I have no debt, but no income. Buy house?

[misery]

Hello,

So I am 24 years old, and have about $21,000 in savings. I am free of any debt but right now am in the "training" period of my career and so don't have a steady income.

I'm living at home right now and want my own place. My family is deeply involved in the local Real Estate business so I'm considering buying my own house. This is because renting seems like a money pit (ie, no long-term benefit to renting).

Preferably I'd like to buy a duplex where I can rent out one side for approximately $800 + utilities so that it nearly covers the mortgage payment each month, and perhaps have a roommate on my side to help offset expenses. My price range is between $75,000 - $200,000 which gives a mortgage range of about $400-$900 per month. I understand there's a lot of variables here, and currently the local market doesn't have many duplexes at all.

My income should increase within the next 3 months, but in my line of work (Real Estate Appraisal) there's no guaranteed salary.

I feel like I'm stuck at home and at the mercy of the market right now. Would you recommend I continue living at home until I have a steady income stream that allows me to expand my search criteria, or start dipping into my savings for rent, or perhaps to pay for my own place's expenses?

Any opinions/advice are welcome. Thank you!

[TheCudder]

I currently rent, but I personally would be afraid to get into home ownership without a steady source of income. I'd just keep saving to increase the amount available for a down payment until you would in a more your income is a bit more secure.

[Eagle]

Misery, not sure how you'd qualify for a mortgage loan without a steady income.

Does your family own properties they rent out? Being a landlord is a bit of a headache.

Here's some good questions to ask from this source.

1. Are You Ready to Invest?
2. Do You Have a Plan?
3. What Kind of Property Should You Start With?
4. What is the Neighborhood Like?
(3 keys here: Location, location, location...)
5. What are the Local Vacancy Rates?
6. Do You Know All Your Investment Expenses?
7. How Will You Finance Your Property?
8. Should You Self-Manage or Hire a Professional Manager?
(Remember if you live on the property you're ALWAYS available. How much of a handy man/woman are you?)
9. Can You Be Your Own Bookkeeper?
(Accounting and tax knowledge/skills...)
10. Do You Have an Exit Strategy?
(Full circle from #2 on having a plan)

[ua_guy]

I wouldn't advise it. I'd acquire a down payment of at least 20% first, then I'd establish a year of emergency savings since buying a duplex really means you're taking care of two different homes, and you might experience instability with any renters you have. I'd also make sure I was aiming to contribute at least 10% of my earnings to a retirement account of some sort, on top of everything else.

There is value in renting for a while, when you're young. It gives you the flexibility to save money, to move around freely as you settle into a career, or find out you want to do something completely different. It also provides a space away from your parents where you can learn to live on your own. Your world views will change, and after renting for a bit, you may find you want to have nothing to do with zero lot-line properties, i.e. condos, townhomes, duplexes, etc. Theoretically you could find renters to take over your space, but that situation also has the potential to be a financial burden that will follow you for a long time.

My advice would be to move out on your own (rent). Acquire basic stuff for living, and figure out what life on your own is like before jumping into the deep end with a mortgage.

[bjl584]

Ideally, you should have the following things in place before buying:

A 20% down payment
A 6 month Emergency Fund
A steady income
A minimal amount of other debt

[snafu]

How much are you currently contributing for rent, food and household duties to your family ? Like others, I believe you need to experience living on your own, and being 100% responsible for your day-to-day care for a year to understand how much is involved before becoming a homeowner/landlord. One way to start might be a roomie arrangement.

Now that expensive mortgage insurance is required, it heavily impacts how monthly payments are distributed. It's truly in your interest to delay purchase until you've accumulated a 20% downpayment. Do you have the skill sets needed to maintain a duplex type rental? It's very expensive to require tradesmen for small repairs. Do you feel confident in your ability to select responsible tenants based on a quick interview ? What protection do you have if the unit was vacant for a couple of months? Another major issue is ownership is a long term commitment. If a better employment opportunity presents itself but requires re-location, the duplex is a millstone.

[misery]

Wow, I truly appreciate all of the valuable feedback!

