #1 on: May 01, 2012, 03:35:41 AM »
If your planning to stay in your current location for 3 years or more, I would buy and get some room mates in and pay that mortgage down super fast. If you buy right you'll be mortgage free in 3 to 5 years. From their you have a lot of options.

Keep having room mates and invest in other areas
Expand your land lording empire
Sell up and move
Kick out a room mate or two and live with your significant other
and plenty more

If your plan is only to hang around a year or two I would keep renting. Costs are low enough your not throwing money away.

arebelspy

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Re: Rent a House with Roomates Vs. Buy and rent to roomates
« Reply #2 on: May 01, 2012, 07:28:22 AM »
Buy, rent out rooms, eventually move and turn the whole thing into a rental.

Another, possibly better, option is to buy a duplex, triplex, or fourplex.  A small multiunit means you don't actually have to have roommates (someone living in another bedroom in your house) but can have them paying for the thing for you via their rent.
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Dicey

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Re: Rent a House with Roomates Vs. Buy and rent to roomates
« Reply #3 on: May 08, 2012, 11:38:42 PM »
In my twenties, I saved my ass off until I had a year's salary in the bank to buy my first house. Unfortunately, I lived and worked in a high COLA, so I bought a rental house in the (less expensive and not too far away) town that I grew up in. I never put anything into an IRA or Roth, as I knew I was going to spend the money on a house. Later  I sold it and moved to an area where I could afford to live in the house myself. I kept stepping up the ladder. I bought a nicer house in 2001 and a rental house in 2004. Unfortunately, I no longer count either of them in my net worth. While I'm not upside down in either of them, they are not worth a whole lot more than I have in them, especially if I count selling costs.

So, after all that back story, my advice would be to study the amazing magic of compound interest. Keep saving for at least another year. Start and fund any and all retirement vehicles available to you. The housing market will take some time to rebound. Make sure you want to stay in your area. You don't want to feel trapped. It's an awful feeling when you're counting pennies because a roommate vanishes without paying rent and then something big breaks. You're absolutely on the right track, but if you take a little more time to learn and prepare, you won't regret it.
P.S. I did start dumping cash into retirement vehicles, but not until I was in my thirties. I will have to save much more than I would have if I'd started in my twenties. I don't regret owning real estate at all, I just wish I'd "stached" some cash in retirement vehicles a lot sooner.

Mattamatics

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Re: Rent a House with Roomates Vs. Buy and rent to roomates
« Reply #4 on: May 09, 2012, 02:02:34 PM »
Hi Bobthetree

I'd side with arebelspy (assuming you plan/are willing to own for over 5 years - otherwise closing costs and potential risk of being stuck with a house you don't want negate the value of buying in my opinion).

I undertook a similar approach to your plan. When I was 24 I bought a 6 bedroom house (that was formerly a poorly run student rental) and rented out a couple bedrooms. Prices are a little different then yours; house 173K, room rents 300-400 (including utilities) but if you can get 400+share of bills this likely balances out the increased house cost for the most part.

I've rented between 1-4 bedrooms at all times with total rent between 400-1375month. I've been rather lax in renting it out, so far I've never actually seeked out renters, just had buddies move in when they were looking for a place, and had some overflow from other rentals I owned. Overall it's worked out to likely around 800mo average so far (I'm 27 now). Essentially to live in the house I am only paying principal (interest, taxes, ins, util, cable & internet are covered by the rent I collect). However I made sure that I could afford the house if I had no roommates (as I'd sugest you do as well)

Keep us posted on your decision,