buying an expensive house and renting the rooms?

Rob S: buying an expensive house and renting the rooms?
I am about to graduate college and have a large lump some of cash (100,000) and I can borrow money from my mom at a low rate (4%sh?). I was thinking about buying an expensive house and renting out the extra rooms. A house that would be about 1.3 million. I plan on making about 80k a year. Does anyone have experience renting the rooms out? I think I would be able to rent each room for $ 500 a month for about 20k a year. I am guessing I would have to pay taxes on that 20k? Would I get any breaks in the taxes if it goes directly to the mortgage? Any advice would be appreciated. This area is in California and has a very good community nice schools ect. My hope would be that buy a house in a bad economy and hopefully it will appreciate rapidly. I also plan to live there for a very long time.

Answers and Views:

Answer by HappyCamper
yes, it sounds like a good investment. But I think you should wait until you are ACTUALLY making the money you expect you will be. No sense spending all your cash before having an income to bring in more.
Also, consider who you are renting to. If you plan on it being a student house, expect it to get wrecked and property value to go down.

Answer by Landlord
You would have to borrow all of 1.2 million from your mom, no bank would mortgage you without real income.

The real question would be if you could live in a house with 4 other people, their friends, pets, and stuff, over a long period of time. Personally I would not be able to do it.

Answer by lightupthesky25
First things first, you will have to wait until you are actually making the $ 80K a year before you try to purchase such an expensive home. A lender will not give you a loan based on income that you’ll be making from renting the rooms out; they’ll only loan based on any income that is coming to you at the time of the loan.

Also, you cannot borrow money for a down payment, so any money that comes from your mother would have to be as a gift if you intend to use it as a down payment. You could always have your mother sign the gift letter and pay it back to her without telling the lender, but just be wary of that.

Yes, you will have to pay taxes on the rental income. I’m not 100% sure of the tax law but I don’t think it will matter if the money is going directly back to the mortgage or not.

At the rate the housing market is going right now, the home will not rapidly appreciate. I wouldn’t expect to make any money on it within the next couple of years. But if you plan to live there for a long time, then more than likely its value will go up eventually.

Answer by Melissa
Wow, I would think twice before doing this. I tend to agree with “Landlord” on this one.

First of all, 100K is not very much as a down payment; I don’t know how much your mom would give, but it would have to be a lot to get you there.

A salary of 80K (although I think it is wonderful) is also not that much. In the olden days, banks would only loan 2x your income for a mortgage, so that would put you at 260K (prior to consideration of the renters).

And then, renting rooms is a real pain. I mean, here you are in a 1.3 million dollar house and you have people paying $ 500/month who will be hassling and complaining and expecting the world based on their piddly contributions. [I’ve been there, I am there]. If there were a suite in the house that you could rent for $ 1200-1500, that might work better. You’d get a better tenant and possibly one person rather than 3.

I would also worry a bit about the stability of that income. People who can afford $ 500/month aren’t going to be the very most stable financially.

Sorry to be such a downer. It might be a great investment, but it could be a huge risk.

Answer by miamikid2
never spend income for investments, only profit so your not left high and dry, make sure your prepared for void periods and lots of tennants have alot of maintainence on the property, for advice on HMO’s go to this site it has a great forum for property investment advice, some people there own over 100 houses.

void period = no tennant meaning you pay morgage
HMO = House of Multiple Occupation

Answer by Othniel
I suggest you get some real world experience before taking this gamble. If you are asking YA about a $ 1.3 million purchase then you are a novice.

My counsel is for you to start with goals that are a little more modest and work your way into the big leagues. If I was going to spend that much money on an income producing property I would look for a four plex or eight plex in an upscale neighborhood. I would do my due diligence and consult with a people who are already doing this sort of thing, find a well recommended real estate agent, locate an experienced real estate attorney and an accountant who has his or her own investment properties.

You need help to crunch the numbers, find the ideal property, pay a price that will allow you make a profit in the monthly cash flow. You need a lot of advice and you need to be willing to ask for that advice. It is commendable that you are considering this type of investment but I suspect that the $ 100k is not money that you earned through your own sweat, blood and tears.

I also suggest two web sites just to read what others in this field have to say: https://www.mrlandlord.net and https://evict.com. The first site is a resource for books, credit checks, responses and experiences of landlords and the second is a site by some Florida attorneys dealing with legal issues of property management especially in the state of Florida.