My family has been urging me to invest in real estate, but I'm not quite comfortable with the idea, so I'm turning to you, the great StackExchange community, for advice. Here's some facts:

  • I rent alone for about $1,000 dollars a month.
  • I have next to nothing for a down payment.
  • I would be a first-time home/property buyer (Utah if that's relevant).
  • My family is willing to assist.
  • I'm in my mid 20s.

They think it's time my money went towards property of my own. They suggest a plex or something similar so I can rent out part of the property for income. I'm not willing to put in the upkeep effort, so I would definitely enlist some sort of property management.

I have no debts, and 20% goes towards my company's 401(k). I could scale that back to help save up for a down payment; they only match 4% or 5%. My current lifestyle is netting my a negligible cash flow. I have a small but sufficient safety cushion.

Should I investigate real estate prospects? If so, what preparations should I make, if any? If you need additional information let me know.

  • 1
    Is your family wealthy? Do they have experience buying and renting real estate? I suspect that they struggle with debt and saving like most others, so what makes them experts on your investments?
    – D Stanley
    Commented Apr 1, 2017 at 20:09
  • 1
    If they told you it was time to open a sandwich shop, would you do that? Real Estate is a business like any other. If you are not interested in the work, you are much less likely to find success. Commented Apr 1, 2017 at 21:46
  • Already stated, but less snarky, investment is not something that you can be told to do, you need to do it. This means that unless you want to, or are willing to work for it, or have the expertise, or willing to learn it, you are often better off doing what works for you rather than jumping into something that can turn into a money pit or become an anchor dragging you down. While you are young enough to recover from some mistakes, remember, that some unwise mistakes can last a lifetime and sabotaging yourself this early could mean a permanent deficit for you. Just my 2 cents, good luck. Commented Apr 1, 2017 at 23:36
  • @ricksmt How steady is your work? Are you sure you'll be in the same basic location five years from now? That's usually the standard balancing point for buying a house over renting.
    – Brythan
    Commented Apr 2, 2017 at 1:20
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    The most important question you need to ask is, "Does buying a home help you reach your life goals?" (Such as getting married, having children, enjoying your week-ends?) Or does it create obstacles to reaching your goals?
    – Jasper
    Commented Apr 2, 2017 at 17:53

3 Answers 3


Living in one unit of a multi-family while renting out the others, although not without its risks, can be a viable (if gradual) way to build wealth. It's been rebranded recently as "house hacking", but the underlying mechanics have been around for many years (many cities in the Northeast in particular remain chock full of neighborhoods of 3-family homes built and used for exactly that purpose for decades, though now frequently sub-divided into condos).

It's true you'd need to borrow money, but there are a number of reasons why it's certainly at least worth exploring (which is what you seem to be asking -- should you bother doing the homework -- tl;dr: yes):

  • You may qualify for a "203(k) loan", which would mean not only a low down payment (3.5%), but you'd also be able to finance the cost of rehabbing the property.
  • There are tax advantages beyond just deducting the mortgage interest (which is a big one) -- you can also claim depreciation, and many of the expenses associated with managing and maintaining the property become business expenses, also reducing your taxable income
  • Down the road, you may be able to take advantage of a "1031 Exchange" allowing you to sell the property at a profit and defer paying taxes (as long as you buy another rental property)
  • If you are able to buy a property under market value (usually because it needs substantial rehab work), once you do the rehab work (and I don't mean "you" personally -- you'd actually need to have it done by a licensed contractor under the terms of a 203k loan), you potentially get not only higher rents, but also the option to refinance the mortgage after the rehab is done (and once you've satisfied any owner-occupancy or seasoning requirements from the lender), which can be especially useful if you want to purchase additional rental properties (something sometimes referred to as the "BRRR method", for "Buy, Rehab, Rent, Refinance).
  • Yes, you are responsible for the property in the event of a fire or tornado, but nobody is going to lend to you without sufficient insurance to cover either of those regrettable scenarios

And yes, you would be relying on tenants to meet your monthly expenses, including a mortgage bill that will arrive whether the other units are vacant or not. But in most markets, rental prices are far less volatile than home prices (from the San Francisco Federal Reserve):

The main result from this decomposition is that the behavior of the price-rent ratio for housing mirrors that of the price-dividend ratio for stocks. The majority of the movement of the price-rent ratio comes from future returns, not rental growth rates. (Emphasis added)

It's also important to remember that rental income must do more than just cover your mortgage -- there's lots of other expenses associated with a rental property, including insurance, taxes, maintenance, vacancy (an allowance for the periods when the property will be empty in between tenants), reserves for capital improvements, and more. As with any investment, it's all about whether the numbers work. (You mentioned not being interested in the "upkeep work", so that's another 8-10% off the top to pay for a property manager.)

