Purchasing a house to rent it out to people

[Sung Jin]

Hi guys!

My name is Jin (22) and I am here to learn more about real estate!

Despite not having knowledge regarding real estate, I am more than ready to dive into the world of real estate and learn what is necessary to succeed - that being said, I want to share my idea with you guys in order to find out whether the plan I have prepared is realistic or not.

I was thinking about purchasing a house, apartment, or condo with price range of 200,000 USD. I researched online that as long as I have a decent credit score (above 700), I am eligible for FHA's 3.5% down payment program. Also, by choosing fixed mortgage rate, I would be paying fixed payment on monthly basis.

Now, the question is, do you think it would be wise for me to do 10% down payment and purchase a property worth 200,000 and pay monthly mortgage of approx 1,000 and do 30 year mortgage plan? I do not plan on living in the purchased property, however, renting it out to people.

Here is an example:

I found a house in San Jose with 3 beds and 2 baths. the price up for the sale at this moment is 199,900. According to Zestimate, its original price was suppose to be 238,700. When i used estimate mortgage check to see how much I would have to pay if I were to put down 10% (19,900), I would be paying 804 for monthly payment. As I have mentioned before, since i will be renting the rooms out for people, I am thinking about charging approximately 800~1,000 per room. 

3 beds x 900 (per person on average) = aprrox 2,700 income. 

2,700 x 0.10 = 270 will be saved separately every month for maintenance in the house

2,700 - 270 - 804 - 200 (emergency fee) = 1,426 (remainder)

If what I have explained so far makes sense, would it be wise for me to take this plan into action?

I apologize in advance if my explanation is vague! Please help me by sharing your experience and knowledge!

[Corey Woodruff]

FINDING PURCHASE PRICE:

You will find houses in the same general area of the house you plan on purchasing, and try to match them up as closely as possible to the house you plan to buy example: 3 bedrooms 2 bath 1300 square feet, kitchen similar. so if 5 houses in your area that are similar to the one you are buying are selling and have been sold at $175,000 and the one you are buying is 199,000 then that means you might be overpaying for that house in that particular area. you can find the prices of homes in your area by going on zillow realtor.com and by asking your local realtor. 

RENT EXPENSES:

50% RULE: general rule of thumb rule that investors use saying that 50% of your total monthly rent will go towards expenses and should not be counted as monthly cash flow( monthly profit)

EXAMPLE: $2000 RENT = $1000 IN EXPENSES

2% RULE: general rule of thumb rule that investors use saying that your monthly rent price should be 2% or more of your total purchase price(DISCLAIMER: this is a much harder rule to fulfill in certain areas and you should not buy or not buy a house based off from either of these two rules. they are just rules of thumb for guidance.) EXAMPLE : buying a house 200,000 your monthly rent should be 2% of 200,000 which is 2000 a month in rent 

CASH FLOW: This is your monthly profit AFTER expenses, mortgage, insurance and all other expenses are paid. 

EXAMPLE:

Rent: $2000

Expenses:

Mortgage $550

maintance, insurance, vacancy, cap ex, etc. (50%rule) $1000

TOTAL CASH FLOW(PROFIT) MONTHLY: $450 A MONTH

HOPE THIS HELPS 

good luck 

let me know how it works out