oncetherewasabo

Hello, been reading some real estate books recently. Came up with an idea to buy a house while in college and live in it with a couple of friends. Even with cheap rent the friend's rent should cover the mortage. I live in the middle of Kansas so hosues aren't too expensive. Probably could get one for $60,000. I'd have about $5,000 to put down. Is this possible?

Merlocke

Not so sure about economics in the U.S. but keep us posted!
Wow - a house for 60k? in BC (Canada) it's like around $200,000 or so to even think about looking around... *sigh*

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maleficent

It's a solid investment...

However, what kind of shape would you be in if one of your friends doesn't come up with their rent for that month? Could you cover the mortgage?

What about taxes, house insurance, utilities, upkeep? Can you cover that on your own?

Sharing a house with friends is a nice idea in theory, but to protect yourself and your investment, it's got to me a business arrangement, get a lease (available at most stationary type stores) and have them sign it, and make sure tehy'd be held accountable, including any damages. You go from friend to landlord in the blink of an eye.

What would you do with the house after graduation? Keep it and live in it? Rent it to future college students? Or sell it? What's the resale market? How's the market in the area now? For example: in NJ right now, it's a seller's market, the housing bubble is on the upswing again, so prices are high, it's not going to stay like that, so people buying now, are going to have a tough time getting back what they paid for the house when they try to sell it again in a few years, but that could just be Northern NJ, where people pay for the convenience of NYC.

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gar1976

My family did this while in college, since my brother (who's 3 years older) went to the same place I did.

Make sure it has enough rooms that a) you can cover the mortgage when not all rooms are occupied, and b) you can cover the mortgage in the summer, when you're the only one there.

Good news is that a $55k mortgage should only run around $600 total a month, for taxes and payments.

Rodney

Tax reporting might be a little complicated. Say it's a 3-bedroom, and you're going to live in one and rent the other two. If you're going to do it by the book, you'd declare part of the house as a rental and part of it as your personal residence on your taxes. So on the part that's your residence, you deduct mortgate interest from your income for tax purposes. And on the part that's a rental, you count all rent payments as income; and mortgage payments, insurance, property tax, depreciation, maintenance, and so on, count as expenses. What with depreciation, you'll probably come out with a smallish net loss on the rental portion of your house, which means you get a deduction on it, but it's going to be a bigger tax return than you're used to.

That's if you do it by the book. If you just declare the house as your home and don't report the rental income, probably nothing will happen as long as you have _some_ kind of income that in theory is making the payments.

Of course, it'll be difficult to get a loan unless you can demonstrate the ability to make the payments through income (if your parents cosign, that may make a difference.) Some mortgage lender go easier on you if you promise them that you intend to rent out the house; because then they can count the estimated rental income toward qualifying you for the loan. But then you probably should do the type of tax reporting I described above.

Rodney

Oh yeah, if you plan on owning it long term, I'd go for the fixed-rate mortgage if at all possible. Rates _are_ going up: it's just a matter of when, how fast, and how far. And none of those things are certain.

oncetherewasabo

While I'd have "friends" live with me I'd still be the "landlord". I'd still have a lease agreement, etc. Basically, I'm hoping if I do the math right and get a good deal that the rent from the other occupants would cover my rent. Of course I'd still pay utilities. How hard would it be to get a loan if someone cosigned with em?

Rodney

Can't really help you. I've been out of it too long. You might post the question on the "ask the mortgage broker" thread:

http://www.tfproject.org/tfp/showthr...&threadid=9929

Or call up a couple of mortgage brokers or other lenders in your area and find out what it'll take. That's what they're there for. Definitely call more than one.

gar1976

Uhhh....speaking from experience, bad idea to front the utilities. Split 'em with your roomies, otherwise you're just going to get pissed off when they take hour long showers, leave lights, tvs, and stereos on 24/7, and want to order pay-per-view while calling europe from your phone. Or just charge them another $50 a month separate from rent.

Best idea - get a deposit of at least a few hundred bucks, since when they move you'll need to fix up the rooms they were in (drywall/sheetrock/painting) and more than likely you'll wind up paying some of their last utility bills. You might also want to consider not having long distance calling available on the phone, and have them use either a calling card or a cell phone.

Condos don't appreciate as quickly as other real estate, so don't expect to make out with a forture. What you will wind up with is a tax deduction, as well as a few years of equity from your roommates paying your mortgage for you. Which could be a nice down payment for a nicer home when you graduate.

