Is this possible?

Question

I came across something that really peaked my interest and was wondering if there was a way I could make this work.

I am a college student with little to no money and have a bunch of friends who are trying to live in an off campus apartment next year. I've seen a lot of people on here talking about "house hacking" and was wondering is this is an opportunity that I could take advantage of. Obviously the goal would be to live in the property and have my roommates pay the mortgage. I am not necessarily concerned with profiting (if that's even a possibility) on the property, as I am just looking to own it all said and done.

I have a loan through my school that helps my pay for my current living situation, and was wondering if that was money I could use to actually make money for myself, in the long run, and put towards owning a home. Other than my school loans, I have a waiting job, which certainty doesn't generate enough cash to cover the expenses.

Is this crazy talk? Are there ways that this could be a possibility? Or is this something I should wait on?

Bryan O. · Answer

Get on it! Rent the rooms out just like you would do getting any old rental with your buddies, only own the thing! When I waited tables, me and 2 other guys rented a basement area with shared laundry from another student upstairs who owned the place. We covered all of his payment and he was happy. Plus we paid pretty low, so we were happy.

Chris L. · Answer

Don't count yourself out. I bought my first duplex at 21. Rented out the top and lived in the bottom. It was a great set up. I'm assuming since you are a waiter in college you do not have a lot of reported income on your taxes? Unfortunately banks will not count renting out rooms as income, however if you were to find a mult-unit that truly had income from the other units you could then use those rents to help qualify for a loan. Then rent the rooms in your apartment and viola you are probably living free or maybe even have a cash flow. The toughest part is qualifying for the loan. If you took a well thought out investment to your parents would they assist? If there is a will there is a way. You could also look for motivated sellers willing to hold financing for you through a lease to own or contract for deed agreement. Good luck! Cheers!

Chris L. · Answer

If you try to buy a single family home and rent out the rooms on an individual basis the bank will not allow you to count that additional income to qualify for the loan. You must qualify for the purchase based on your income and credit history. You can't get a loan based off the income of another loan so the only income I would assume you have is your waiting job? Is that correct? And the debt of your student loans will be considered in your debt to income ratio depending on when the loans need to start being paid back. You haven't mentioned if you have money to put down? The main issue I see is you need income to qualify for the loan. In order to jump that hurdle you need to find a property that is legally zoned as multi-unit meaning it has other legally separated apartments that can be rented out to generate income to cover the debt service. I would stay with a 4 unit and under as that will allow you to stay in the residential world of highly leveraged gov't back products. If you go over 4 units you get into the world of commercial lending which is a totally different animal.

To show you how the numbers should work in a best case scenario. (Again I don't have any idea about prices in your market so I am just using this as a general example of what you are trying to accomplish)

Say you purchase a 4 unit for $150,000 and your monthly mortgage is $800 per month. Each unit rents for $400. You will live in one unit so that will give you $1,200 per month from the other 3 units to cover the debt service and expenses on the property. You will need a down payment  and some reserves if you want to do it right. You must be prepared to fix things that wear out or your tenants break and pay for tenant turnovers and improvements to the property as they are necessary.

Again I see your biggest hurdle as qualifying for a loan so it may be best to look for owner financed property where you can show them the existing income you have from your loan and your waiting job. You may find one that is willing to work with you because of these income sources more then ever hoping to qualifying for a bank loan using these income sources on the application. Also remember most banks will only credit 75% of rental income to over all income no matter what the property is actually doing. I hope that helps! Cheers!

Camron Cottam · Answer

@Chris L. When you say "Find a mult-unit that truly had income from the other units",  what exactly do you mean by that?

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