Is it feasible to buy a house with 3 friends for my 4 years in college (or maybe longer)?

Submitted by UltimatePlayer3301 t3_10q75v8 in personalfinance

A few close friends and I (4 to 6 people in total) came up with the idea to buy a house during our 4 years of college and then selling it after to save a large portion of money on rent. We all go to a vocational school in the Engineering class so we have a lot of common. We have all been accepted into a local college that is one of the best in the area for engineering. The cost of room and board to this college is 20k a semester (so 80k for all 4 of us combined. Our idea was to buy a cheap 4 bedroom 1.5 or 2 bath house around the area (not directly on campus) and then sell it after the 4 years. We don't plan on making a profit, just paying significantly less than what we would with room and board at college.

The math:

It is not unreasonable to find a 4 bedroom 1.5 bath house in the area for around $100k.

I have calculated our monthly housing budget at around $270 per week per person ($15/hr 15hrs/week 48weeks/yr, 30% of gross income). Meaning the total monthly housing budget would be $1080. (I am using very conservative numbers just to see how feasible this would be, in reality, our income would probably be higher.) Also, I do not find it infeasible to save 20k for the down payment between all 4 of us by the time we go to college in the fall.

With these numbers, we could comfortably pay an 80k 10-year loan at 5% yearly interest with it being an $848.52 monthly payment. (The interest is what I believe to be high to show the feasibility of this scenario).

After the 4 years in college, we would have paid around $47k in principal (including the down payment), and around $13k in interest. Assuming our house gained no value over those 4 years, we would have only paid around $30k for the house (including property tax, insurance, 1% per year maintenance, and closing costs (3%)) and would have gained around $47k that would just go in our pockets after we sell.

I have read multiple similar posts about how you shouldn't buy with friends and how this could end badly, but our goals are aligned in the same place, and even with very conservative numbers that may be lower with the costs and higher with our incomes, the numbers seem to make sense.

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nozzery t1_j6o9cv9 wrote

This is a really bad idea. Fraught with potential pitfalls. College students are by definition unstable, too young, too inexperienced, too little income. Bad idea. Do the same exact idea, but with a rental. Best of luck

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r3dt4rget t1_j6oba4i wrote

I'm not disagreeing with your point, it just made me think about how we think it's bad for 18 year olds to take out a $100k mortgage for property, but it's perfectly normal for them to take out $100k in student loans, which are arguably much more risky.

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nozzery t1_j6obuy8 wrote

It's not much more risky, because it's $100k for *you* and not tied to anyone else. If this guy could make it work financially without the 3 other people, I'd say go for it. But anyway, student loans are a bad idea too if you can avoid them. Never get into a situation where you *need* everything to go perfectly in order to remain solvent. The road of life isn't smooth, there are bumps. Don't buy a car without shocks.

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UltimatePlayer3301 OP t1_j6obpcq wrote

I've never thought about it like that, it is kind strange how its a sort of double standard.

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UltimatePlayer3301 OP t1_j6oa364 wrote

The university I go to has a nice co-op program for the engineering major with an average of $19/hr salary while in college, I've found similar part-time jobs for over $20/hr that are definitely feasible in college, I used the very conservative numbers of $15/hr and 15 hours per week in my estimates, meaning even a job at McDonalds could make do. It seems as though there are many options and with savings, it should be very doable to pay the mortgage payments. If you have reasons for your comment, please give them or a scenario that maybe you or a friend went through that can explain it.

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nozzery t1_j6objqh wrote

It's doable, *if everything goes perfectly*. Which it won't. One of you will become a deadbeat. One of you will get injured. One of you will have to drop out. You just never know what could possibly happen. It's not worth the risk for something you know you're going to sell in 4 years, and tie yourself to 3 other people you're fully expecting to walk away from in 4 years.

​

Never get into a situation where you need everything to go right in order to make it work.

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UltimatePlayer3301 OP t1_j6oez1g wrote

What if I found a situation where the numbers work that 2 people would be able to cover the cost, but we still use 4 people equally 25% each? In your opinion, would that work?

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nozzery t1_j6ofeq6 wrote

Are you willing to bet your house on 2 of your friends having their finances 100% in order until you decide to sell? I wouldn't. Look at how much you're coming out ahead over a rental. Then decide if that amount is worth the risk you're taking. It's your call, but you'll also be left holding the bag if it doesn't go the way you planned.

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tutorquestion90 t1_j6ofqf2 wrote

You’re taking a big risk that everyone will contribute.

Also a rule of thumb is that you’ll lose money if you don’t keep it for 5 year’s minimum.