Rodney

All great advice. First, if "utilities are included," they'll just use them to the max without conserving. After all, why should they? You sold them unlimited utilities at a flat rate. If you could keep phone service separate, that'd be great, too. Like, maybe there could be two phone lines into the house: one for you (in your room) and one for them. Let them handle splitting the bill without you getting involved.

As far as deposit is concerned, how you handle that depends on the state. In sunny California, you can ask for last month's rent in advance and a separate security/cleaning deposit to cover any problems with the apartment. But that kind of deposit is usually having money available for specific damage that they've left behind, not wear and tear. If you start charging your friends for every nail hole they leave in the wall upon moveout, they probably won't be your friends after that.

Better would be to figure the amount you'd need for a general freshening up of the place into their rent to begin with. I used to know a real estate agent who'd say, "Sure, I've got no problem renting to college students. You just gotta allow for the cost of a new carpet when you're setting the rent."

gar1976

I ran a rental for three years. Expect to get shafted on some bills, since they all come at different times and most will show up after people have moved out.

Make sure you set firm ground rules, give them to your roommates in writing before they move in, and make exceptions for NOONE. Not your best friend, not your buddy, definately not your girlfriend. Once that happens, all hell will break loose.

Some recommended guidelines:

No pets larger than a gerbil/small snake/fish.

Don't eat anyone elses food. (You'll find labeling your food might be helpful, might not).

No firearms. (We had one guy who snuck in a pistol to sleep with under his pillow [called it his "teddy bear."] Was one of those crazy cop wanna-bes. When he heard a noise at night, he packed this thing around looking for a burgelar to shoot. No, thanks.)

No parties without letting people know 2-3 days in advance.

No illegal drugs. They get busted, it's YOUR HOUSE. Your ass will get in trouble too. Don't have anything in there you wouldn't mind getting a criminal record for. Once you become landlord, you'll find that you become a little more mature about this shit than your roommates.

Anything else you might think of.

maleficent

I start to sound like my father here ... You have a party- you better make damn sure that no one gets into a car and drives that shouldn't be. You are the homeowner, you could be held liable.

I'd also check the law in your state regarding the security deposit. In NJ< the security deposit has to be held in a seperate interest bearing account, and the interest is payable to the tenant, yearly.

It sounds kinda hardass, but this is a business, and your friends should understand that and not take advantage of your friendship.

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DDDDave

I did this in college. It worked out fine.

Actually, since my parents were willing to pay for my schooling, I convinced them that instead of throwing away rent money, to go ahead and buy a small house. They agreed and did. They liked it because the mortgage payment was their only expense. I worked for my part of the expenses and collected the rent from my roommate and paid the bills. I made a couple of extra bucks every month to keep me in beer money.




Here is my one peice of advice: Location, location, location.

Don't buy a house near campus. The only people you will be able to resell to are other college people.

If you buy in a family neighborhood say, 15 to 20 minutes from campus you stand a much greater chance of making money at resale time.

You do not want to be so close that your place will be used as a 'crash pad'. You should be barely able to make it home and back between 1 class. This will make you stay at school and study instead of wasting your time driving home for a sandwich. It will make you more responsible for your time.

There will be plenty of roommates that want to stay in a nice house instead of a loud apartment complex. If you live far enough away, you will get someone who is responsible about their time management and will appreciate the distance.

Don't take the first roommate that comes along. Better to have to pay the payments yourself than to have to deal with some deadbeat, asshole roommate crisis during finals.

If people know they have to drive 20 minutes home they are less willing to come to your house for a 'kegger'. All the better.

Chicks dig it.


Good Luck

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briedcan

Here is what I've done. I bought a house right after graduation and it is much bigger than I need so I decided to rent part of it out to my friends. I could afford everything on my own so the rent is all like extra cash. I have 5 bedrooms...one for me...one for my office...and the other three are rented out at $350 a piece. When its all said and done it works out quite well. BUT I would only recommend this if you can afford it by yourself. If someone flakes out on you then you could be stuck on your own...food for thought.

bc

gar1976

Man, I had a serious crush on Jessica when that movie first came out. Mmmmm....toon poon.....

I was like 13 at the time, and she still gets me going.

gar1976

And be prepared to see shit like this pasted on the fridge: