How to Afford and Buy a House For First-Time Home Buyers For Less Than Rent (House Hack)


  1. Increase your credit score as quickly and as high as possible (minimum 680)
  2. Eliminate as much debt (credit cards, loans) as possible, e.g. monthly payments for a fancy car, etc.
  3. Save as much money as possible (minimum $20,000)
  4. Buy a used duplex (2-unit property) preferably with existing tenants where at least one tenant is paying the market rate for rent
  5. Kick out the lower paying tenant and live in that unit
  6. Slowly fix up the property as money becomes available and time permits to increase its value
  7. After a few years, the home’s value will have appreciated and you will have more equity in the house. You can remain in that living situation or you can sell the duplex, take the profit, buy a single family residence or a better duplex or triplex.

Introductory Facts

Homeownership is the number one way for people to move from the lower class to the middle class and to build wealth.

People who own homes are almost always better off financially than people who always rent.

Real estate (e.g. houses) always increases in value over the long term (see graph below). The only exception was between 2008 – 2012 which was due to mortgage fraud and greedy banks which led to a global recession. It is now illegal to commit mortgage fraud which should prevent significant depreciation from occuring again.


The average rate of appreciation of real estate in California is about 6.77% annually. That means if you buy a house for $300,000, then in one year, the value will have gone up by $300,000 x 6.77% = $20,310. You will have made $20,310 in one year for doing nothing but living in your own home. In 10 years, due to compounding appreciation, your home’s value will have increased by $277,582. 

On the other hand, cars always lose value as time goes on. As a matter of fact, they lose an average of 15% per year.


Jeff Bezos, CEO of Amazon and richest person in the world, drove a Honda Accord in the 1990s even though he was a billionaire at the time.


When you rent, your entire monthly rent payment is spent and you get none of it back. However, when you buy a house and pay a mortgage, you get some of your mortgage payment back in the form of equity in the home. For example, if you borrow money from a bank for $300,000 at 3% interest fixed for 30 years (360 months) with a 3.5% down payment ($10,500), your monthly payments during the beginning and ending years will look like this:

MonthPrincipal & InterestPrincipalInterestPrincipal Remaining
360$1,211$1,220$3$0 (loan paid off)

As you can see in the table above, in the beginning years, even though you pay $1221 per month for your mortgage, you are getting almost $500 back in the form of equity which is like a savings account but in the form of home value instead of at a bank. Your interest payments in the beginning are around $720 but it’s not money completely lost because mortgage interest is tax deductible which can lower your tax bill.

Rent always increases whereas mortgage payments never increase (on a fixed loan). As a matter of fact, nationally rent prices have increased an average of 8.86% per year since 1980, consistently outpacing wage inflation by a significant margin.


Between 2008 and 2020, annual wage increases for hourly employees maxed out at just above 3.5% which is less than both

  1. the annual rate of rent increase (8.86%) since 1980
  2. the annual rate of California home value appreciation (6.77%)

This means that your income growth is less than your housing expense growth. This also means that if you live month to month, as time goes on you will have less and less money as rent increases faster than your income.


Property Types

There are different types of properties, e.g.

  1. Manufactured / mobile home
  2. Condo
  3. Townhouse
  4. Single Family Residence
  5. Multifamily Residence (duplex – 2 units, triplex – 3 units, 4-plex – 4 units)
  6. Commercial (5 units or more)

Manufactured / mobile home

Never buy a manufactured / mobile home. Though they are cheap, you will have to rent the land and if the landowner increases the rent on the land, you will most likely have no choice but to pay the increase since it would be difficult and very expensive to move your mobile home somewhere else. Even if you own land and buy a manufactured home to put on it, you will not be able to get a low-interest home loan to purchase a mobile home.

Condos and Townhouses

Condos and townhouses are cheaper than single family residences but you will have to pay an HOA (homeowner’s association) fee which can be very expensive, especially if there is a swimming pool. Also, you are limited in what you can do to your own home, e.g. you can’t paint the exterior, you can’t move walls, build additions, etc. You are better off not buying a condo or townhouse.

Single Family Residence

This type of home is ideal for a single family. However, unless your financial situation is good, it would be difficult to afford one.

