Author Topic: Is there a 1% rule equivalent for owner occupied properties?  (Read 2551 times)

neophyte

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Is there a 1% rule equivalent for owner occupied properties?
« on: January 29, 2017, 05:13:50 PM »
Just what the title says, I'm wondering if there's an equivalent of a 1% rule for owner occupied properties? Or other standard financial rules for a non-standard situation? TIA

Kroaler

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #1 on: January 31, 2017, 09:56:31 AM »
"Buy as much house as you can afford" - Im kidding of course.

In all seriousness ive never heard a rule of thumb for owner occupied.


Are you doing a live in flip?   If so the best metric I can think to use to compare houses is expected cash on cash return. 


Sorry my post doesnt really answer your question.  Maybe the bump will bring in someone who can.

Cwadda

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #2 on: January 31, 2017, 09:58:56 AM »
I agree that cash on cash return would be a good metric. I am doing an owner occupied deal in a few months and it really makes everything different (i.e. FHA financing 3.5% down).

rothwem

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #3 on: February 01, 2017, 08:57:00 AM »
For me, I wouldn't buy a place that I couldn't rent out later and cashflow with the current market rent.  I know too many people that have been stuck with a house they couldn't sell and its a boat anchor if they need to leave the area. 

I know this restricts me, and it drives my girlfriend nuts, but I need that exit strategy to make me comfortable with such a large purchase. 

ketchup

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #4 on: February 01, 2017, 09:37:51 AM »
For me, I wouldn't buy a place that I couldn't rent out later and cashflow with the current market rent.  I know too many people that have been stuck with a house they couldn't sell and its a boat anchor if they need to leave the area. 

I know this restricts me, and it drives my girlfriend nuts, but I need that exit strategy to make me comfortable with such a large purchase.
This is similar to my mindset.

The house we currently live in was bought beating the 1% rule (it's about a 1.3%).  It was a "cosmetic fixer-upper" as in everything works fine but nothing had been updated since the 80s.  We've updated about half of it and plan on doing the rest this year, giving us some extra "sweat equity." 

That gives us three future options:

1. Remain living in the house.
2. Leave and sell at a profit.
3. Leave and rent it out with positive cashflow.

That flexibility is huge for my piece of mind.  It's similar to how I bought our first house, which we still have as a rental, and may end up selling this year (at a profit).

Cwadda

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #5 on: February 01, 2017, 10:22:41 AM »
I'll share some numbers too on my upcoming deal...if it helps.

$350k purchase price, currently rents at $3200 while I occupy. After I leave will be renting at $4250.

fishnfool

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #6 on: February 01, 2017, 10:34:20 AM »
My $220k home would rent for $2500 right now. My PITI is $1425. Always good to know the numbers work in your favor if you need to rent it out.

marty998

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #7 on: February 01, 2017, 01:54:19 PM »
I'll share some numbers too on my upcoming deal...if it helps.

$350k purchase price, currently rents at $3200 while I occupy. After I leave will be renting at $4250.

Honestly who would pay $50,000 rent a year for a house (or even $40k) when you could easily buy it and get a mortgage for say $20,000 a year. Even if you add in costs like your property taxes and utilities surely it doesn't come anywhere near $50k?

Sounds like there is a disconnect in your real estate market between renting and owning?

ketchup

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #8 on: February 01, 2017, 02:06:06 PM »
I'll share some numbers too on my upcoming deal...if it helps.

$350k purchase price, currently rents at $3200 while I occupy. After I leave will be renting at $4250.

Honestly who would pay $50,000 rent a year for a house (or even $40k) when you could easily buy it and get a mortgage for say $20,000 a year. Even if you add in costs like your property taxes and utilities surely it doesn't come anywhere near $50k?

Sounds like there is a disconnect in your real estate market between renting and owning?
Plenty of people don't want the hassle of homeownership, move often, or don't have the credit/down payment for a mortgage.  (I say this as a homeowner.)

