Are you looking for a way to get your foot in the door in real estate without a lot of cash? Have you considered getting roommates for building equity?
The best kept secret in real estate is buying a personal house and renting out all your spare rooms. This is a great way for those who have W2 income, qualification to FHA, VA, USDA loans, and a conventional 5% down payment to get started in real estate.
For many of us, 2-4 units are not feasible for many reasons: location, price range, numbers compared to single family, etc. We at least have never been able to find one with our numbers that fit our model. To date, single family home purchases have made more sense for us. They have had better numbers.
Building Equity Through Roommates
To most people this would ruin their plan. Quite the contrary, single family homes can be an excellent starter home for investors.
- Cheaper – Personal home loans only require 3.5% (FHA) or 5% (Conventional) down.
- Easier to Get Qualified – It is much easier to get qualified to live in your personal than it is to buy a pure investment.
- Great Future Value – Single family homes have great resale, so when life evolves, your house continues to be an asset.
- Often Time Better Area/Value Than Multi-plex – In my experience multi-plexes are unusual so they are often very expensive.
We have many friends who have been super successful this way. They are able to cover their mortgage and utilities by renting out the 2-3 spare bedrooms. This way they are still living rent “free,” but own single family homes that do two things:
- Appeal to Potential Roommates Now
- Appeal to Traditional Whole House Rentals Later
Appealing to potential roommates now allows them to live rent free, the same as a 2-4 unit would do.
There is a downside, you have to live with people in your space and house. On the other hand, you do have to sacrifice for your craft, but you don’t want to sacrifice your craft. So it is important that what you buy now will appeal to the people that you rent your whole house out to.
The nice thing about this model is that it appeals to many different types of people and financial paths:
- Investor – Who wants to get in the door but is just starting out.
- Young Professional – Who is not an investor but doesn’t want to throw rent away when a mortgage makes sense and wants to save as much money as possible.
- Business Professional Who Is Never Home – Allows them to have a house to come home to without paying the upkeep.
- Young Couple Building Up Their Finances – Perfect way to fund a dream home when the salary is only supporting a starter home. This way one can grow into the house while already owning it. You simply don’t renew the tenants when you want all the space.
- ETC– This model fits more people than this blog post has space.
With everything in life, there is a downside. People other than yourself are going to live in your house. You can’t just kick them out when you are unhappy. So it is really important to screen and set up boundaries so you set the best relationship possible. Are you ready to start building equity through roommates?0