Multifamily Residence
(duplex – 2 units, triplex – 3 units, 4-plex – 4 units)

This type of property is usually purchased by investors. However, anyone can buy one and live in one of the units and rent out the other units. Of course, the more units, the more expensive. Therefore, for first time homebuyers with a limited income, it is recommended to buy a duplex. The strategy recommended in this article is to live in one unit and rent out the other unit and let the rental income pay for some, most, or all of your mortgage.

Commercial (5 units or more)

This type of property is usually purchased by big investors or companies who have a lot of money. Most people cannot afford this type of property.

Number of Bedrooms and Bathrooms

Most houses come with either

  • 2 bedrooms and 1 bathroom, a.k.a. 2/1
  • 3 bedrooms and 2 bathrooms, a.k.a. 3/2

To keep costs low, focus on duplexes where each unit has 2 bedrooms and 1 bathroom.

Potential Rental Income

Since the recommended strategy is to buy a duplex and live in one unit and rent out the other, you need to know the potential rental income you will get to offset your mortgage expenses. To determine this, you can go to Rent-o-meter.

For example, the 2/1 duplex at 8420 Don Ave, Stockton, CA 95209 has an average rental income of $1493 for each unit. Therefore, if you buy this duplex, you could potentially get $1493 per month from your renter to help pay for some or all of your mortgage.

Determine Costs

As a first-time home buyer, you are entitled to the FHA First-Time Home Buyer program. This program allows you to borrow money to buy a house and only put a down payment of 3.5% as opposed to 20% for non-first-time home buyers and 25% for investors. However, if your down payment is less than 20%, you will have to pay private mortgage insurance (PMI).

When you buy a house with a 3.5% down payment, you will borrow money and pay interest. You will also have to pay for 

  • Private mortgage insurance
  • Fire insurance
  • Property tax

To determine these expenses, go to Zillow > Home Loans > Mortgage Calculator.

For example, for a loan with the following numbers:

Purchase Price:$300,000
Down Payment:3.5% (10,500)
Loan Type:30-year fixed (always choose this type)
Interest Rate:3%

your total monthly mortgage-related expenses would be $1734.

However, since your rental income will be on average $1493, then your net monthly mortgage-related expenses will be 

$1734 – $1493 = $241 per month

In other words, your monthly housing costs become ONLY $241 per month! But, that depends on 

  • whether you can find a 2/1 duplex for $300,000
  • whether your credit score is good enough that you can get a loan with a 3% interest rate
  • whether you can actually rent out the other unit for $1493 per month

Interest Rates

Interest rates on your loan make a very big difference in your monthly mortgage expense and your lifetime loan cost. Due to the Covid-19 pandemic, the federal government lowered interest rates to almost zero to stimulate the economy and avoid a recession. In doing so, interest rates on home loans have been very low. As a matter of fact, interest rates have never been lower than now as indicated in the graph below.


Therefore, now is THE BEST TIME to get a home loan because the interest rates are at the LOWEST they have ever been. If you wait 2, 4 or 6 years from now, interest rates may go back up to 4 or 5% which means your monthly mortgage payments will be much higher.

Credit Score

Your credit score has a VERY BIG impact on the interest rate of your home loan. The higher your credit score, the lower the interest rate, and the cheaper your monthly mortgage expenses. Therefore, you want your credit score to be as high as possible. 

To determine the interest rate you can get for different credit scores, you can go to Zillow > Home Loans > Mortgage Rates

For example, for a loan with the following numbers:

Purchase Price:$300,000
Down Payment:3.5% (10,500)

you will find the following interest rates for different credit scores.

Credit ScoreInterest Rate
560 – 599No loans available
600 – 619No loans available
620 – 639No loans available
640 – 6593.5%
660 – 6793.25%
680 – 6992.75%
700 – 7192.75%
720 – 7392.75%
740 – 7592.75%
760 and above2.75%

The rates above were valid on July 4, 2021. Interest rates change daily and throughout the day.

As you can see above, if your credit score is below 620, you can’t even get a loan. Also, the higher your credit score, the lower the interest rate. 

In order to improve your credit score, sign up for a free Credit Karma ( account, enter your information, and under “Credit Scores”, you will see your score for Transunion and Equifax followed by ways to improve each score.

Notice that there are 6 factors that affect your credit score, 3 of which are high impact.

