Thinking about buying a home but not sure how to afford it?
Welcome to the Knowledge Diaries, where real people share how they saved and spent to become homeowners.
Today: A data scientist turned real estate agent shares how she bought her first home at 23, another two years later, and kept going.
The Basics
Age: 28
Marital Status: Married
Occupation: Real Estate Agent
What was your housing experience growing up?
My parents have always owned our homes. I grew up feeling like homeownership was a big step to take. I feel lucky in that real estate never felt out of reach.
What made you want to start actively looking to buy?
It was a combination of things. My current husband is a little older than me, so he thought it was time. Our friends were also buying, and we didn’t want to be the last ones to rent.
Did you have any non-negotiable criteria?
Location was the most important. We knew we wanted to be close to downtown.
How did your search go?
We spent months and months looking at real estate listings online. With each house, we always had some concerns. For example, we didn’t want the only bathroom to be upstairs or accessible through a bedroom. When my husband saw a listing on a real estate portal that matched all of our criteria, we were very responsive. We made an offer the same day we saw it.
How did you know it was the right one?
The location was highly sought after. Another thing: this house had an abundance of natural light. My husband and I rented in a downtown building, and we were used to lots of sunlight. We were worried that homeownership would mean living in a dark box. The high ceilings and huge windows of this house seemed amazing the moment we walked in.
How did you save for the down payment?
This was a classic dual-income couple with no kids. We both worked in tech and earned good money. We saved without being overly frugal. For example, we traveled but didn’t make any major purchases. Additionally, we put down (much) less than 20% down when we bought. People think you have to put down a minimum of 20% down, but if you have good credit and a low debt-to-income ratio, you can put down less.
How did you decide how much to offer?
Our real estate agent suggested we add a little something extra; the asking price was $449,000, and we offered $410,000. It was a fair price, and it was a done deal.
What made you decide to buy another house?
I had just started working from home and felt like we needed a bigger place. Airbnb was booming at the time. Some of our neighbors were using Airbnb, so there was a proof of concept. It seemed like a great opportunity to keep this house as a rental and buy our next home.
What made you start again two years later?
Airbnb wasn’t very competitive at the time, so I made $50,000 the first year I rented it out.
I’m a numbers person, so when I saw how much money we could make both month over month and in terms of equity, I was sold.
How many times have you moved?
I’m on my third house. It helps that I became a real estate agent along the way, and it’s my job to look at and research homes.
How do loans work in this situation?
This is a typical home loan for both. The catch is that the lender will consider the mortgage on the first home as a debt that your monthly salary must cover in addition to your new mortgage, unless you can prove rental income. Even once the rental property starts generating income, the lender will only consider 75% of the rental property mortgage at most. In other words, your monthly salary, or the monthly salaries of you and your partner, must cover the new mortgage as well as 25% of the rental property mortgage.
What advice do you have for someone interested in a similar strategy?
The most important thing is to buy the right type of property at the right price. I recommend buying a turnkey property in a location where people want to rent.
Also, ask your lender a lot of questions. There are a lot of things to consider, and a lender can tell you how much you need to bring in each month in rent to offset the impact of the second (or third) mortgage on your debt-to-income ratio.
Finally, you need to be flexible. If my two-year deadline comes around and I can’t find something that works, then I’m not moving. You need to be willing to stay in this house longer, if necessary. You don’t want to move until you find a deal that makes sense.
Why do you buy every two years?
It’s arbitrary, really. I don’t want to have to pack my boxes more often than that.
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