Author Topic: Requesting advice--buy the landlord's house, or not?  (Read 412 times)

Kazyan

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Requesting advice--buy the landlord's house, or not?
« on: June 17, 2019, 12:38:25 PM »
Asking for a sanity check here to make sure I'm not either A) throwing money away by falling into a trap or B) missing an opportunity out of overcaution. I've never done this before.

I'm renting a room in a house for $350 (which is a good deal even in my LCOL area), in which I have one agreeable roommate. The landlord, who is the roommate's mother, is considering selling the house. This means that I might have to either get a new place, or deal with a higher rent payment if she eventually does so--but to both avoid that and to make some extra income, I'm considering being the one to buy the house. This will depend on how long it takes the landlord to decide and how much she tries to sell the house for--since this will impact how much money I'll have available for a down payment and how much the resultant mortgage payments would be. For reference, similar houses around here are going for up to $100k. Being early in my career, I've got about $9k available, so this isn't enough for 20% down unless she dawdles on the decision to sell and I continue saving. I could also sell my car, which I was planning on doing soon anyway, to get more down payment.

The benefits of buying would be:
1) Mortgage payments going into home equity, so I could possibly sell the house later if I move, recouping some of the payments. Appreciation of the house is secondary and not something to count on.
2) Getting access to a home equity line of credit.
3) Rental income. An extra $350+ from a roommate every month would be a much better return on investment than the standard 7%. The way the house is set up, it also looks possible to DIY up some walls around a specific lowered area to cordon off a bedroom for myself, which would allow me to rent out both of the standard bedrooms.

Drawbacks would be:
1) Using up my entire stash for it. Concern! Alarm! Panic!
2) My credit might not be good enough to get a good mortgage interest rate, especially if I don't have a 20% down payment. Mortgage insurance would suck. It's also possible that the banks wouldn't be happy about a "small mortgage", because that's a reluctance that's happening lately for some reason. Due to my available funds, it might not be possible to buy the house at all?
3) Home maintenance costs--though since I started living here in early March, no appliances have broken or anything, so the home seems reliable on that front.

FINate

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Re: Requesting advice--buy the landlord's house, or not?
« Reply #1 on: June 17, 2019, 01:18:01 PM »
IMHO you are letting the tail wag the dog on this.

1) You weren't looking to buy RE before this situation came about.
2) You're interested in this particular house mostly because you already live there.
3) You don't have enough of a down payment saved.
4) You're early in your career, which to me implies you may want or need to move somewhere else as your career advances.
5) Your first stated benefit (mortgage payments going to home equity) is wrong w.r.t. at least the first 10 years of a 30 year mortgage which is amortized such that the interest is paid up front instead of equity. If you had a high income this would benefit your taxes, but as you are early in your career I suspect this is not the case.
6) A HELOC is...meh...not always great, and you'll only be able to get one if you have significant home equity. At best it's neutral.
7) Rental income only matters relative to all the home expenses and how this compares to renting on your own.

In other words, I don't think you're thinking about this with the right framework. Is this a house you would buy if you didn't already live there? Do you want to own a long term investment that may require 10 years or more for it to pencil out financially, if at all. Can you get a good deal on the house compared to other homes in your area? Success in RE is determined almost entirely at the buying stage, it's about getting a good price. So if the house is worth about 100k, yet they are asking 110k then you're starting out way behind whereas 90k and you're coming out ahead (assuming there isn't a bunch of deferred maintenance...houses are bottomless money pits).

If you want to buy RE, then save your down payment, do your homework in your local market, and work the market hard looking for the best deal.