If you can find a property at an attractive price, secure financing on attractive terms, and can be reasonably confident that it will rent in the ballpark of 1.5-2% of the purchase price, then it might be a fine choice for you, assuming you are willing and able to handle the work of being a landlord -- something worth at least as much of your research time as the investment itself.

It sounds like you're still a ways away from having enough for even an FHA down payment, which gives you a great opportunity to find and talk with some local folks who already manage rental properties in your area (for example, you might look for a local chapter of the national Real Estate Investment Association), to get a sense of what's really involved.

  • "..it will rent in the ballpark of 1.5-2% of the purchase price,.." - Am I correct in assuming you mean yearly net total after taxes, reserves, possible repairs and additional costs?
    – iLuvLogix
    Commented Feb 22, 2022 at 15:10

Do not borrow to invest in real estate. The interest payments will eat up most of your profit (the property management fees might eat up the rest), and you will have significant risk with tenant issues, property value, etc. Many people have made it work - many also lose everything.

Real estate can be a great investment, but you can't even afford a house of your own yet, let alone investment property. Keep saving up until you have 20% down to buy a house of your own (ideally that you can put on a 15% fixed mortgage), and pay it off as quickly as you can. Then you can start saving for your first rental property.

If that process isn't fast enough for you, you have two options. Increase your income or reduce your expenses. There's no shortcut to wealth-building without taking significant risks. At most I would scale back the 401(k) to the 5% match you get, but you should scale that back up once you have enough for a down payment.

  • Could you clarify your opening? Last I checked, a mortgage is a loan, and a loan is borrowing money. And what reasons do you have for suggesting a house first before a rental property? I would live on the property in either case; not sure if that changes your answer. Also, could you more explicitly answer whether or not I should investigate real estate? If dumping into my 401(k) is the best strategy right now, then we don't need to go down the rabbit hole.
    – ricksmt
    Commented Apr 2, 2017 at 4:14
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    A home is not investment property. Your intent is shelter, not income. You can buy a duplex and rent the other half if you want, but all it takes is a few months with no tenants and you may not be able to make a mortgage payment. A safer play would be to buy a smaller house and save up cash for investment property, where going several months without a renter will not kill you.
    – D Stanley
    Commented Apr 2, 2017 at 4:19
  • Do duplexes and the like cost significantly more than a home then?
    – ricksmt
    Commented Apr 2, 2017 at 4:22
  • 2
    Well you're only living in half of it, so you could buy a house half of the size and roughly half the price. My main point is that there's tremendous risk in borrowing for investments (real estate or otherwise). If you are willing to accept that risk then you might come out ahead, or you might lose your shirt.
    – D Stanley
    Commented Apr 2, 2017 at 4:24
  • Could you clarify the borrowing point in your answer? I'm trying to see where the significantly greater risk comes from. Borrowing is necessary, and 80% still seems like a large chunk, but that's apparently relatively low risk. (I have a understanding of where it comes from, I'm just hoping for a fuller or more complete understanding.)
    – ricksmt
    Commented Apr 2, 2017 at 4:37


You say

My work is steady; even if I lost my job it'd be easy to get another. Location has been static for a few years now, but I'm not sure that'll extrapolate to the future; I'm lazy, so I don't want to move, but for a significantly better job opportunity I wouldn't mind.

The general rule of thumb is that you'll come out ahead if you buy a house (with a mortgage) and live there for five years. What you lose in interest, you make up in rent. And living there for five years, you make back your closing costs in equity. If you're there less than five years though, you don't make back the closing costs. You'd have been better off renting.

Historically (up to about twenty years ago), your mortgage payment and rent payment for the same basic property would be about the same. I.e. if your current landlord sold you what you are renting, your mortgage payment would be roughly the same as your rent. Maybe a little lower or a little higher but about the same. More recently, it hasn't been strange to see a divergence in those. Now it is not uncommon for a mortgage payment to be 50% higher than rent on the same property.


This has some consequences. First, your $1000 rent probably won't stretch as far as a $1000 mortgage payment. So you'll be buying something that you'd only pay $650 or $700 rent. Second, if you move and can't sell immediately, you'll get less in rent than you'd pay in mortgage. Rather than contributing to your income, the property will require subsidy just to maintain the mortgage. And in the early years of the mortgage, this means that you're paying all of the principal (equity) and some of the interest.

Buying a duplex makes this worse. You have your side and their side. You can substitute your $1000 rent for half of the mortgage payment. Meanwhile, they are paying $700 in rent. You have to subsidize the mortgage by $300. Plus, you are talking about hiring a property management company to do things like lawn maintenance. There goes another $100 a month. So you are subsidizing the mortgage by $400.