I'm definitely starting to think that renting is my best bet. My reasoning for getting a duplex was that tenants could help pay the mortgage and maybe a roommate would help with expenses. My rationale was that if something unexpected developed (3 month vacancy for instance), then I would dip into my savings and use that. I'm going to start making more money soon and those funds + savings would help pay personal expenses. But that might be cutting it close...

I thought it's best to own a house young because then I'd own it sooner, and if I were to move away for work I could rent out both sides and/or get a property manager for upkeep.

But this all seems like too much to handle at the moment though, my career is just taking off and I shouldn't expect to live off $21,000 for long...I know $21,000 isn't much but I thought that the fact I had no debt and great credit could be a reason to invest in property.

My main goal is to make the right decision now that will profit me the most (in happiness and money) in the future. If renting is the better short-term choice, even though it seems like a money pit now, I'll do that.

I appreciate the information you all provided, it helped me see a different perspective.

Any further advice or opinions are welcome! I'll check back, thanks again.

[dczech09]

I'm definitely starting to think that renting is my best bet.

Renting is kind of the "elusive best friend." It bothers me when people spout out the whole "renting is like throwing money away" argument. This argument has been spread so much that it has turned into urban legend. When you spread a myth like this, it becomes accepted as truth.

If renting is like throwing money away, then what about the interest on mortgages? What about private mortgage insurance? Do not forget items like taxes, insurance, utilities, and maintenance, all of which are commonly included in rental prices.

It is hard to do an apples-to-apples comparison of renting vs buying since there are too many variables. However, it is obvious that buying is much more of a long-term commitment. As a result, you should only take on the mortgage under the following circumstances:

1.) You have no other debt, or maybe just a small amount of other debt
2.) You have a 3 to 6 month emergency fund set aside (emergencies will come with a house)
3.) You can make a down-payment of 20% or more in order to avoid PMI
4.) Only go with a conventional fixed rate mortgage for 15 years (less interest over life of loan, and lower APR)
5.) Your payment is no more than 25% of your income (28% for PITI)

Private mortgage insurance is a real killer. It is approximately $75 per month for every $100,000 borrowed. Conventional loans require it if your equity is less than 20%. FHA will require it for the life of the loan if your equity is less than 10% at closing, and for 5 years if your equity is less than 20% but greater than 10% at closing.

Just think about this... a $100,000 mortgage at 4% APR for 15 years would carry a payment (PI) of $739.69. PMI would cost another $75 on top! That is more than a 10% increase in the payment. And PMI is not for the benefit of the buyer; it is for the benefit of the lender.

[Carol33]

If there is no issues or problem living with your family, I think better to stay living there and just share with the house expenses. Consider owning a house if you already have a regular income source so that you will not encounter lots of stresses buying a home loan in the future.

[Petunia 100]

I think this whole thread is silly. Walk into any bank, state "I have no income", and then ask how large of a mortgage they will give you.

[smartassasin]

Buying real estate

I advise not to buy real estate on that budget. Many people make that mistake because you they believe real estate is a good investment. It is a good when you actually have the funds and don't have to borrow so much and remember the phrase don't put your eggs in one basket?

Renting income yield is normally a max of 8%
However you have to have good tenants paying every month and no maintenance probs for that 8% to stay intact.
Also not have to worry about interest rates rising which will happen in the near future. Remember the government has to keep them lower because of the crisis and to increase stimulation in the market you have to lower rates but they can't be low forever.

You can make far more money investing in stocks and shares and gain 20% returns

How do you do that?

I hope this helps,

SA

[mo0n]

I think this whole thread is silly. Walk into any bank, state "I have no income", and then ask how large of a mortgage they will give you.

Exactly.

[rennigade]

You sound like a friend of mine who's parents are real estate agents/own their own RE business. They convinced their daughter to buy a townhouse at the height of the market a couple years ago because real estate was such a great investment. Now she's so far under water. What great advice!!

The last person you want advice from when buying a home is a real estate agent. You're 21...you'll learn.

Are you ready to buy a house?? Not...even...close.