Author Topic: Considering buying when lease is up - Funding advice  (Read 1168 times)

actonyourown

  • 5 O'Clock Shadow
  • *
  • Posts: 59
  • Age: 30
  • Location: Pittsburgh, PA
Considering buying when lease is up - Funding advice
« on: November 18, 2018, 10:40:50 PM »
My lease is up in April 2019.  My rent is kind of high for an apartment, but since learning about FI, I really want to buy a duplex and rent one side out.  I am handy at times and my dad would be willing to show/help me soon after he retires in the next year or two.  That being said, I don't have much in the way of savings besides my 401k.  I have some student loan debt, however, I should have it down to a reason able level before my lease is up.  My DTI is <33% currently, and i expect it to be <25% by April.

  • What is the opinion of the community of borrowing from a 401k to fund a duplex/triplex (as a first home) purchase? I could comfortably borrow $15,000 without worrying about a call if the market dropped.
  • Does it make sense to buy a house when my debt is still relatively high compared to my income?
  • Would it make more sense to try funding through friends/family by creating an LLC for partners?

MommyCake

  • Stubble
  • **
  • Posts: 193
  • Location: NJ
Re: Considering buying when lease is up - Funding advice
« Reply #1 on: November 19, 2018, 06:03:48 AM »
Your DTI sounds high at 33%.  I would be concerned about getting approved for a mortgage.  What percent of your income would the mortgage be?

I don't think it makes sense to create an LLC for your primary residence.  If you can't afford it yet, save for another year. 

actonyourown

  • 5 O'Clock Shadow
  • *
  • Posts: 59
  • Age: 30
  • Location: Pittsburgh, PA
Re: Considering buying when lease is up - Funding advice
« Reply #2 on: November 19, 2018, 06:23:15 AM »
I can't say what percent it would be since I havent been looking at properties yet and I'm uncertain what it would cost exactly. Right now I spend around 17% on rent.

Thanks for the advice!

rothwem

  • Pencil Stache
  • ****
  • Posts: 604
  • Location: WNC
Re: Considering buying when lease is up - Funding advice
« Reply #3 on: November 19, 2018, 06:33:49 AM »
*Dont borrow from 401k.
*Make sure the duplex you buy will make money/cash flow with both sides rented.
*Dont buy the duplex if it’s going to break you to float the full mortgage for a couple months if your tenants leave.

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: Considering buying when lease is up - Funding advice
« Reply #4 on: November 19, 2018, 07:02:07 AM »
What’s the rate on your student loans? Could be a much better investment than a duplex.

actonyourown

  • 5 O'Clock Shadow
  • *
  • Posts: 59
  • Age: 30
  • Location: Pittsburgh, PA
Re: Considering buying when lease is up - Funding advice
« Reply #5 on: November 19, 2018, 05:45:20 PM »
What’s the rate on your student loans? Could be a much better investment than a duplex.
That has been my target over the last year.  A few of my loans are 6.8% or 6%.  My overall effective rate is 5.08%.  I pay off a full loan once I feel I have enough liquidity to handle getting rid of the loan.  My lowest rates are 3.5% and 4.5%.  I'm going to pay off the others and then ride those two loans to maturity unless I have nowhere else to put it.  Before anyone asks, I looked at consolidating my SL and SoFi wouldn't do it unless I had $25,000 or more, but I didn't at the time and I never to again.  At this point, I'm pushing 30 and can't wait to get that noose off my neck.  I would like to have a second income stream and reduce my housing costs to which this seems like the best of both worlds.

Thanks for the advice everyone.  I will post here again if anything changes :)

actonyourown

  • 5 O'Clock Shadow
  • *
  • Posts: 59
  • Age: 30
  • Location: Pittsburgh, PA
Re: Considering buying when lease is up - Funding advice
« Reply #6 on: February 17, 2019, 12:55:14 AM »
So an interesting opportunity has come up.

A SFH near me with a little land and in need of a lot of TLC (mostly cosmetic from pics, maybe roof and chimney pointing as well) has been on the market for 66 days now. It is being sold as is and it requires a lot of superficial updates as far as I can tell. The price has dropped significantly since it first posted. Looks to being sold as part of an estate.

Original Post: $139,900
Reduced to: $109,900
Land: 1.6 acres
School zone: very good (I dont have kids but would like them someday and makes future re-sale easier)
4 beds
1.5 baths

Now, considering my current situation which has not changed much, should I consider this property? DTI<30% after this month. Student loans are <$16,000

Current rent: $780
Utilities: $130 (electric, water, sewage, internet)
Income: $53,750

Again, I would have to borrow from parents or 401k in order to afford it but I would put in the effort of fixing up the place myself as much as I can.

Mustache ride

  • Stubble
  • **
  • Posts: 117
Re: Considering buying when lease is up - Funding advice
« Reply #7 on: February 17, 2019, 11:09:11 AM »
Don't borrow from your 401k. If you can't swing it without touching that money, you're not ready.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11233
  • Age: 61
  • Location: NorCal
Re: Considering buying when lease is up - Funding advice
« Reply #8 on: February 17, 2019, 11:34:20 AM »
I have written about this extensively on this forum. Do not borrow against your 401k. Borrow from your parents if possible. I did it the other way. It worked out because I made a killing on the property, but I felt trapped in my job for every minute I had that 401k loan. It totally sucked.

Villanelle

  • Magnum Stache
  • ******
  • Posts: 3132
Re: Considering buying when lease is up - Funding advice
« Reply #9 on: February 17, 2019, 11:43:35 AM »
Why do you need 4 bedrooms?  A "deal" on a  house that is too expensive and too much for you isn't really a deal. And with only 1.5 baths, it would be a lousy roommate property, unlike to bring in much for rented rooms. 

So even if you had the money, I'd say this is probably not the right property for you, unless you can't get an appropriately sized place for less than $109k+whatever you'd spend to fix it up. 

So, this doesn't sounds like the right property, and you can't afford it right now even if it is.  If you are this gung-ho to buy, then find ways to cut expenses more and increase income so you can get there sooner. 

Dee18

  • Handlebar Stache
  • *****
  • Posts: 1646
Re: Considering buying when lease is up - Funding advice
« Reply #10 on: February 17, 2019, 12:54:29 PM »
1.6 acres is a lot of work

FIFoFum

  • Handlebar Stache
  • *****
  • Posts: 1896
    • Captain's Log - Mission to Puppy Waystation on Puppy Island
Re: Considering buying when lease is up - Funding advice
« Reply #11 on: February 17, 2019, 03:06:57 PM »
On the market for 66 days + significant price drop = very likely that there is more than just "a few cosmetic things" wrong with the house. Even if you could afford it, why are you judging the condition of a property based on pictures?

Properties that need a lot of fixing up also require cash to pay for these costs. Sometimes, they aren't even eligible for conventional mortgages too.

Sounds like you don't have nearly enough info to know if this is a good deal for anyone, even if they can afford it (which you can't).

Telecaster

  • Handlebar Stache
  • *****
  • Posts: 1961
  • Location: Seattle, WA
Re: Considering buying when lease is up - Funding advice
« Reply #12 on: February 22, 2019, 12:09:26 PM »
What everyone else said.   You can't afford it right now.  Here's the thing:  There's no rush.   While it would be convenient to move when your lease it up, that really should not be driving your decision to buy property. 

Finances_With_Purpose

  • Pencil Stache
  • ****
  • Posts: 699
    • Finances With Purpose: deploying resources wisely to live vigorously
Re: Considering buying when lease is up - Funding advice
« Reply #13 on: February 24, 2019, 12:30:44 AM »
No, no, and no.