I don't know real estate prices in Utah, but a quick search finds a median house price over $200,000. So it seems unlikely that you are buying new construction with new appliances. More likely you are buying an existing duplex with existing appliances. What happens when they fail? The renter doesn't pay for that. The property management company doesn't pay for that (although they'll likely arrange for it to happen). You pay for it.

Also, it often takes a bit of time to clean up the apartment after one tenant leaves before the new tenant starts paying rent. That's a dead weight loss. If this happens during a local recession, you could be carrying the mortgage on a property with no offsetting rental income for months.


There are some countervailing forces. For example, if house prices in your area are increasing, the rent will increase with them (not necessarily at the same pace). But your mortgage payment stays the same. So eventually the rent may catch up with the mortgage payment. If you wait long enough in a strong enough market, the rent on the other half of the duplex may cover the entire mortgage payment.

If you currently have an urban apartment within walking distance of work and switch to a suburban apartment with a commute, you have a better chance of finding a duplex where the entire mortgage payment is only the $1000 that you pay in rent. Your half of the duplex won't be as nice as your apartment is, and you'll have a half hour or hour long commute every morning (and the same to get home in the evening). But on strictly fiscal terms you'll be doing about as well. Plus you have the income from the other half. So even if your mortgage payment is more than your rent payment, you can still break even if the rent covers it.

Consider a $1400 mortgage and $400 in rent from the other half (after property management fees). So long as nothing goes wrong, you break even. Perhaps the agreement is that your parents take care of things going wrong (broken appliances, troublesome tenants, time between tenants). Or perhaps you drain your emergency fund and adjust your 401(k) payment down to the minimum when that happens. Once your emergency fund is replenished, restore the 401(k).

If you're willing to live in what's essentially a $500 apartment, you can do better this way. Of course, you can also do better by living in a $500 apartment and banking the other $500 that you spend on rent. Plus you now have the expenses of a commute and five hours less free time a week.


You describe yourself as essentially living paycheck to paycheck. You have adequate savings but no building excess. Whatever you get paid, you immediately turn around and spend. Your parents may view you as profligate. Your apartment is nicer than their early apartments were. You go out more often. You're not putting anything aside for later (except retirement).

It didn't use to be at all strange for people to move out of the city because they needed more space. For the same rent they were paying in the city, they could buy a house in the suburbs. Then they'd build up equity. So long as they stayed in roughly the same work location, they didn't need to move until they were ready to upgrade their house.

The duplex plan leads to one of two things. Either you sell the duplex and use the equity to buy a nicer regular house, or you move out of the duplex and rent your half. Now you have a rental property providing income. And if you saved enough for a down payment, you can still buy a regular house.

From your parents' perspective, encouraging you to buy a duplex may be the equivalent of asking you to cut back on spending. Rather than reducing your 401(k) deposits, they may be envisioning you trading in your car for a cheaper one and trading in your nice but expensive apartment for something more reasonable in a cheaper neighborhood. Rather than working with a property management company, you'll be out doing yardwork rather than cavorting with your friends. And maybe the new place would have more space to share when you meet someone--you aren't going to provide many grandkids alone.


If you get a mortgage on a duplex, you are responsible for paying the mortgage. You are responsible even if something happens to the house. For example, if a fire burns it down or a tornado takes it away. Or you just find that the house isn't solid enough to support that party where all of your friends are jumping up and down to the latest pop sensation. So beyond losing whatever you invest in the property, you may also lose what you borrowed.

Now consider what happens if you invest the same amount of money in General Motors as in the house. Let's call that $10,000 and give the house a value of $200,000. With General Motors, even if they go bankrupt tomorrow, you're only out $10,000. With the house, you're out $200,000. Admittedly it's much hard to lose the entire $200,000 value of the house. But even if the house loses $80,000 in value, you are still $70,000 in the hole.

You don't need a disaster for the house to lose $80,000 in value. That's pretty much what happened in the 2006-2010 period. People were losing all of what they invested in houses plus having to declare bankruptcy to get out of the excess debt. Of course, if they had been able to hold on until 2015 markets mostly recovered. But if you lost your job in 2008, they wouldn't let you not make mortgage payments until you got a new one in 2012.

When you declare bankruptcy, you don't just lose the house. You also lose all your emergency savings and may lose some of your belongings.

There are some pretty prosaic disasters too. For example, you and your tenant both go away for a weekend. It rains heavily and your roof starts to leak due to weak maintenance (so not covered by insurance). The house floods, destroying all the electronics and damaging various other things. Bad enough if it's just you, but you're also responsible for the tenant's belongings. They sue you for $20,000 and they move out. So no rent and big expenses. To get the house livable again is going to take $160,000. Plus you have a $190,000 mortgage on a property that is only worth about $40,000. That's at the extreme end.

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