Is this a good idea?

Question

Hey Guys,

I'm currently a college student with massive loans.

I also just got a job that pays around $775/month.

Would it be a good idea to spend ~$500/month $140,000 4BR house?  I could then live in 1 room, and rent out the other 3 for $500/month/room to theoretically make $1,500/month profit (before monthly costs, so maybe $1,000/month realistically).

Are there any glaring problems with this?  Will it be difficult to find three roommates @ $500/month?

Thanks!

Brian W. · Answer

Here's the problem - I'm shooting for an M.D.  This means that I will finish undergrad with about $40,000 debt, and then I'll graduate medical school with around $250,000 debt,  totaling over $300,000 after appreciation during medical school.  To become a doctor, I will have to complete a 3-7 year residency, during which I am paid <$40,000/year.  In other words, I will just barely be able to get by while paying only the interest of my student loans.  Then, after >11 years, I will be making $250,000/year as a doctor.

My goal is to generate enough "passive" income with real estate investing in these next two years while I am relatively less busy academically.

Is it possible to build a successful real estate investing company in two years, while taking out loans for undergrad?

Thanks!

Brian W. · Answer

It's actually a job in real estate, so I'll be learning a lot about the market!

Zach Adams · Answer

Brian - good work on trying to get a jump on planning and RE Investing.  I wish I would've started earlier like you.

Like others said, you will have a difficult time getting a conventional mortgage with your credentials.  What is your anticipated salary upon graduation? How long will you be in school?  Unless you're getting a PhD, then just get by and live minimally until you graduate and then look at getting into a property when you have real income, a W-2, etc.  Too many variables in this situation I think.

Good luck -

Franklin Romine · Answer

@Brian W.

I would do it and also take on much more you can handle in other aspects of your life.

Your current job doesn't pay much, but stick with it if it pays more in knowledge.  In college I have several unpaid positions that people around me thought was foolish.

Side note the college debt I don't like, but the thought of being 10 years younger and balancing on my hands much more risk is something I would pay to rewind.Frank

Brian W. · Answer

Thank you everyone for your detailed, useful replies!  Much appreciated!

David Diner · Answer

Brian,

First, it is (almost definitely) a better idea to round up some friends who would be willing to do this with you. For my undergraduate studies, a friend of mine did just this. It was a triplex, with three beds per room for about $200,000 (and it needed a good bit of work. He rounded up eight buddies who helped him purchase the place (I'm not sure of the details of the mortgage, I think it was in his name and they gave him their share of the monthly payments). They'd have social events renovating the place and over the course of a year, they had one of the nicest places to live near campus. When they graduated, their improvements forced significant appreciation and they were able to sell it to a local property management company and made a decent profit (I think it was about $5,000 per person) (sorry I don't know the exact numbers, I wasn't that close to him). In addition to having some extra money at the end of college, he learned how to take care of a house and although he is not pursuing real estate investment now, he is more prepared than most.

I am currently in a similar situation (graduate student with a minimal stipend). There's another issue (that I am currently trying to work around) and that is finding the time to manage the property. Best case scenario, you are renting to other students (who you screen to feel secure that they won't throw a wild party and destroy the property) and you don't have to do much... On the flipside, something catastrophic could go wrong the week of exams. At which point, you must fix the issues with the house and pass your exam (which... is where I'm not comfortable with house hacking while being a student). Also, there are plenty of tools and resources to analyze a deal in this community... make use of them. Also, if the place needs repairs, your weekends (and after class hours) will be spent on renovations / making the place look better. I'd do what my friend did... but I'm in Brooklyn and there is a significant lack of houses at that price point that are close to campus.

With all of that negative stuff out of the way... yes, it is a sound idea, as long as you are aware of the risks, and have the time to commit to being a landlord.

Joel W. · Answer

It is a good idea to house hack, but just as the bank will tell you, with your current situation (as you describe) no that is not a good idea.

Rod Desinord · Answer

its a good idea if you have back up funds just in case you go a few months without any takers of that plan

Hattie Dizmond · Answer

@Brian W.

The idea is solid in theory, but then again so is Communism.  :)

You start off with a statement that you have "massive loans", followed by the information you make $775/mo.  That means you don't have a very favorable debt-to-income ratio.  Now, granted, your student loan payments are deferred, as long as you are a full-time student in good standing.  However, I can't believe a bank would even underwrite that mortgage without a guarantor.  2nd...what are you planning to use as a down  payment?  Assuming you can find a bank to give you a mortgage &/or someone willing to go on the mortgage with you AND that you have the minimum required credit score, you're going to need to come up with $4,900 + closing costs.  I'm having a difficult time believing you have that, given the parameters you have described.

So, "house hacking", which is what you're describing, is a wonderful way to get into REI.  However, you still have to have some ability to get into the house you are planning to hack.