Just started out listening to Bigger Pockets podcasts and looking into real estate investing.
My wife and I are in our mid twenties in a suburb of Seattle making a combined 90,000 dollars and we have no debt.
The median household where we live is 465,000.
I was wondering if it would be wise (or stupid) to purchase a home with little down (5% or 10%), live in it for 12 months (avoid mortgage fraud) and then rent it out while living in a cheap mother in law apartment.
I'm guessing the mortgage would be around 1900 - 2000$ while rent could be anywhere from 1600 to 1700$.
I'm assuming it's a dumb idea to buy a property and not be profitable but was curious for input.
In my head, someone else would be paying the majority of my mortgage while I'm paying super cheap rent and could cover rent/mortgage in case of an emergency.
Real Estate Broker · Bellevue, WA · Member since 2017 · 172 posts · 107 votes
7y
Hi Ethan,
Welcome to BP!
What you're explaining, if I read your post correctly, is considered "house hacking." It's not a dumb idea whatsoever and the point is not necessarily to be profitable, but to reduce the burden of a full mortgage payment. As the property appreciates or rents increase, you can effectively phase yourself out of the property and purchase another, all while keeping the same initial mortgage.
Newer investors like this strategy because it allows for a lower down payment versus purchasing a "true" investment property (which usually requires higher down payments). Using this strategy allows you to decrease your cost of living and have someone else paying most, if not all of your mortgage, for a property they don't even own!
For a property around $500k with 10% down, you're mortgage payment is going to be higher than $1900 to $2000 a month. Principle and Interest would likely be ~$2400 a month. Because you'd be putting down less than 20%, you will have what's called Private Mortgage Insurance (PMI) added monthly. This ranges depending on the loan/property, but assume another $150-$200 a month. Added to all of that will be property taxes and homeowner's insurance, which again is variable based on location and claims.
** Just as a disclaimer, I'm not a lender. These are rough estimates for learning purposes. **
I think you're on the right track. Paying rent isn't exactly fun, but for some people, it works. I'm a proponent of putting your money into something you own, or having other people's money doing that for you.
I'll send you a PM. Feel free to send over any questions you have as I'd be happy to answer them!