Buy a house to live in while renting a room; good/bad idea?

9 Replies

With my lease expiring soon (house with 2 roommates), I am looking to purchase a home with total cost of debt, tax, expected maintenance, and insurance less than my current rent payments (or within $100, so essentially less than $1100). Given the mortgage interest rate I have been approved for, this puts my target price around $250,000 (there are several candidates in the Minneapolis, MN area). However, I'm not doing this to break even; I'm seeking homes with 4 beds 2 baths, not all beds on the same level, and I would plan to rent 2 beds and 1 bath to a roommate.

1.  Is it a realistic expectation that I will be able to find roommates for this type of arrangement (I would plan to used some of the site linked here, and others, for marketing, while paying if needed: https://smartasset.com/mortgage/top-9-best-roommate-finders)?

2.  Could I expect around 50% of the whole home rental value from such a tenant (if not, what approximate %)?

3.  Are there specific neighborhoods (or type of neighborhoods) I should target to attract a tenant that would be amenable to this arrangement?

4.  To what extent should I give preference to higher income, high % or renters, younger average age, and higher % with college degrees neighborhoods, or their counterparts (I use http://www.mncompass.org/profi... for my demographic data)?

If it matters, I'm 28 single vanilla white guy, I have more than enough saved for 20% down, and I have no debt. I don't plan on needing to move for work in at least the next 3.5 years, and even then can ride out the market in Minneapolis if necessary. Someone please let me know if what I am contemplating sounds really stupid? Forgive my ignorance, I've never purchased real estate before.

Thank you in advance to anyone who is willing to offer some feedback.

Hi, I've been house-hacking before it was a thing (aka for about 18 years now) and still do. Whenever I've rented or bought a place I've always made sure it has at least 1 more bedroom than I need and I rent it out. Through that I've been able to more than cut in half my housing expenses. As for what you can get for rent, that all depends on your market and housing situation so there is a lot of variability there. Do some research on Facebook and Craigslist as to what rooms are renting for that are similar.
As for what kind of tenants, over the years I've had the full spectrum of men, women, young, old, etc. I can't say one has been better than the other, but in finding some people around your same age and with similar interests that typically works out well. Again though, it depends on what you're looking for. Do you want a renter that just stays in their room the whole time or do you want someone to interact with and actually share the house with? That really should be where you start in terms of looking for different types of renters.

@Aaron NA - this strategy is what allowed me to buy my second investment, which is now a cash-flowing vacation rental. My thoughts:

1. Yes, it's very easy, assuming you've got a nice home in a desirable area. Every time I've posted a CL or FB marketplace AD I'm bombarded with inquiries. I can show you examples of my marketing strategy. Get professional pictures and describe yourself in detail, you are selling yourself as a roommate (more than the home itself). 

2. With a 4/2 you could probably achieve 100% of the home rental value. For example, in my last househack the market rent for the entire home was around $1900/mo. I rented out 2 rooms for $650 a piece, and the master on Airbnb for $1200. Most months I got paid to live in my house after paying all expenses. On a 250k home your payment will likely be around $1250/mo, and the going rate for a room in St. Paul/Minneapolis ranges from $600-800/mo.

3. Central locations, close to public transportation, downtowns, hospitals, colleges, etc. You also want the neighborhood to be lower priced but convenient  (if you are to purchase a 4/2 with 250k). St. Paul : West 7th, Dayton's Bluff, West Side, Midway. Minneapolis: Powderhorn, NE, North. 

4. I haven't found that higher earners make better roommates. I've rented to med students, bartenders, interns, corrections officers, IT guys, retail workers, pretty much the whole spectrum of occupations. I critiqued housemates on a lifestyle/personality basis more than financial situation, and it worked out pretty well. 

The only thing I would add is to consider looking at 2-4 unit properties as well. They will likely cashflow better once your move out, and if you're willing to occupy a unit with roommates you'll see some pretty great returns. Feel free to reach out if you'd ever like any advice, happy to help. 

Hi Aaron -- welcome to the real estate world! I'm also in Minneapolis (for now) so will be curious to see what you end up buying. Couple things, some of which may go against the conventional wisdom of this website.

- Having roommates to help you pay down the rental property is a perfectly valid, tried-and-true strategy

- Regarding neighborhood, in Minneapolis with $250k to work with I would focus on Northeast Minneapolis. The amount of development occurring up there (breweries, apartments, etc) is astounding.

- I would take a hard look at buying a duplex or triplex with an FHA loan. It would likely allow you buy a $400,000+ property because you can use projected rents from the other units as income to qualify. It also allows you to just put 3.5% down, leaving more liquidity and cash reserves in case something goes wrong. Rates are at an all-time low and there are plenty of properties in Minneapolis that meet the 1% rule. My two cents -- happy to discuss more if you'd like!

Originally posted by @Aaron NA :

With my lease expiring soon (house with 2 roommates), I am looking to purchase a home with total cost of debt, tax, expected maintenance, and insurance less than my current rent payments (or within $100, so essentially less than $1100). Given the mortgage interest rate I have been approved for, this puts my target price around $250,000 (there are several candidates in the Minneapolis, MN area). However, I'm not doing this to break even; I'm seeking homes with 4 beds 2 baths, not all beds on the same level, and I would plan to rent 2 beds and 1 bath to a roommate.

1.  Is it a realistic expectation that I will be able to find roommates for this type of arrangement (I would plan to used some of the site linked here, and others, for marketing, while paying if needed: https://smartasset.com/mortgage/top-9-best-roommate-finders)?

2.  Could I expect around 50% of the whole home rental value from such a tenant (if not, what approximate %)?

3.  Are there specific neighborhoods (or type of neighborhoods) I should target to attract a tenant that would be amenable to this arrangement?

4.  To what extent should I give preference to higher income, high % or renters, younger average age, and higher % with college degrees neighborhoods, or their counterparts (I use http://www.mncompass.org/profi... for my demographic data)?

If it matters, I'm 28 single vanilla white guy, I have more than enough saved for 20% down, and I have no debt. I don't plan on needing to move for work in at least the next 3.5 years, and even then can ride out the market in Minneapolis if necessary. Someone please let me know if what I am contemplating sounds really stupid? Forgive my ignorance, I've never purchased real estate before.

Thank you in advance to anyone who is willing to offer some feedback.

@Aaron NA, my quick feedback on this is this: a 4 bedroom, 2 bath in the  twin city metro will be difficult on account of low inventory and multiple competing offers which may push your $250k max price to a number your bank may not approve you for.


 

This is a great idea. I'd look for houses on the metro lines and bike routes a couple miles out of the city center. Having lived in Minneapolis for 10+ years, I have lived with several different types of roommates. Some positive and some negative experiences. Just do some good vetting and it should work out. 

1. Of course! FB marketplace and roomster work too.

2. Median room rent is $500-700 but I'd think you can get higher than that for 2 rooms. I had a buddy charge $1000 a month for his split level lower level.

3. He pulled that off in North Minneapolis but I'd look for neighborhoods you want to live in, other people will too.

4. Just find a nice house in a decent neighborhood!

@Aaron NA

I did this for a few years when I was younger, literally rent each room for 450-650 - 4 and made 500 over mortgage and got to meet some really cool people!

I couldn’t do it now, but you’ll have no problem finding renters.

@Aaron NA This is very possible! Would love to chat in person or over zoom about your goals and how you plan to accomplish them! Shoot me a DM and lets put something together