Payment HistoryHigh Percent of payments you’ve made on time
Credit Card UseHigh How much credit you’re using compared to your total limits
Derogatory MarksHigh Collections, tax liens, bankruptcies or civil judgments on your report
Credit AgeMediumAverage age of your open account
Total AccountsLowTotal open and closed accounts
Hard InquiriesLowNumber of times you’ve applied for credit

From here on, we will assume you have increased your credit score to 680 and since interest rates change all the time, we’ll assume you can get a rate of 3%.

Interest Rate VS Loan Cost

Interest rates affect the cost of a loan and your monthly payments. Following are monthly mortgage costs and total loan costs for a $300,000 home loan at 30-year fixed at various interest rates.

Interest RateMonthly Mortgage PaymentTotal Loan Cost Over 30 Years

As you can see, the interest rate makes a big difference in your monthly payment and loan costs. For example, for a 5% interest loan, you’ll be paying an extra $335 per month and an extra $120,000 over 30 years compared to a 3% interest loan for $300,000.

Mortgage-to-Income Ratio

Lenders require that in order to give you a home loan, your mortgage expenses (PITI) must not be more than 28% of your gross monthly income before taxes. PITI stands for

  • P = Principal
  • I = Interest
  • T = Taxes
  • I = Insurance

Let’s say that your total monthly income is $3000 per month before taxes. That means your PITI may be no more than 28% x $3000 = $840 per month. However, if you buy a duplex, then your total monthly income will increase by the rental income of, say, $1400 per month, which would bring your total monthly income to $4400. Therefore, your PITI for a duplex can be no more than $4400 x 28% = $1232 per month.

Debt-to-Income Ratio

Lenders also require that your total debt (including mortgage expenses) be no more than 43% of your gross monthly income before taxes. For example, if your monthly income is $3000 per month and your fancy car’s monthly payments are $350 per month and you are looking at buying a house with an estimated PITI expenses of $1000 per month, then your debt-to-income ratio is

Debt-to-Income Ratio = Debt / Income = ($350 + $1000) / $3000 = 0.45 or 45%

Since 45% is greater than 43%, you would not qualify for a loan.


To help see all important numbers in one place, you can create a spreadsheet similar to the one below.

Loan TypeFHA – First-Time Home Buyer
Purchase Price$300,000
Minimum Credit Score680
Down Payment (%)3.5%
Down Payment ($)$10,500
Interest Rate3%
Term30 years fixed
Mortgage – Principal$497
Mortgage – Interest$724
Mortgage – Insurance (PMI)$236
Property Tax$170
Total Monthly Cost (PITI)$1,732
Property TypeDuplex
Income – Work (Annual)$60,000
Income – Work (Monthly)$5,000
Income – Rental (Monthly)$1,300
Total Gross Monthly Income$6,300
Max Monthly Mortgage to Income (%)28%
Max Monthly Mortgage Allowed ($)$1,764
Max Monthly Total Debt to Income (%)43%
Max Monthly Total Debt Allowed ($)$2,709

Finding a House for Sale

As mentioned above, the strategy is to buy a “used duplex”. To find these, go to Zillow and do a search. 

The search criteria can be

  • Stockton, CA
  • For Sale
    • By Agent
  • Home Type
    • Multifamily

You can save this search as “Stockton Duplex” so you get notified whenever a new listing goes on the market.

Sort the search results by price from cheapest to most expensive. We’ll use the following listing as an example:

$449,000 2 bd– ba 2,340 sqft
3012 Amherst Dr, Stockton, CA 95209
For sale  Zestimate®: $423,300

The color is ugly but maybe that’s why no one has bought it. You can always paint it.

Rental Income:

This duplex may already have renters in both units. If you buy it, you can kick out the renter who is paying the lower amount and then live in that unit yourself.

If the duplex isn’t rented, you can check Rent-o-meter to determine average rent. After entering the address in, we see that the average rent is $1686.

Mortgage Expenses:

Now, we need to calculate our mortgage expenses by going to Zillow’s mortgage calculator. For a loan with the following numbers:

Purchase Price:$449,000
Down Payment:3.5% ($15,715)
Loan Type:30-year fixed (always choose this type)
Interest Rate:3%

we get the following 

This means that your total monthly housing expense will be $2596.

You net monthly housing expense becomes

$2596 – $1686 = $910 per month

$910 / month is very cheap for 2 bed 1 bath housing in Stockton and is much cheaper than renting. Also, as time goes on, the value of the property will go up on average 6.77% per year.

