Subsidizing mortgage with renters

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blink2ce
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Joined: Wed Jul 15, 2020 1:28 pm

Subsidizing mortgage with renters

Post by blink2ce »

Hi,

I'm at the beginning of my ERE transition. I am living in a large city in Texas now but will likely move north towards the Great Lakes. I like the colder weather. There are lot of inexpensive houses up that way as well.

Question for you all regarding housing -- Does it make financial sense to get a mortgage for a three bedroom house and live in one room while renting the other two out? This would be a very easy way for me to live, since I already have roommates. It seems like a very easy way to get a low housing cost and I don't see many people talking about it.

If I buy a house in the Grand Rapids, MI area worth $150,000 with 3.5% interest and I put down a $30,000 down payment, the mortgage would be $874. It should be easy to rent each room out for $350 (or more), meaning that my contribution to the mortgage would be a maximum of $174.This is significantly under the ERE limit of a ~$450 budget for housing costs. There will be items that break which would need repairs or replacement, but with a couple of hundred dollars a month for materials and a willingness to do my own repairs, it seems like this would be very feasible and financially wise.

I know that the ERE philosophy is that a mortgage is a "death-lock" and that paying interest is to be avoided always. But in the case of having renters cover most or all of the mortgage it seems like there isn't much downside as long as I plan to stay living in (and renting) the house for a long time.

What are your thoughts?

BeyondtheWrap
Posts: 593
Joined: Thu Jul 22, 2010 3:38 pm
Location: NYC

Re: Subsidizing mortgage with renters

Post by BeyondtheWrap »

Mortgage and repairs are not the only costs to owning a house. You will likely also have property taxes, insurance, and multiple utilities, so it could still go over your $450 monthly limit.

That being said, it sounds like a good plan especially considering you actually enjoy doing your own repairs and living with roommates.

rube
Posts: 701
Joined: Tue Oct 02, 2012 7:54 pm
Location: Europe (NL)

Re: Subsidizing mortgage with renters

Post by rube »

Well known strategy at bigger pockets.com but see comments from BeyondtheWrap

blink2ce
Posts: 6
Joined: Wed Jul 15, 2020 1:28 pm

Re: Subsidizing mortgage with renters

Post by blink2ce »

Thanks Rube and BeyondtheWrap!

jacob
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Re: Subsidizing mortgage with renters

Post by jacob »

It's called "house hacking" these days.

blink2ce
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Joined: Wed Jul 15, 2020 1:28 pm

Re: Subsidizing mortgage with renters

Post by blink2ce »

Thanks Jacob!! I searched using that term and found a lot of good resources.

sky
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Joined: Tue Jan 04, 2011 2:20 am

Re: Subsidizing mortgage with renters

Post by sky »

@blink2ce

I am curious why you chose GR?

blink2ce
Posts: 6
Joined: Wed Jul 15, 2020 1:28 pm

Re: Subsidizing mortgage with renters

Post by blink2ce »

Hi Sky, I haven't chosen any city yet but I mentioned GR just because it is a medium-sized city with some technology jobs and it is possible to buy houses there for $150k pretty easily (or less sometimes, from my research on Zillow). Grand Rapids looks very walkable from Google Maps. Michigan is cold and has lots of forests and great landscapes. These factors are the main things I am looking for.

There are other cities that look good to me too, like Lansing, MI, Ann Arbor, MI, Duluth, MN, Syracuse, NY, and Albany, NY. I want to take a tour of these cities whenever it is advisable to travel again so that I can check them out for myself.

sky
Posts: 1247
Joined: Tue Jan 04, 2011 2:20 am

Re: Subsidizing mortgage with renters

Post by sky »

GR seems to be popular at the moment. If you eventually decide on GR, let me know if I can help. I have lived there several times and know some of the neighborhoods pretty well.

blink2ce
Posts: 6
Joined: Wed Jul 15, 2020 1:28 pm

Re: Subsidizing mortgage with renters

Post by blink2ce »

Thank you Sky! I will keep that in mind.

Frugalitifree
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Joined: Wed May 24, 2017 11:01 am

Re: Subsidizing mortgage with renters

Post by Frugalitifree »

I did this for quite some time and found it very effective. My housemates overpaid my mortgage and I lived with renters a lot of my life so no issue for me on that front. Alas I (happily) found a significant other and we preferred to live w/o others so together we pay the mortgage now(I pay the lion's share- its my property), yet this is about 50% of what we would be paying if renting so it still makes sense right now.

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Lemur
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Re: Subsidizing mortgage with renters

Post by Lemur »

Spouse and I have ben subsidizing our rent (as well as utilities) with my sister for almost 4 years now (everyone is on the landlord lease; nothing illegal lol). Its made a huge difference in savings rate and total dollars...we tracked dollar for dollar since then and we've both saved $56k each (for us; this doesn't even count the increased returns on investments since all savings went to investments). I suppose I can roughly estimate around $65k or so.

If I had to stack list of life decisions....'house hacking' / 'rent hacking' has probably been in top 5 of good decisions.

Aspirant
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Location: 65 deg north

Re: Subsidizing mortgage with renters

Post by Aspirant »

I did that when I was leasing and in my first owned apartment. Makes a lot of sense if you pick nice people to live with you. It enabled us to save down payment for the first apartment and after marrying it made possible for us to keep the first apartment when we bought our house.

Kylinne
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Location: Los Angeles, CA

Re: Subsidizing mortgage with renters

Post by Kylinne »

I had roommates helping pay the mortgage for almost 10 years (until last March, when we decided not to look for new roommates during the pandemic and our old ones moved). Four bedroom/2 bath house and I've had anywhere from 2 to 7 people living here (the 7 was a combination of a friend paying a nominal amount in utilities to sleep on my couch for a couple years, siblings splitting a room, and my now-spouse and I sharing the master - and it was surprisingly comfortable). Make sure that a. you can live with them b. they can pay (or will do work in trade if you're okay with that) c. you're willing to kick them out if either a. or b. no longer apply.
Kicking someone out when you're the landlord and living with them is different than when you're all roommates together paying someone else, and you can ultimately break the lease if necessary. If you're getting friends or friends of friends as roommates, the house dynamics can be more difficult than if you're bringing in strangers, and you're more likely to be persuaded to let them slide on rent for a month (or 6...) before you have to kick them out and change the dynamics of your friendship (or lose it entirely) - but strangers are also their own gamble in terms of personalities and potential issues. I've had great roommates that were found randomly on Craigslist, and horrible ones that were friends or acquaintances. All that being said, roommates are how I kept the house (comfortably) after my divorce from my first spouse (the mortgage was always based solely on my income, and I could always technically pay the expenses by myself, but that didn't account for continuing to save money at the rate I was), and helped push my mortgage principal down a lot faster than I would have done on my own (it also led to occasionally eating out more when I didn't want to deal with the mess in the kitchen/pantry/refrigerator/roommate drama, but that's a different story).

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