Looking to buy a property that's 12-14x my income. How can it be done?
"It is your choice to have ""insignificant income"", and that has consequences.  One is that you cannot borrow money to purchase a home independent of your credit score.  In order to purchase a home you must also have the ability to repay in addition to a good history. IMHO your question suggest that you have a unrealistic outlook on life.  If you cannot come up with 10K, how can you afford a home?  What happens when the HVAC system goes out?  While I certainly hope you meet and exceed your goals, you can change your whole world by simply getting a job at a fast food restaurant.  When you are not working you can then do the entrepreneurship thing. Life is often a choice of priorities.  If you choose to ""back-burner"" the entrepreneur dream, for a time, and choose to focus on earning the best possible wage. Then perhaps you could afford to purchase a place of your own." What options do I have? Realistically?  Get a regular full time job.  Work at it for a year or so and then see about buying a house. That said, I recently purchased a decent home.  I am self-employed and my income is highly erratic.  Due to how my clients pay me, my business might go a couple months with absolutely no deposits.   However, I've been at this for quite a few years.  So, even though my business income is erratic, I pay myself regularly once a month.  In order to close the deal with the mortgage company I had to provide 5 years worth of statements on my business AND my personal bank accounts.  Also I had about a 30% down payment.   This gave the bank enough info to realize that I could absolutely make the payments and we closed the deal. I'd say that if you have little to no actual financial history, don't have a solid personal income and don't have much of a down payment then you probably have no business buying a house at this point.  The first time something goes wrong (water heater, ac, etc) you'll be in a world of trouble. You need a cosigner. Someone prepared to repay the mortgager if you should fail to. Needless to say this is going to have to be someone who knows you and trusts you very much. One way is to find someone prepared to share a house with you. Buy a bigger house than you would otherwise need. You would own half each, and the sharing agreement would specify that if one of you defaulted on their payments the other would get a larger share according to how much extra they end up paying. The other way is to find a silent partner, who doesn't live there. They put up no money unless you actually default. They would almost certainly have to be part owners, but you can structure the agreement so that you end up with the whole house if you succeed in paying off the mortgage, or miss no payments until you sell. Parents sometimes do this for their kids.
"that would deprive me of the rental income from the property. Yes, but you'd gain by not paying the interest on your other mortgage.  So your net loss (or gain) is the rental income minus the interest you're paying on your home.  From a cash flow perspective, you'd gain the difference between the rental income and your total payment. Any excess proceeds from selling the flat and paying off the mortgage could be saved and use later to buy another rental for ""retirement income"".  Or just invest in a retirement account and leave it alone.  Selling the flat also gets rid of any extra time spent managing the property. If you keep the flat, you'll need a mortgage of 105K to 150K plus closing costs depending on the cost of the house you buy, so your mortgage payment will increase by 25%-100%. My fist choice would be to sell the flat and buy your new house debt-free (or with a very small mortgage).  You're only making 6% on it, and your mortgage payment is going to be higher since you'll need to borrow about 160k if you want to keep the flat and buy a $450K house, so you're no longer cash-flow neutral. Then start saving like mad for a different rental property, or in non-real estate retirement investments." To me it sounds like you need to come up with 67K (30+37), part of the time you can work in the current job, part of the time you could work a lower paying part time job (for a year).  Lets assume that you can earn 15K for that year, and you can save 5K from your current job.  (I'd try and save more, but what ever you can do.) 67 - 15 - 5 = 47    I'd sell the investment property.  First you will have some funds to throw at this need, second you expense should go down as you don't have a payment on this property. 47 - 26 = 21  You have 32K in cash which is a lot for someone in your expense range.  Six months would be 15K, so I would use some of that cash: 21 - 17 = 4 Now you are really close.  If needed I'd use the investments to cover the last 4k or even more of the on hand cash.  However, could you do something to reduce that amount further ...like working more. Real Estate is all local. In the United States, I can show you houses so high the rent on them is less than 1/3% of their value per month, eg. $1M House renting for less than $3500. I can also find 3 unit buildings (for say $200K) that rent for $3000/mo total rents. I might want to live in that house, but buy the triplex to rent out. You need to find what makes sense, and not buy out of impulse.  A house to live in and a house to invest have two different sets of criteria. They may overlap, but if the strict Price/Rent were universal, there would be no variation. If you clarify your goal, the answers will be far more valuable. I'm an Aussie and I purchased 5 of these properties from 2008 to 2010. I was looking for positive cash flow on properties for not too much upfront investment. The USA property market made sense because of the high Aussie $$ at the time, the depressed property market in the US and the expensive market here.  I used an investment web-site that allowed me to screen properties by yield and after eliminating outliers, went for the city with the highest consistent yield performance. I settled on Toledo, Ohio as it had the highest yields and was severely impacted by the housing crisis. I bought my first property for $18K US which was a little over $17K AUD.  