To reiterate, for the example above, 

your net monthly housing expense would be$910 per month
you need a down payment of$15,715
you need a credit score of at least 680
you will need to pay for loan closing costs in the average amount of $5000

Get Pre-Approved

Before making a move to buy a house, you increase your chances of success by first getting pre-approved. Don’t simply get pre-qualified because that doesn’t carry as much weight as a pre-approval. A pre-approval will verify your financial situation so you can feel confident you will be able to afford a house at a particular price. When the time comes, you can and should include your pre-approval letter with your house purchase offer so the sellers know you are serious and can afford to buy their house. When getting pre-approved, mention that you are interested in buying a duplex and renting out one of the two units so that the rental income is accounted for.

You can get pre-approved by Zillow Home Loans.

Find a Real Estate Agent

Since you are new to buying a house, you’ll want a real estate agent to guide and help you. You can easily find a real estate agent by searching Google for “Stockton real estate agent”.

Once you agree to work with an agent, you can tell them the type of property you want to buy (used duplex) and give them your pre-approval letter. You can then tell them which active listings on Zillow (or Redfin – you are interested in. The agent may also have pocket listings / off-market listings that meet your criteria.

Make an Offer

Once you decide to put an offer on a house, you need to decide how much you are willing to pay for it. In a hot market, there could be competition driving up prices. If Zillow estimates the house to be worth $360,000 and the seller is asking for $360,000, then you may want to offer $370,000 to beat the competition. Note, however, that in a hot market, values can go up quickly. I offered $30,000 above the asking price and I still got outbid by someone who bought the property for $40,000 above asking. 

Your agent can help you determine the value of the house and draft up a purchase offer. You will review the offer letter for accuracy and then sign it. Your agent will then submit the offer to the seller’s agent and wait for a response. If the seller accepts your offer, then you’re locked in and the seller cannot change their mind and sell to someone else. 


Get a Loan and Fire Insurance

Home Loan

I have not purchased a home using the FHA First-Time Home Buyer program. However, I have found LoFi Direct to offer very competitive rates for home loans.

You can also compare lenders and rates on Zillow’s Rate Comparison page. 

Fire Insurance

For fire insurance, I recommend using a broker to shop around and find a deal for you. They usually can offer lower rates than if you go directly to the large insurance companies. Just search Google for “home insurance broker”.

Close Escrow

Once everything is in order, you will “close escrow” which means you finalize the deal. It takes about one month from when your offer is accepted to when you close escrow. Once you close escrow, you become the legal owner of the property and you can move in. Just make sure you pay your mortgage payments and property tax so the lender and government don’t take your house from you.

Average House Prices & Rent Costs at Top 100 US Metros

Zillow provides housing and rental market data on the Research page. Using this data, I created the table below that shows the top 100 most populated cities in America along with their typical house value and monthly rent cost. GRM stands for Gross Rent Multiplier. GRM = Property Purchase Price / Annual Rental Income. It gives you an idea of how many years it will take for your rental income to pay for the cost of the property. It’s often used to compare investment properties. For example, if you buy a triplex for $490,000 and your monthly rental income from the 3 units is $3400, then

GRM = $490,000 / ($3400 x 12 months) = 11.3 years.


