I would be comfortable with this choice if you consider a few things
1. Do you have some sort of safety net? Maybe a parent with resources in case something goes very wrong.
2. How long are comparable vacancies in your area? Here in the Bay area when I put a unit to market showing a finished unit for two weeks would be a long vacancy. Oftentimes I can find a quality tenant in less than a week.
3. How handy are you guys? I do all work myself but find I still put about 1% of the cost of the property back into the property each year (above and beyond mortgage, insurance, utilities, property taxes, etc.). We are talking water heaters, roofs, painting, flooring, etc. The expenses often come in clumps, but it sounds like you guys can save money for when those times hit. As a rule of thumb for myself I set aside about 20% of the rents I collect with the expectation that it will be needed for future vacancies, loss of rents, general maintenance.
If you can factor in those items above and the numbers still work out then it is definitely an option to consider.
A safety net...not really. Not one that I'd be comfortable falling into. I haven't asked my parents for money since I graduated from college. I've spent my life trying to avoid something like that at all cost. The question posed here makes me wonder if this idea is really too much of a risk, with the numbers we're talking about.
I would be looking at this like buying a $150k rental property. (Based on the fact that you said it will be about $150k more than what you'd otherwise spend.) That $150k will supposedly bring in $2k in rent, which more than meets the 1% criteria. It's not exactly the same as is it were a stand-alone property, but it seems close enough to me. That assumes your numbers, especially the presumed rent, are correct and that it is in a good location where finding good renters would be fairly easy (meaning probably low vacancy).
You also need to make sure you would qualify for the larger number since lenders don't always want to take rent into account.
I appreciate the other comment that pointed out that looking at it this way fails to consider the possibility of foreclosure on your primary residence. I
think we'd qualify for a pretty substantial loan, since we have good credit and good income. We're actually starting the process with a broker at the moment.
I like this way of looking at it because it makes it seem like not a big deal to take out a bigger mortgage, though!
Our friends who have tenants (all of our friends who own houses out here do some form of house-hacking because the mortgages are so massive) rarely have vacancies and never for longer than a few weeks. I used to live in someone's house hack and she never had any trouble filling vacancies. There's a housing shortage and it's a desirable place to live...at least for now! Tourism crapped the bed, so that may change. The military never leaves, though.
I just stumbled across an HGTV show called "Aloha Builds". Have you seen it? In one episode, they convert part of a house into an Ohana, which made me think of you. I'm not sure if the show is still active, but might be worth digging up and watching.
I keep hearing how badly this pandemic is effecting Hawaii. Can't help but wonder if it will put downward pressure on home prices. I'd kind of be tempted to wait. Even if prices don't drop dramatically, there could be more inventory to choose from.
YES! We saw that show a couple of times. We liked it. Yeah, if this were solely my decision I'd just be doing nothing right now. I'm all about waiting at least a year to even talk to a real estate agent. But Mr. ETA is so gung-ho...I keep telling him slow down, slow down, we need to save more money for the move and the down payment. And the market may be changing rapidly. It's hard not having a crystal ball.