The property was a duplex in great condition in a reasonable location.  Monthly rentals $US900 and rents guaranteed and direct deposited into my bank account every month by section 8.  Taxes $900 a year and $450 a year for water. Total return around $US8,000.   My second property was a short sale in a reasonable area. The asking was $US8K and was a single family in good condition already tenanted.  I went through the steps with the bank and after a few months, was the proud owner of another tenanted, positive cash flow property returning $600 a month gross. Taxes of $600 a year and water about the same.  $US6K NET a year on a property that cost $AUD8K Third and fourth were two single family dwellings in good areas.  These both cost $US14K each and returned $US700 a month each.  $US28K for two properties that gross around $US15K a year.   My fifth property was a tax foreclosure of a guy with 2 kids whose wife had left him and whose friend had stolen the money to repay the property taxes.  He was basically on the bones of his butt and was staring down the barrel of being homeless with two kids.  The property was in great condition in a reasonable part of town.  The property cost me $4K.  I signed up the previous owner in a land contract to buy his house back for $US30K. Payments over 10 years at 7% came out to around $US333 per month.  I made him an offer whereby if he acted as my property manager, i would forgo the land contract payments and pay him a percentage of the rents in exchange for his services. I would also pay for any work he did on the properties.  He jumped at it.  Seven years later, we're still working together and he keeps the properties humming.  Right now the AUD is around 80c US and looks like falling to around 65c by June 2015.  Rental income in Aussie $$ is around $2750 every month. This month (Jan 2015) I have transferred my property manager's house back to him with a quit claim deed and sold the remaining houses for $US100K  After taxes and commission I expect to receive in the vicinity of AUD$120K  Which is pretty good for a $AUD53K investment.  I've also received around $30K in rent a year. I'm of the belief I should be buying when everybody else is selling and selling when everybody else is buying.   I'm on the look-out for my next positive cash flow investment and I'm thinking maybe an emerging market smashed by the oil shock.   I wish you all happiness and success in your investment. Take care. VR "I've never heard of rent quoted per week. Are you in the US?  In general, after the down payment, one would hope to take the rent, and be able to pay the mortgage, tax, insurance, and then have enough left each year to at least have a bit of emergency money for repairs. If one can start by actually pocketing more than this each year, that's ideal, but to start with a rental, and only make money ""after taxes"" is cutting it too close in my opinion. The 19 to 1 ""P/E"" appears too high, when I followed such things I recall 12 or under being the target. Of course rates were higher, and that number rises with very low rates.  In your example, a $320K mortgage at 4% is $1527/mo. $400/wk does not cut it." "Your plan as proposed will not work, because it goes against how banks make money. Banks make money in two ways:  (1) Fees [including account fees, investment advice fees, mortgage application fees, etc.]; and (2) Interest Rate Spread. They borrow money for x%, and they lend it out for x+y%. In a simple form, someone gives the bank a deposit, and earns 1%. The bank turns around to the next person in line and loans the money to them for 4%. You are asking them to turn the interest rate spread into a cost instead of their main source of profit: You are asking the bank to borrow money from another person paying them 1.2% interest, and then loan the money to you, paying you 0.6% interest and keeping 0.6% for themselves. The bank would lose money doing this. Technically yes, you can borrow from a bank and invest it in something earning above the 4% interest they will charge you. You can then pay the bank's interest off of your earnings, and make some profit for yourself. BUT this carries an inherent risk: If your investment loses money, you still owe the bank, effectively increasing the negative impact of your investment. This tactic is called ""Leveraging""; you can look it up on this site or on google. It is not something you should do if you do not fully understand the risks you are taking on. Given that you are asking this question, I would suggest tactfully that you are not yet well informed enough to make this sort of investment. You run serious risk of losing everything if you over-leverage (assuming the banks will even lend you money in the first place)." I’m not an expert on the VISA/US tax or insurance, but you're making enough mistakes in terms of all the associated costs involved in owning and renting houses/apartments that this already looks potentially unwise at this stage of your investment career. Renting cheap properties/to students involves the property constantly being trashed, often being empty and requiring extremely close management (which you either have to pay someone a lot to do, or do yourself and lose other potential earning time. If doing yourself you will also make lots of mistakes in the vetting/managing/marketing process etc at first as this is a complex art in itself).  