  • Houses in Texas are cheap but property taxes are some of the highest in the country. But then again, Texas has no state income tax.
  • Houses in Florida are cheap but the weather is humid and there are often hurricanes.
  • Chicago is cheap but it gets very cold during the winter there.
  • The weather is California is GREAT but houses are expensive.
Size RankRegion Name11/30/2020
Home Value Index
Rent Index
1New York, NY$510,076$2,52816.81
2Los Angeles-Long Beach-Anaheim, CA$759,102$2,57924.53
3Chicago, IL$261,177$1,66113.10
4Dallas-Fort Worth, TX$269,887$1,57014.33
5Philadelphia, PA$273,752$1,61014.17
6Houston, TX$230,373$1,49212.87
7Washington, DC$482,099$2,03919.70
8Miami-Fort Lauderdale, FL$365,372$1,93515.74
9Atlanta, GA$260,613$1,60713.51
10Boston, MA$546,943$2,27020.08
11San Francisco, CA$1,216,247$2,98533.95
12Detroit, MI$195,290$1,32212.31
13Riverside, CA$427,588$2,20616.15
14Phoenix, AZ$328,585$1,55817.58
15Seattle, WA$606,462$1,89126.73
16Minneapolis-St Paul, MN$319,056$1,54617.20
17San Diego, CA$703,181$2,35524.88
18St. Louis, MO$196,236$1,15414.17
19Tampa, FL$259,430$1,58113.67
20Baltimore, MD$319,277$1,66316.00
21Denver, CO$492,525$1,74323.55
22Pittsburgh, PA$175,716$1,18612.35
23Portland, OR$456,983$1,66522.87
24Charlotte, NC$259,533$1,53314.11
25Sacramento, CA$473,185$1,94820.24
26San Antonio, TX$219,618$1,33613.70
27Orlando, FL$279,324$1,59514.59
28Cincinnati, OH$208,939$1,30913.30
29Cleveland, OH$176,987$1,14012.94
30Kansas City, MO$223,135$1,20515.43
31Las Vegas, NV$325,522$1,48318.29
32Columbus, OH$239,551$1,33314.98
33Indianapolis, IN$201,667$1,27313.20
34San Jose, CA$1,339,174$2,95837.73
35Austin, TX$372,388$1,53920.16
36Virginia Beach, VA$262,781$1,39715.68
37Nashville, TN$301,610$1,59715.74
38Providence, RI$355,752$1,60918.43
39Milwaukee, WI$211,195$1,21314.51
40Jacksonville, FL$250,879$1,40014.93
41Memphis, TN$169,436$1,32010.70
42Oklahoma City, OK$168,756$1,10312.75
43Louisville-Jefferson County, KY$195,591$99516.38
44Hartford, CT$272,229$1,39116.31
45Richmond, VA$262,456$1,33016.44
46New Orleans, LA$222,617$1,40913.17
47Buffalo, NY$190,328$1,12314.12
48Raleigh, NC$302,874$1,52616.54
49Birmingham, AL$185,236$1,10413.98
50Salt Lake City, UT$432,450$1,41625.45
51Rochester, NY$170,742$1,16412.22
52Grand Rapids, MI$244,161$1,26616.07
53Tucson, AZ$252,181$1,25916.69
54Urban Honolulu, HI$852,315$2,10733.71
55Tulsa, OK$159,970$1,17811.32
56Fresno, CA$294,949$1,58515.51
57Worcester, MA$337,964$1,47119.15
58Stamford, CT$537,126$2,24619.93
59Albuquerque, NM$233,950$1,24315.68
60Albany, NY$217,450$1,34913.43
61Omaha, NE$213,772$1,22214.58
62New Haven, CT$275,606$1,45615.77
63Bakersfield, CA$253,212$1,37415.36
64Knoxville, TN$210,770$1,36212.90
65Greenville, SC$220,927$1,31114.04
66Ventura, CA$664,216$2,75720.08
67Allentown, PA$233,511$1,44613.46
68El Paso, TX$145,456$1,19210.17
69Baton Rouge, LA$198,195$1,18713.91
70Dayton, OH$151,480$1,05012.02
72Columbia, SC$173,302$1,19812.05
73Greensboro, NC$174,750$1,23811.76
74Akron, OH$166,219$90915.24
75North Port-Sarasota-Bradenton, FL$305,969$2,15911.81
76Little Rock, AR$167,357$92415.09
77Stockton, CA$418,915$2,12216.45
78Charleston, SC$289,926$1,55815.51
79Syracuse, NY$158,599$1,17311.27
80Colorado Springs, CO$360,902$1,56919.17
81Winston-Salem, NC$176,408$1,27711.51
82Wichita, KS$155,850$85015.28
83Springfield, MA$260,722$1,32916.35
84Fort Myers, FL$266,200$1,93011.49
85Boise City, ID$370,881$1,40222.04
86Toledo, OH$135,759$88112.84
87Madison, WI$312,394$1,34919.30
88Lakeland, FL$211,959$1,45612.13
89Ogden, UT$368,942$1,38122.26
90Daytona Beach, FL$231,262$1,46913.12
91Des Moines, IA$217,048$1,16015.59
92Jackson, MS$149,726$1,2709.82
93Youngstown, OH$108,312$74712.08
94Augusta, GA$167,244$1,17911.82
95Scranton, PA$130,549$93111.69
96Harrisburg, PA$203,742$1,15614.69
97Melbourne, FL$246,745$1,54513.31
98Chattanooga, TN$190,511$1,29912.22
99Spokane, WA$316,096$1,34319.61
100Provo, UT$401,223$1,36824.44
104Durham, NC$290,228$1,43116.90
119Port St. Lucie, FL$260,308$1,76112.32
159Fort Collins, CO$444,725$1,56823.64
162Boulder, CO$630,002$2,07825.26
177Greeley, CO$395,174$1,58920.72
229Gainesville, GA$250,664$1,40514.87

