Buying a house with rental income in mind

I already posted this thread under the Housing section, but since it relates to this topic too, I am posting it here as well...

Hello,
I have a situation where I need some help.
I am 28. I have a wife and a child. We are currently living in a larger tourist city in the US. Due to a series of circumstances, we are living in a rental unit that was only supposed to be for three months, just until my wife gets used to the baby and settles in. I only moved here because my landlord gave me notice a few days before the baby was born...
Anyway, we started looking for a home to buy. In the market for apartments and houses, but nothing costs less than $400 per square foot, even outside the city limits... and both our parents live right in the city center...
Our maximum budget is $250,000 because anything more would destroy us with a mortgage...
One day, we found a house right in the city center (only a few hundred yards from both my parents and my wife's parents).
The house is about 650 square feet and was listed at $175,000, but after negotiating, they dropped it to $155,000. It would require some money for renovations...
After talking it over with my wife, we agreed the house might not be ideal for living in. However, since I already have a steady job working with my parents—which involves short-term vacation rentals—we can fill at least ten other houses and rentals in the neighborhood during the summer season...

My thinking would be to buy the house with a $155,000 loan (monthly payment of $950) over 30 years, but the repayment would work like this:

1. My parents have promised they can give us $30,000 from every season.
2. From renting out this specific house, we could save $30,000 by the end of the season.
3. From my own job, I could save $15,000.

That is $75,000 by the end of September. So, I would have paid off half the loan in less than a year.

In the winter, the apartments can be rented to students for about $600 a month each. Two units at 325 square feet each... so $1,200 monthly.

Since I have to move out of the rental unit anyway, I would take on roommates. A two-bedroom apartment goes for maybe $900...

The situation by the end of September (when I planned to move from the rental) would look like this:
- The mortgage payment would be cut in half, down to $475/month.
- The rent for the place I live in is about $900...
- The difference is roughly $150....

The mortgage and the roommates would be paid for entirely by the house itself. My family and I would live comfortably off my salary, which wouldn't be burdened by the debt...

Most importantly, THE LOAN WOULD BE PAID OFF WITHIN 3 YEARS AT THE LATEST.

The problem is my wife. She says we shouldn't buy something when we don't technically have a permanent roof over our heads yet. She would rather wait until things stabilize (in my opinion, there is no sense waiting a year "for things to stabilize" only to pay $300,000 for 500 square feet)...

Anyway, I am looking for your help just to try and see things more objectively. I have gotten really excited about this house, so I don't know if I am being objective enough or if I am being completely subjective...

WHAT DO YOU ALL THINK ABOUT ALL THIS...?

Look, I don’t have the expertise or enough background to give you a proper critique of your plan, but I do know that taking a gamble is usually worth it in the long run 👍. You have to go after the things you feel driven to do, otherwise, you'll just end up kicking yourself later wondering why you didn't 🙂

At the end of the day, nobody can force your hand when it comes to buying or passing on a house.
But if you want my two cents, I’d just say: "Go with the flow," 😬 or as that old Coca-Cola commercial used to put it,
"Trust your instinct."
Given that you're in such a fortunate position to have rental income coming in, plus the extra support from your parents, I honestly think this plan is solid.
Think about it—you could be sitting in a home that's completely paid off in three years at most. Most people can't dream of reaching that kind of milestone in twenty or thirty years, let alone three.
I'm not sure what there is left to wait for, unless we're talking about getting the final green light from the wife. 😬

To be honest, I don't see the economic situation improving anytime soon. If things are heading in this direction now, they might just get a whole lot tougher.

So, you’re seriously telling me you’d sign up for a 30-year mortgage just to pay it off in three?
Do you even realize that during those first three years, you’ll basically be throwing money straight into the bank's pocket through interest payments alone?
And let's not forget about the prepayment penalties; most lenders aren't exactly thrilled when you try to settle up early.
If you ask me, you’re just flushing cash down the drain here. 🤷

Look, if your parents are actually willing to chip in some cash, why not just take out a much shorter loan to cover the difference?
For example, you could structure it so you're paying off 60% of the principal over seven years, and then just drop the remaining 40% as a lump sum at the end of that seventh year to close it out completely.

Personally, I could never deal with renting out my own house while living in someone else's rental; that whole setup just feels incredibly unstable to me.

If you're looking strictly at the ROI, it doesn't matter how much cash you or your parents throw into the pot. If you grab a property for $52,000—let's say $70,000 after renovations—and it pulls in $10,000 a year, that's a killer deal. It makes taking out a mortgage a no-brainer. (I actually own a place on the coast that’s about 15 times less profitable by those same standards 😁). Whether you pay off that loan in 3 years or 30, does it really change the math? I am a little skeptical about whether a tiny 650 sq. ft. cottage can actually net $10,000 a year... but if it can? Go for it. 🙂

BTW, it seems a bit fishy that someone is selling a house for $8 per square foot in a city where the minimum is usually $15 per square foot. I’d double-check all the paperwork very carefully.