There’s also closing costs and all that too.

What if you get a roof leak and you need to hire someone? Do you want to go through that? Water heater breaks, furnace goes out. Anything.

One of you will have to sign the paperwork. Everyone else could bail and that person is stuck holding the bucket.

It’s a huge risk. Just rent during this time

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badchad65 t1_j6oiea7 wrote

I think the number of people still complicates things.

What happens if one of the 4 people pays in for three years the leaves? Do they get equity? How much? What about repairs? What if the roof needs replacing or the hot water tank or AC goes? Who pays when someone punches a hole in the wall? Should the two people that "pay in" get more equity? They are the ones taking the risk.

Given home prices are at an all time high, what happens if the property takes a loss after 4 years? What if someone doesn't want to sell at the end of 4 years?

As everyone else has said, this is not a great idea.

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IronChefster t1_j6oc5mp wrote

It’s not just about the financial stability, but rather about the life stability.

What happens if one of your friends decides he doesn’t want to go to school, or has a reason to move away? Do they stay invested in the house and rent out their room? What if they don’t want to be invested anymore and get their cash out?

You’re also just thinking about the month-to-month finances. One of the big benefits of renting is that if something goes wrong, the landlord is on the hook to fix it. If you own it, you’re on the hook. What if the roof leaks and have to pay $2k to fix it? What if you have foundation issues and need to pay $10k? There are all sorts of things that can go wrong.

If you’re really serious about this, you should research the concept of “Tenants in Common” it may be more specific to California, but the idea is that there are very clear rules and precautions in place to ensure everyone who owns a property is legally bound to take care of it.

I know what you’re thinking “oh we’re all friends and we’ll figure it out”. What I can tell you is that when money is tight and a $10k comes your way, friendships can be broken.

Renting a place avoids most of that.

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TyrconnellFL t1_j6obu6e wrote

With closing costs, taxes, and repairs you’re likely to lose money compared to renting.

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TeslaSaganTysonNye t1_j6o8g4s wrote

Rent a place for 4 years and call it a day.

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UltimatePlayer3301 OP t1_j6o9b1j wrote

I looked at the cost of places to rent in the area, and it looks like it would be about the same cost, meaning it would cost about the same as buying room and board at the college. By potentially buy a house, we would pay less than half.

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The_Trustable_Fart t1_j6od6ys wrote

Look up the "hidden costs" of owning a home. When you rent and the furnace goes out you call your landlord and they are obligated to restore heat in a timely manner. When the heat goes out in your house all of that is your headache and responsibility.

If one of you is able to get a mortgage alone it might be a better route

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r3dt4rget t1_j6oa2io wrote

How are 4 teenagers going to qualify for a mortgage?

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UltimatePlayer3301 OP t1_j6oaahk wrote

I'm not sure, I was hoping to find that out in this question. What exactly do you need to qualify for a mortgage and I've read about LLCs would making one help us with this idea?

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r3dt4rget t1_j6oanyw wrote

You need a credit history, good credit score, and a history of regular income that proves your ability to pay the mortgage.

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UltimatePlayer3301 OP t1_j6ob5nd wrote

You can use your parents to help with that, correct? (the credit history part)

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TyrconnellFL t1_j6objz6 wrote

Your parents could collectively buy a house. Now all of them have to align on rental property decisions.

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UltimatePlayer3301 OP t1_j6obt53 wrote

I honestly don't see that working.

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r3dt4rget t1_j6oc99a wrote

I don't see any of this working out. There are just too many moving pieces. Renting is ideal even though it's more expensive. You're paying for the luxury of flexibility and freedom. At this point in your life, that is what is most important. Don't tie yourself down to anything.

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manwnomelanin t1_j6oerta wrote

Thats what they’d effectively be doing if theyre all co signing lol

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kumoni81 t1_j6ocd4l wrote

No you cannot. The parents would also have to be added to the loan. I have seen parents buy a house in a college town for their kids to use while in school. I’m fact my parents did that when my brother went to school. But my brother wasn’t on the loan due to lack of qualifying income, credit history, etc.

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Environmental_Eye354 t1_j6ob6h1 wrote

Just being honest I don’t see it happening… I do not work with/for or deal with mortgages but I do know that a joint mortgage is generally frowned upon by most lenders and ALL names on the mortgage must qualify.

I would assume not one of you has a steady income and credit currently to be able to be approved solely

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Acceptable-Arm-6700 t1_j6oamo1 wrote

Feasible yea Smart no

At least one of the friendships will die Houses are expensive in upkeep and there is a lot to do Profit calculation is not simple

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UltimatePlayer3301 OP t1_j6ob194 wrote

If it is feasible, what improvements would make it smarter/safer, we did think about buying a much cheaper house, like 50k, but thought buying a better 100k house would 1: be a lot cooler and an overall better experience, and 2: be easier to sell after 4 years.