Costs on this type of rental can often get as high as 25% a year depending exactly how lucky you get even if you do it all yourself, and will typically be in the 5-15% range every year once everything you have to constantly maintain, replace and redecorate is totalled up. That's all pre what you could be earning in a job etc, so if you could earn a decent clip elsewhere in the same time also have to deduct that lost potential. Send it all to third parties (so all upkeep by hired contractors, all renting by an agency) you will be lucky to even break even off ~15k a year per property rents to students. You’re not seeming to price in any transaction costs, which usually run at ~5% a time for both entrance and exit. Thats between half and one years rent gone from the ten per property on these numbers. Sell before ten is up its even more. On point three, rounding projections in house price rises to one decimal place is total gibberish – no one who actually has experience investing their own money well ever makes or relies on claims like this. No idea on Pittsburgh market but sound projections of likely asset changes is always a ranged and imprecise figure that cannot (and shouldn’t) be counted on for much. Even if it was, it’s also completely unattainable in property because you have to spend so much money on upkeep: post costs and changes in size/standard, house values generally roughly track inflation. Have a look at this chart and play around with some reasonable yearly upkeep numbers and you will see what I mean. Renting property is an absolute graveyard for inexperienced investors and if you don't know the stuff above already (and it's less than 10% of what you need to know to do this profitably vs other uses of your time), you will nearly always be better off investing the money in more passive investments like diversified bonds, REITs and Stock. If you expect a significant increase in future income, then you should wait until that future income is assured, and then buy based on that decision. Buying more house than you can afford is what caused you to have to sell; you don't want to do that again. Instead of buying more house now, buy the right house for what you have now.   Better yet, though, you might rent instead of buying until the future income comes onboard.  Then you can get the best of both worlds - you get to buy the house you can afford in a year or two, but also don't overspend your income. A good quick filter to see if a property is worth looking at is if the total rent for the property for the year is equal to 10% of the price of the property.  For example, if the property is valued at $400,000 then the rent collected should be $40,000 for the entire year.  Which is $3,333.33 per month. If the property does not bring in at least 10% per year then it is not likely all the payments can be covered on the property.  It's more likely to be sinking money into it to keep it afloat. You would be exactly right, as you have to figure in insurance, utilities, taxes, maintenance/repair, mortgage payments, (new roof, new furnace, etc), drywall, paint, etc. Also as a good rule of thumb, expect a vacancy rate of at least 10% (or 1 month) per year as a precaution. If you have money sitting around, look into Real Estate Investment Trusts.  IIRC, the average dividend was north of 10% last year.  That is all money that comes back to you.  I'm not sure what the tax implications are in Australia, however in Canada dividends are taxed very favourably.  No mortgage, property tax, tenants to find, or maintenance either. "A person can finance housing expenses in one of two ways. You can pay rent to a landlord. Or you can buy a house with a mortgage. In essence, you become your own landlord. That is, insta the ""renter"" pays an amount equal to the mortgage to insta the ""landlord,"" who pays it to the bank to reduce the mortgage. Ideally, your monthly debt servicing payments (minus tax saving on interest) should approximate the rent on the house. If they are a ""lot"" more, you may have overpaid for the house and mortgage. The advantage is that your ""rent"" is applied to building up equity (by reducing the mortgage) in your house. (And mortgage payments are tax deductible to the extent of interest expense.) At the end of 30 years, or whatever the mortgage term, you have ""portable equity"" in the form a fully paid house, that you can sell to move another house in Florida, or wherever you want to retire. Sometimes, you will ""get lucky"" if the value of the house skyrockets in a short time. Then you can borrow against your appreciation. But be careful, because ""sky rockets"" (in housing and elsewhere) often fall to earth. But this does represent another way to build up equity by owning a house." The rules of thumb are there for a reason. In this case, they reflect good banking and common sense by the buyer. When we bought our house 15 years ago it cost 2.5 times our salary and we put 20% down, putting the mortgage at exactly 2X our income. My wife thought we were stretching ourselves, getting too big a house compared to our income. You are proposing buying a house valued at 7X your income. Granted, rates have dropped in these 15 years, so pushing 3X may be okay, the 26% rule still needs to be followed. You are proposing to put nearly 75% of your income to the mortgage? Right? The regular payment plus the 25K/yr saved to pay that interest free loan? Wow.  You are over reaching by double, unless the rental market is so tight that you can actually rent two rooms out to cover over half the mortgage.  Consider talking to a friendly local banker, he (or she) will likely give you the same advice we are. These ratios don't change too much by country, interest rate and mortgages aren't that different. I wish you well, welcome to SE. I would not recommend you proceed for the reasons given by others and would recommend focussing on raising your annual income to a point where you are better able to decide whether buying is an option.  Given the price of places where you are living and your situation it likely will be some time until buying a place makes sense financially if ever (at those prices I would expect renting makes better sense). Make sure to get a Homestead Exemption if your state has one. This can keep your taxes from rising quite as steeply, and in some cases the county assessment office can get you a retroactive refund when your application is approved.  Also, if you really think you're paying too high based on home resale values around you, most county assessors will also let you dispute your valuation. A higher value is great if you intend to sell, not so good if you're staying long term. Kind of like the difference between trading bonds and investing in them.  