Should I worry about the price if tenants will cover mortgage?

Question

Hello everyone. I'm 27 years old, single, and have a W-2 job with a decent salary. I recently got into RE investing and want to invest in a multi-family home and househack with an FHA loan.

I'm in Central Valley California and as you all know the prices of homes have significantly increased over the past 1-2 years. I have enough capital saved up for a down payment at 3.5%. Ideally if the numbers work out, I plan to live in one of the units either for free or even pay a few hundred dollars a month from my pocket to cover the mortgage. I also plan on moving out and leasing the unit I was in after the 1-year mark. That being said, I am flexible and willing to move to a different region if necessary. The goal is to build my RE portfolio. I am not in a rush to make profits from RE ASAP. I want to build equity over time and hopefully obtain that positive cashflow and rental income later on.

My questions:

1. Should I continue to be patient and hope that prices will decrease in the near future? Or should I just try to get a property as soon as possible and start my RE Investing journey?

2. Should I worry too much about the price of the home if I plan to have a tenant/s who will pay rent and cover the mortgage payment? What else should I consider when it comes to getting my foot in the door and buying my first property when in an expensive market?

Thanks for taking the time to read my post. Please bare with me if my questions seem basic. I'm excited to learn more and RE investing and I feel like this site is a great place to start asking questions.

Bjorn Ahlblad · Answer

@Ibrahim Saad Welcome to BP! Yes you should worry, and you should learn the numbers associated with a transaction. You need to consider, taxes, insurance, maintenance, capital expenditures and a whole lot more. I encourage you to attend podcasts and read a book or two before you invest your hard earned money any further. All the best!

Yu Liu · Answer

I don't think waiting for prices to decrease is ever the recommended advice (in most cases), waiting to find the right deal for you maybe. I would do it if it covered your mortgage, taxes, insurance, some maintenance fees (general repair costs and Capex) to give yourself buffer for WHEN those items come up. If they do all of that, then I would say buy without looking too closely to the price. Of course, make sure the comps in your area are also similar so you're not buying a 800K property in a 600K neighborhood or something. But at the end of the day, my opinion is action is always better than inaction! Hope that helps!

Account Closed · Answer

1)  Get a property as soon as possible.  Growth trends will continue as well as inflation.  Your money is worth more now than in 5 yrs. Lock it up with an inflation beating mortage rate.

Markis R Kelly · Answer

@Ibrahim Saad

Make sure to run your numbers ideally its best to make sure that rents cover the mortgage and then some. Definitely before closing on the property you can ask on average how much the bills are normally at the property but it always depends on the person. Property prices are not going down like many people think it will. It may go down some what but it will level out and then continue to climb that's the best part about real estate is appreciation. My recommendation is to get started you will learn along the way find some one that can mentor you or answer questions when you have them.

Peter Nikic · Answer

You shouldn't wait, and you shouldn't worry.

You should understand what the income and expenses are, and if they're in your favor, then go for it.

Have a safety net, a little cushion in the event of a vacancy period or large expense. Don't leave yourself strapped and vulnerable otherwise, you're good to go. Good luck!

Adam Martin · Answer

If a more expensive property rents for more money which it should this is not that big of a deal.  I don't house hack but if I did I would run the numbers like you are not living there and see if the deal makes sense or not.  Ideally the house appreciates and rents go up over time but this is no guarantee.  One thing I caught and may be reading into it too much is you said you saved up for a down payment at 3.5% ideally if the numbers work out.  Make sure you have ample reserves especially if you are in a landlord friendly state such as CA.  Things break, you have vacancy and costs to turn, and the possibility of a non paying tenant so make sure you have money on the side to account for this.

Theresa Harris · Answer

It is unlikely that prices will decrease and more likely that interest rates will go up.

When looking for an investment, you ideally find a place where the rent covers all of the costs (mortgage, taxes, insurance, upkeep, etc).  When you plan to live in one of the units, run the numbers as if you weren't living there to see if it makes sense financially.

Ibrahim Saad · Answer

Thanks everyone for the responses! These are all great comments with great advice. I understand that I still have much to learn and I've been learning more and more each day: Listening to BP podcasts, going through the BP forums, and also reading "The House Hacking Strategy" by Craig Curelop.

My key takeaways are:

1. If the numbers work out (rent, mortgage, interest, taxes, etc), then I should go for it and I need to have some reserves as a safety net after closing on the deal. 2. Focus more on getting a GOOD DEAL, rather than solely focusing on the $ price of the property.

I really appreciate everyone's comment on my post. I'm very excited to be a part of this great community.

Nathan McIntire · Answer

I don't believe that patiently waiting for prices to drop is a good idea. Only because on one really knows when the market will eventually drop. Most investor have seen 30-year fixed mortgage rates hovering around 3%. The Federal Reserve has also indicated that they plan to continually increase rates over the next four years. The negative of waiting to buy is interest rates are low right now making the monthly cost of owning a large multifamily property very attractive.

Kushaal Malde · Answer

@Ibrahim Saad if the numbers work and you budget reserves for capex, then go for it. You will face competition with buying so you need to be prepared to move quick and be confident with your financing. Make sure you know and like the neighborhood, you won't be able to change that.

If you drive around and talk to other local investors you may develop your own insights into operating your house hack more effectively. Good luck with your project, would be great to hear how it goes. Reach out if you have any questions or need a 2nd opinion with anything!

Should I worry about the price if tenants will cover mortgage?

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