.

Daniel Garcia70 said:I already posted this thread under the Housing section, but since it relates to this topic too, I am posting it here as well...

Hello,
I have a situation where I need some help.
I am 28. I have a wife and a child. We are currently living in a larger tourist city in the US. Due to a series of circumstances, we are living in a rental unit that was only supposed to be for three months, just until my wife gets used to the baby and settles in. I only moved here because my landlord gave me notice a few days before the baby was born...
Anyway, we started looking for a home to buy. In the market for apartments and houses, but nothing costs less than $400 per square foot, even outside the city limits... and both our parents live right in the city center...
Our maximum budget is $250,000 because anything more would destroy us with a mortgage...
One day, we found a house right in the city center (only a few hundred yards from both my parents and my wife's parents).
The house is about 650 square feet and was listed at $175,000, but after negotiating, they dropped it to $155,000. It would require some money for renovations...
After talking it over with my wife, we agreed the house might not be ideal for living in. However, since I already have a steady job working with my parents—which involves short-term vacation rentals—we can fill at least ten other houses and rentals in the neighborhood during the summer season...

My thinking would be to buy the house with a $155,000 loan (monthly payment of $950) over 30 years, but the repayment would work like this:

1. My parents have promised they can give us $30,000 from every season.
2. From renting out this specific house, we could save $30,000 by the end of the season.
3. From my own job, I could save $15,000.

That is $75,000 by the end of September. So, I would have paid off half the loan in less than a year.

In the winter, the apartments can be rented to students for about $600 a month each. Two units at 325 square feet each... so $1,200 monthly.

Since I have to move out of the rental unit anyway, I would take on roommates. A two-bedroom apartment goes for maybe $900...

The situation by the end of September (when I planned to move from the rental) would look like this:
- The mortgage payment would be cut in half, down to $475/month.
- The rent for the place I live in is about $900...
- The difference is roughly $150....

The mortgage and the roommates would be paid for entirely by the house itself. My family and I would live comfortably off my salary, which wouldn't be burdened by the debt...

Most importantly, THE LOAN WOULD BE PAID OFF WITHIN 3 YEARS AT THE LATEST.

The problem is my wife. She says we shouldn't buy something when we don't technically have a permanent roof over our heads yet. She would rather wait until things stabilize (in my opinion, there is no sense waiting a year "for things to stabilize" only to pay $300,000 for 500 square feet)...

Anyway, I am looking for your help just to try and see things more objectively. I have gotten really excited about this house, so I don't know if I am being objective enough or if I am being completely subjective...

WHAT DO YOU ALL THINK ABOUT ALL THIS...?

I’m lost here. If the house isn't fit to live in, why on earth would it bring in $10,000 a year? 🤔 And why sell it at half its market value? 😕

Plus, like I mentioned before, paying off the mortgage early would just result in a massive loss...

Realistically, investing in property with a 5-7 year turnaround is a great move, but...🤷

Charles Ramos7 said:I’m lost here. If the house isn't fit to live in, why on earth would it bring in $10,000 a year? 🤔 And why sell it at half its market value? 😕

Plus, like I mentioned before, paying off the mortgage early would just result in a massive loss...

Realistically, investing in property with a 5-7 year turnaround is a great move, but...🤷

Yeah, that's got me scratching my head too. For some reason, the numbers just aren't adding up... 😕

Charles Ramos7 said:I’m lost here. If the house isn't fit to live in, why on earth would it bring in $10,000 a year? 🤔 And why sell it at half its market value? 😕

Plus, like I mentioned before, paying off the mortgage early would just result in a massive loss...

Realistically, investing in property with a 5-7 year turnaround is a great move, but...🤷

Not really. It’s pretty standard to get hit with a 2% fee for early repayment, but that’s basically just money that would have gone toward interest on the loan anyway within six months.

.

The house isn't really livable. It’s only about 600 square feet spread over two floors... maybe 250 to 300 square feet per level. It's tiny, basically just a tower. Not much of a home, I guess...
The price is low because of that, plus the owner is this elderly lady from the UK who just wants to offload the place since she isn't moving back to America🙂 ever again.
I can't get a mortgage for such a short term because my reported income—which looks pretty low on paper—isn't enough to qualify...
I suppose I could accept if everything I pay over the next two years goes straight toward interest, provided I can clear it all in three...
And based on my steady job over the last six years, I think that house could realistically bring in $10,000...

The only thing left is convincing my wife...😁

Anyway, I've wanted to start this business for a while now, but I just couldn't find the nerve... I think maybe the time has finally come...

Oh, and thanks for the help, and for the answers...

If you can actually snag a house for around $75,000 and pull in $10,000 in annual profit (not just revenue, mind you), then go for it. That’s a pretty solid return on investment.