Also, I made a spreadsheet, just wanted to say that because I am proud of it.

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meamemg t1_j6obvgr wrote

  1. Closing costs are going to be at least double what you have estimated
  2. Room and board includes food. You haven't budgeted for that in here
  3. Do you all have 2 years of income history to show the lenders?
  4. What happens if someone drops out or moves to a different college?
  5. Interest rates are generally above 5% right now.
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UltimatePlayer3301 OP t1_j6od1s9 wrote

What I budgeted was only for room at college, I didn't include food, but all your other points I agree with.

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Hoo2k8 t1_j6obxha wrote

There’s a reason why this is going to be almost universally considered an awful idea.

Let’s put side the ideas of whether you all getting a mortgage is even feasible.

You haven’t even considered any of the routine maintenance costs that pretty much every new homeowner grossly underestimates. And what if you need a new roof? Or a pipe bursts? Or you need a new hot water heater?

What if the washing machine breaks? Do you split the cost to replace? What if one friend can’t afford to chip in?

These are real issues that homeowners deal with all the time. One moderately priced, unexpected issue completely obliterates all the math you did.

And why would you want to tie yourself down to this house? What happens if you decide you no longer want to go to school there? What happens when someone meets an SO? Do you allow that person to move in? What if you get tired of each other and want your own place? What happens if you graduate in 3 years and want to find a full time job elsewhere?

Also, your mortgage company could not care less about the agreements between the four of you. It doesn’t matter how you agree to split costs - each of you would be 100% responsible for the mortgage. If one of your friends doesn’t pay, you have to find a way to come up with the money.

The reasons most suggest to not buy a house with someone unless you’re married (or at least in a long-term relationship), is because at that point, you’ve agreed to create a single household. My wife and I don’t have to discuss how to split the cost of replacing the dishwasher or getting new windows. Neither of us will (hopefully) get a job offer tomorrow on the other side of the country and decide to roll out. Buying a house together is not the same as creating a single household.

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UltimatePlayer3301 OP t1_j6ocxdn wrote

You raise multiple good points, would you recommend we rent a home that is would cost roughly 1k/month and split costs, because that would still cost significantly less than room at college.

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Hoo2k8 t1_j6ofi5m wrote

I think that’s a really good idea.

Don’t underestimate how valuable flexibility can be when deciding on your living arrangements, especially when you’re young. Being able to chase jobs, transfers schools, move in with new friends you make during school….all of that is very valuable

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kveggie1 t1_j6ocaw2 wrote

Bad idea. Drop out rate? Money for repairs?

One should buy the house and rent to the others. Kick them out if they do not pay or break house rules.

Oh, how to enforce house rules?

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UltimatePlayer3301 OP t1_j6oe0xx wrote

I calculated 1% of house cost per year for repairs (I found that number somewhere online) would this be a safe number to use to put aside for repairs?

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EmberOnTheSea t1_j6of03g wrote

That is likely too low in the first couple years. When people are planning on selling their house, they often put off maintenance. Price a roof or furnace in your area and use that amount as your "worst case scenario" repair.

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UltimatePlayer3301 OP t1_j6ofihd wrote

I found the average price of a roof replacement in the area to be about $5k to $15k, so if we all had this amount saved, would you consider that to be safe?

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mmMOUF t1_j6of5n7 wrote

I had a friend who he and his father bought a house like this as he was in pharmacy school, and he then rented it to roommates and sold when he graduated and moved. Having it split 4 was is a terrible idea, what if one of you transfers, or needs to take a year off, or any number of things that happen?

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Existing-Inevitable4 t1_j6oie8h wrote

Bad idea. Don't do it.

Everyone else has already told you why.

Rent a house, split it 4 ways. The responsibility is on your landlord to maintain the home.

College is not the time to do that.

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kumoni81 t1_j6obxfa wrote

I can’t imagine you’d be able to get a mortgage. My brother has a graduate degree and a 6 year work history at a very well paying job, large down payment, etc. He moved to a new town and couldn’t get a small mortgage until he had accepted an offer and was working at his new well paying job.

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kumoni81 t1_j6ocxm1 wrote

Having a mortgage isn’t just about the initial monthly payment. It often goes up due to increase in property taxes and/or insurance. You will also need to factor in the cost of maintenance. You never know when you’ll need to replace a roof, appliances, AC, plumbing etc.