Also, as I think one of the other posters pointed out, you can usually make extra small payments and direct them to escrow or to principal. "When you compare the costs of paying your current mortgage with the rental income from the flat, you're not really comparing like with like. Firstly, the mortgage payments are covering both interest and capital repayments, so some of the 8k is money that is adding to your net worth. Secondly, the value of the flat (130k) is much more than the outstanding mortgage (80k) so if you did sell the flat and pay off the mortgage, you'd have 50k left in cash that could be invested to provide an income. The right way to compare the two options is to look at the different costs in each scenario. Let's assume the bigger house will cost 425k as it makes the figures work out nicely. If you buy the bigger house with a bigger mortgage, you will need to borrow 50k more so will end up with a mortgage of 130k, and you will still have the 8k/year from the flat. Depending on your other income, you might have to pay tax on the 8k/year - e.g. at 40% if you're a higher-rate taxpayer, leaving you with 4.8k/year. If you sell the flat, you'll have no mortgage repayments to make and no income from the flat. You'll be able to exactly buy the new house outright with the 50k left over after you repay the mortgage, on top of your old house. You'd also have to pay some costs to sell the flat that you wouldn't have to with the bigger mortgage, but you'd save on the costs of getting a new mortgage. They probably aren't the same, but let's simplify and assume they are. If anything the costs of selling the flat are likely to be higher than the mortgage costs. Viewed like that, you should look at the actual costs to you of having a 130k mortgage, and how much of that would be interest. Given that you'll be remortgaging, at current mortgage rates, I'd expect interest would only be 2-3%, i.e around 2.5k - 4k, so significantly less than the income from the flat even after tax. The total payment would be more because of capital repayment, but you could easily afford the cashflow difference. You can vary the term of the mortgage to control how much the capital repayment is, and you should easily be able to get a 130k mortgage on a 425k house with a very good deal. So if your figure of 8k rent is accurate (considering void periods, costs of upkeep etc), then I think it easily makes sense to get the bigger house with the bigger mortgage. Given the tax impact (which was pointed out in a comment), a third strategy may be even better: keep the flat, but take out a mortgage on it in exchange for a reduced mortgage on your main house. The reason for doing it that way is that you get some tax relief on the mortgage costs on an investment property as long as the income from that property is higher than the costs, whereas you don't on your primary residence. The tax relief used to just be at the same tax rate you were paying on the rental income, i.e. you could subtract the mortgage costs from the rental income when calculating tax. It's gradually being reduced so it's just basic rate tax relief (20%) even if you pay higher-rate tax, but it still could save you some money. You'd need to look at the different mortgage costs carefully, as ""buy-to-let"" mortgages often have higher interest rates." If you're living in a market where some houses are going for $150K over asking, then you MUST buy before you sell.  In a seller's market, you will get multiple offers on your current house when you decide to sell, it will sell for (well) over asking, and you can dictate possession dates.  You do not need to worry about selling your own home, if you have a competent realtor. But buying a home is an entirely different story.  You may struggle to find something affordable, and there may be multiple buyers each time you decide to make an offer.  You may go through this cycle several times over many months before your offer  is accepted.  You should do this while living in your own home, with the comfort of knowing that you can sell your own home easily at any time, instead of the stress of an imminent closing date on your own home.  Or worse, move into rented space or Malvolio's mom's house for months or a year while the market increases by 15% and the houses in your old area are now selling for $100K more than you sold for.  Ouch, now you really can't afford to buy what you want, and you may end up buying something equivalent to what you used to own, for more, plus legal, realtor, and land transfer costs. If the closing dates don't align, then bridge.  This will only end up costing a few hundred dollars, less than $1K including legal fees (the lawyer will also charge to handle this).  But by buying before you sell, you'll easily make up that difference. This advice only applies to hot property markets.  I'm not a realtor, just a guy living in the GTA who went through this process last year.  Lost out on three offers over 10 months, then bought for asking price on fourth offer (very fortunate), then sold for $90K over asking, then bridged for 2 months.  My realtor is awesome and made the process as stress free as it can be.   Get a good realtor, start house hunting while preparing your own house for sale, and enjoy the process.  Also you should negotiate with your realtor, they may be willing to reduce their commission on your sale if they are also representing you on the purchase. Good luck! P.S. Do not make a contingent offer, and do not accept one.  Get your financing in place before you make an offer, and if you are concerned about inspection, you can also do that before the offer, if you act quickly.  The inspection will cost ~$500, but it will increase the value of your offer by much more than that since you will be going in without conditions.  I spent ~$1,000 on two property inspections on homes I lost out on, and I don't regret it.  That is the cost of doing business. The other offers on the home I eventually bought were for significantly more than my offer, but they had conditions.  I saved at least $40K by being condition free, and I only spent $1,500 on three property inspections.  And, some people will just drop out of the multiple offer scenario when they learn that one of the buyers has done an inspection.