360° Virtual Tours and Wide Panoramic Images

To create a 360° virtual tour, you’ll need a few things:

360° camera

Insta360 One R Twin Edition

The Insta360 One R Twin Edition camera seems like a good choice because it can double as an action cam. It’s currently on sale for $410.

  • Modular and therefore can add modules that offer different / better features
  • HDR (high dynamic range) for better image quality
  • More advanced desktop editing software
  • Modular and therefore can be a hassle to have to switch modules, especially quickly in order to capture a moving target

GoPro Max

  • Easy to use without having to assemble modular parts
  • No HDR (high dynamic range)
  • Desktop editing software not as powerful as the Insta360 Studio

Insta360 One X2

  • Small
  • HDR (high dynamic range) for better image quality

Ricoh Theta SC2

After testing the GoPro Max, Insta360 One X2, and the Ricoh Theta SC2, it clear that the Insta360 One X2 is the better camera.

Virtual Reality / 3D Panorama Software


Marzipano is free and open source. You can use the Marzipano tool to quickly upload 360 photos and then download a complete website with all code to host yourself. However, you can only zoom out so much as shown in the screenshot below.


Kuula lets you upload 360 photos and embed a 360 viewer of your photos on your website. You can also zoom out much more than with Marzipano as shown in the screenshot below.

You can then take a screenshot of the zoomed out 360 photo which doesn’t show very warped and curved lines.


Metareal is a great alternative to MatterPort. You can create floorplans as well and pay a nominal fee to have Metareal convert your 360 photos into virtual tours for you.


In Adobe Photoshop, you can import a 3D panorama photo

In the lower left corner, when you have the white grid enabled, you will see orbit, pan and dolly buttons to move the image around.

Under Properties, you can adjust the Vertical FOV (Field of View) to zoom in and out.

GoPro Player Desktop App

The GoPro Player desktop app will also open 360 photos and let you rotate and zoom in and out. But, unlike Photoshop and Kuula, you’ll get a fisheye view as shown below.

Google Photos Mobile App

The Google Photos mobile app has a Panorama feature but you have to move your camera horizontally or vertically to capture create the panorama. It’s not a full 360 degree panorama but it does support scrolling in Google Photos.

Insta360 Studio

The Insta360 Studio desktop app is definitely better than the GoPro Player desktop app. It’s got more features and is intuitive to use.

To Buy or To Rent? That is the Question.

It is January 2, 2021 and the previous year has surprised everyone. Analysts predicted home prices to fall due to the global Coronavirus pandemic but in the US, home prices surged despite millions of Americans losing their jobs.

House Price Index for California

The surge is likely due to

  • Very low inventory of houses for sale
  • Super low interest rates for 30 year fixed rate mortgage

If we look at historical interest rates, we find that they are historically low.

30-Year Fixed Rate Mortgage Average in the United States

At this time, the cost to rent an apartment in Hayward, California is

  • ~$1600 / month for a 1 bedroom apartment
  • ~$1800 / month for a 2 bedroom apartment

Now, let’s see how much it costs to buy a house with the following assumptions:

  • Buyer credit score is 680
  • Buyer has never purchased a home before

The top half of the table below shows 4 different loan scenarios.

  • Conventional loan requiring a 20% down payment and a purchase price of $300K
  • FHA (first time home buyer) loan requiring a 3.5% down payment and mortgage insurance for a purchase price of $200K, $250K, and $300K

At this time, Zillow indicates that one with a credit score between 680 and 699 can get a 30 fixed rate mortgage for 3%.

For a conventional loan of house costing $300K, if one has $60K for the 20% down payment, their monthly mortgage including principal, interest, taxes, and insurance (PITI) would be $1287. This is far below the the cost to rent a 1 bedroom apartment in Hayward, CA.