Cwadda

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #9 on: February 01, 2017, 03:34:43 PM »
I'll share some numbers too on my upcoming deal...if it helps.

$350k purchase price, currently rents at $3200 while I occupy. After I leave will be renting at $4250.

Honestly who would pay $50,000 rent a year for a house (or even $40k) when you could easily buy it and get a mortgage for say $20,000 a year. Even if you add in costs like your property taxes and utilities surely it doesn't come anywhere near $50k?

Sounds like there is a disconnect in your real estate market between renting and owning?

My apologies, I didn't mention that this is a 4-family property.

neophyte

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #10 on: February 01, 2017, 07:58:05 PM »
I was just looking for general rules, because I think it probably makes sense for me, but maybe more context is helpful:

It wouldn't be a live in flip; so not planning on selling soon.
I work at a major university. 
There is a second major university very nearby. 
I actually prefer living with roommates to living alone and the idea would be to try to find roommates from the grad student/post doc/visiting scholar/medical resident population.  (Target renter: lowish income-still amenable to shared living arrangements, high on the responsibility index)
Rental prices are generally pretty high around here because of the large number of people only planning to stick around for 4-6 years.
Job provides perks for home buying.
Furnished/semi-furnished rooms are in high demand.
I could probably get higher rent on a room-by-room basis than I could renting out the whole thing, but- I plan on sticking around for a while.

« Last Edit: February 01, 2017, 08:01:56 PM by neophyte »

Cwadda

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #11 on: February 02, 2017, 04:24:10 PM »
Quote
I could probably get higher rent on a room-by-room basis than I could renting out the whole thing, but- I plan on sticking around for a while.

I also live near a major university and the rents around here are ridiculous. On the order of $700/month per bedroom. The houses average $3k/month for students.

clarkfan1979

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #12 on: February 11, 2017, 12:02:04 PM »
I'll share some numbers too on my upcoming deal...if it helps.

$350k purchase price, currently rents at $3200 while I occupy. After I leave will be renting at $4250.

Honestly who would pay $50,000 rent a year for a house (or even $40k) when you could easily buy it and get a mortgage for say $20,000 a year. Even if you add in costs like your property taxes and utilities surely it doesn't come anywhere near $50k?

Sounds like there is a disconnect in your real estate market between renting and owning?

Many people live paycheck to paycheck and are unable to come up with the down payment. My mom owned a small rental and had the same tenants for 25 years. After about 10 years, she started trying to sell them the property because it didn't make any sense for them to rent. They refused and kept on paying rent for another 15 years. They were very poor with money management.

When I moved to Florida in 2012, I purchased a 3 bed/2 bath/2 car garage single family home for 95K. With 5% down my total mortgage is $665 and that includes $42 of PMI.

When I purchased the home, it would rent for $1300/month in 2012. It now rents for $1700/month. I explained to my wife that we need to aggressively save, so we could afford to buy. It didn't make any sense to rent. However, we are not most people. Most of her co-workers rent, very few of them own.

clarkfan1979

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Re: Is there a 1% rule equivalent for owner occupied properties?
« Reply #13 on: February 11, 2017, 12:28:32 PM »
Quote
I could probably get higher rent on a room-by-room basis than I could renting out the whole thing, but- I plan on sticking around for a while.

I also live near a major university and the rents around here are ridiculous. On the order of $700/month per bedroom. The houses average $3k/month for students.

The average was $600/room for college type housing when I went to college in the San Diego area in 1998-2002. I paid $550 for my own room in a 5 bedroom house. The owner converted the garage into two bedrooms, so it was a really small 5 bedroom. My girlfriend paid $700 for her own room in a 2 bedroom condo. I think it's closer to $1,000/room for college housing in San Diego today. If you want something nice, it's probably closer to $1500/room.

Most 4 bedroom houses near campus at UC Boulder rent for $4,000-$6,000/month.