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amuri59 t1_j6ofuir wrote

Don't listen to the very narrow thinking, That you and your friends are too young, too irresponsible and so on, Just by hearing your logic it's apparent that you are a very intelligent and reasonable young man. You already know that you can make it work so you don't have to argue that point. Just work out all the details with your friends for any possible unforseen occurrence such as someone has to leave college due to family emergency. Possible buy outs- must be postponed until the end of the 4yrs. Then have backup plan, do you rent the room? Have it in writing!!

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UltimatePlayer3301 OP t1_j6og2jz wrote

So what your saying, is it is feasible as long as you have a bullet-proof plan in order?

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qqbbomg1 t1_j6ohazf wrote

I love this idea and would support you all the way if you can find a way to get a bank to loan you guys money. A lot of people here are speaking out of fear but houses do appreciate in long run so all those fear of hidden cost are none sense, especially it’s not a side business, it is a necessity for you (you need a place to stay). Do get a lawyer too to draft out the contract, it’s like a prenup for marriage, just in case of anything like agreeing the exact time period to sell, how to split extra fee, everyone’s time commitment on miscellaneous… etc. 100% you won’t regret this if you decide to buy a house together.

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Embarrassed_Camel_35 t1_j6ohr9m wrote

You buy the house and rent rooms to your other friends to cover mortgage and maintenance. Then when you graduate, you rent rooms out to other students of the school and pocket a monthly profit as well as pay the house expenses.

I went to a college where all the houses directly across from campus were “rent a room”. The homeowner general was able to rent the house out for much more than the cost of the expenses and they did any maintenance work when school was out.

Renting to college students can be very lucrative. The benefits of not living in on campus housing is that it is generally much less expensive than living on campus, with more freedom and less restriction.

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bakery93 t1_j6oi3tn wrote

I think the concept makes sense and has upside if executed properly. However, I do agree with a few people in this thread and believe that equal ownership between you and your friends has tremendous downside and inherent risks.

If your goal is to save rent and instead, allocate a portion of that ‘rent’ towards building equity in a home, then I would look to one set of your parents or another family member to purchase the house. You and your friends could form an operating agreement that’s beneficial to all parties involved.

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peeweemom t1_j6olcwc wrote

Don’t do it. All it takes is one of your friends dropping out and defaulting and you’re in trouble.

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kwazirr t1_j6o8lw7 wrote

Get the terms of who gets what when you sell it in writing. Doesn't matter how close you all are, things happen.

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UltimatePlayer3301 OP t1_j6o8vgi wrote

We were planning doing everything 25% of if there were more people completely equally (including the payments). Getting things in writing was gonna be one of the things we would do if we were to go through with this.

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kwazirr t1_j6o9029 wrote

Awesome, nice work. Always protect yourself financially!

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Hoo2k8 t1_j6oduhk wrote

But this isn’t even close to protecting himself financially.

The four of them agreeing to pay 25% is meaningless to the mortgage company. If a roommate doesn’t pay, the rest of them are still responsible for paying the full mortgage. If mortgage payments are late or the house is foreclosed, it’s hurts all of them, even the ones that paid their share on time

And contracts don’t exist in limbo. OP needs to understand the laws in their state. Can any owner legally force the sell of the house? If so, it likely doesn’t matter what they agreed to. Likewise, if all owners have to agree to sell, it once again likely won’t matter what they agree to.

This stuff is way too complicated for a subreddit and OP needs to have a lawyer involved.

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kwazirr t1_j6ofp58 wrote

I'm speaking in terms of a legal document (with a lawyer) and yes, that would protect OP financially. As for the details of that, yes a lawyer would need to be involved. I'm not talking about a handshake and a high five.

Not sure why you're responding as if I gave them bad advice, I'm right. I appreciate your additional input though.

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UltimatePlayer3301 OP t1_j6ogi91 wrote

I'm not exactly sure how an LLC works, but I think it is slightly related to this situation, could I use an LLC to evenly buy the house 25% each and with how I think they work, could say if someone wants out, another person can buy their 25% in the LLC? Correct me if I'm wrong, I am not even close to sure.

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kwazirr t1_j6oio2z wrote

Sounds like a great, specific question for a post, guarantee you'll get some great advice from those smarter than I!

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amuri59 t1_j6odlex wrote

That is incredibly smart. I think you should do it if you feel comfortable with your friends, as it seems you do. You are setting yourself up to be one step ahead vs. Drowning in college debt. Good for you!!!

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UltimatePlayer3301 OP t1_j6odsiu wrote

What makes you believe this rather than the slue of problems most other people are posting?

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