For the FHA loan, one would only need a 3.5% down payment but they’d have to pay mortgage insurance. The total monthly mortgage-related expenses (PITI) are

  • $1155 for a $200K purchase price
  • $1405 for a $250K purchase price
  • $1732 for a $300K purchase price

These costs are all lower or equal to the cost to rent in Hayward, CA. The problem, however, is house prices in Hayward are very high. The closest large city with house prices between $200 and $300K is in Stockton, CA, e.g.

Now, just because the monthly mortgage expenses are lower than the cost to rent, that doesn’t mean one would qualify for a loan. Lenders require

  • mortgage expenses (PITI) to be no more than 28% of one’s gross monthly income before taxes
  • total debt (including mortgage expenses) to be no more than 43% of one’s gross monthly income before taxes

The bottom half of the table below shows different income scenarios as follows:

  • Having a gross annual income of $46K and buying a single family home
  • Having a gross annual income of $46K, buying a duplex and renting one unit out for $1200 per month
  • Having a gross annual income of $60K and buying a single family home
  • Having a gross annual income of $60K, buying a duplex and renting one unit out for $1200 per month
  • Having a gross annual income of $75K and buying a single family home

In these scenarios, we find that:

If you have a gross annual income of $46K and

  • you buy a single family home, then your maximum mortgage expenses can be $1073.33. In this case, you can buy a house for $200K (yellow cells)
  • you buy a duplex and rent out one unit for $1200 per month, then your maximum mortgage expenses can be $1409.33. In this case, you can buy a duplex for $250K (green cells)

If you have a gross annual income of $60K and

  • you buy a single family home, then your maximum mortgage expenses can be $1400. In this case, you can buy a house for $250K (green cells)
  • you buy a duplex and rent out one unit for $1200 per month, then your maximum mortgage expenses can be $1736. In this case, you can buy a duplex for $300K (blue cells)

If you have a gross annual income of $75K and

  • you buy a single family home, then your maximum mortgage expenses can be $1750. In this case, you can buy a house for $300K (blue cells)

But Stockton is too far from Hayward!

Assuming you currently live and work in or around Hayward, then it’s true that Stockton is a bit far. According to Google Maps, it’s about a 1 hour drive in no traffic between the two. However, according to this article, many people who work in the Bay Area can no longer afford local housing and have moved to Stockton and commute.

What if I save money and buy a house later?

If you make $46K a year and rent an apartment for $1800 per month, you probably won’t have much left over to save. And, even if you could save $100 per month, house value appreciation could outpace your savings. When you buy a house, some of your monthly payments go towards paying down the principal on your home loan. That, in effect, is a form of savings (pink cells in table) but in the form of equity in the house rather than cash in the bank. After a few years, your wealth could grow in 2 ways:

  • Appreciation of house value
  • Equity in paying down the principal on your home loan

You could then potentially sell the house and use the proceeds to put 20% down on another house thereby reducing your monthly mortgage payments even further.

What if the house value drops?

According to this article, recessions typically occur around every 10 years but they don’t necessarily cause house prices to flatten or drop. Housing busts typically occur every 18 years. The last housing crisis was in 2008 so the next one may occur in 2026 (5 years from now).

House Value Trends

Using data from Zillow Research Data, we can create a custom graph showing house value trends like the one below.

Similarly, we can chart the rent cost over time. Below is an example using US and Stockton, CA rents.

Cost to Remodel a House

Assuming you have 3 bedroom, 2 bathroom 1100 square foot investment property, following is a breakdown of costs to remodel it relatively cheaply and quickly using neutral colors.

Floor Plan

Using Live Home 3D, this is an example of a 3 bed, 2 bath, 2 car garage house. The kitchen is U-shaped. The bedrooms are almost all the same size. Two of the three bedrooms have walk-in closets. The laundry is central to the house. There is a small patio next to the kitchen and living room.


Here are the neutral colors we’ll be choosing.

  • Floor – beige or light gray
  • Wall – beige (Roman Plaster PPU7-10U) Behr / Home Depot
  • Ceiling – same as wall color for simplicity or Swiss Coffee
  • Baseboard – pure white
  • Kitchen cabinets – light gray
  • Kitchen appliances – stainless steel
  • Kitchen countertop – white
  • Bathroom vanity – light gray
  • Bathroom sink – white
  • Doors – pure white


Replace all outlets and switches with Dekora ones

(Roman Plaster PPU7-10U)
Behr / Home Depot


Spray walls and ceiling same color for simplicity. Or, spray ceiling Swiss Coffee.


Choose large 12”x24” tiles for fewer grout lines and quicker completion.


  • Get cabinets from IKEA. They deliver.
  • Average 10×10 kitchen

IKEA 10×10 kitchen

~ $3500

Light gray cabinets with off white countertop

Go with a solid color so in case it gets damaged, it can easily be painted gray.


Glacier Bay Everdean 30.5 in. W x 19 in. D x 34 in. H Vanity in Pearl Gray with Cultured Marble Vanity Top in White with White Sink


Go with a solid color so in case it gets damaged, it can easily be painted gray.

Buy at Marshalls, Ross, TJ Maxx for less



3/4″ Ginger rock

By at a rockery and have delivered

Italian Cypress Trees

$40 / tree at Costco (only available in Spring)

$100 / tree at a nursery

Garage Floor and Driveway

Whole House Renovation Plan

  1. Turn on water, gas and electricity
  2. Use laser measure to measure each room
  3. Use Live Home 3D to draw floor plan
  4. Print multiple copies of floor plan and staple to wall
  5. Demolition – Day 1 – 2
    1. Wear coveralls / protective clothing
    2. Lay down large tarp in driveway to make debris cleanup easier
    3. Demolish kitchen using Bosch jackhammer, monster sawzall and pry bar
    1. Remove both bathroom toilets and and vanities
    1. Remove all flooring.
    2. Rent floor surface prep tool to smoothen floor. Include the garage floor.
    3. Remove all outlets and switch covers
    4. Remove all interior door knobs, if necessary
    5. Put all debris in driveway
    6. Vacuum all dust using cyclone filter to minimize filter clogs and simplify disposal
  6. Drywall – Day 3
    1. Add drywall where necessary
    2. Patch holes in walls where necessary
    3. Texture walls where necessary
  7. Paint – Day 4
    1. If reusing baseboard, label each baseboard with a number and label corresponding wall in the floorplan with the same number
    2. Remove baseboard and put on floor and cover with plastic
    3. For each area that needs to be covered, e.g. outlets, ceiling lights, registers, vents, etc, cut painter’s plastic to size
    4. Spray glue around the area that needs to be cover and stick plastic to it
    5. Wear coveralls / protective clothing
    6. Use air sprayer to spray paint on walls and ceilings.
    7. If necessary, spray paint doors white
  8. Floor and Wall Fixtures – Day 5 – Day 9
    1. Pay someone to install tile flooring on all floors
    2. While floor tiles are being installed, do following
      1. Replace outlets, switches and plates with Dekora ones
      2. Install bathroom lights
      3. Install bathroom towel hangers
      4. Replace all door knobs, if necessary
      5. Paint baseboard
  9. Kitchen – Day 10 – Day 13
    1. Pay someone to install IKEA kitchen
    2. Install kitchen appliances
    3. Pay someone to install quartz countertop
  10. Bathrooms – Day 13
    1. Install toilets
    2. Install vanity
    3. Install vanity faucet
  11. Landscaping – Day 14 – 18
    1. Remove trees
    2. Rent mini skid steer to remove 3 inches of dirt
    3. Rent excavator to dig holes for Cypress trees
    4. Plants Cypress trees
    5. Lay down weed fabric
    6. Lay down cement board
    7. Pour and level Ginger rocks
  12. Debris removal – Day 19
    1. Rent dumpster
    2. Transfer all debris from driveway to dumpster for haulaway
  13. Fence, garage floor, driveway, and exterior cement walkways – Day 20 – Day 21
    1. Pressure wash the garage floor, driveway and fence
    2. Spray tan Granite Grip using air compressor
    3. Paint fence

Cost Breakdown

Using a spreadsheet, create a cost breakdown like below.

Based on this, we can estimate that including labor and other items, the total cost for a whole house renovation would be around $20K.

House-Buying Tips

Avoid Lead Paint

Lead-based paint and lead contaminated dust are the most hazardous sources of lead for U.S. children. Lead-based paints were banned for use in housing in 1978. All houses built before 1978 are likely to contain some lead-based paint. However, it is the deterioration of this paint that causes a problem.

If possible, buy a house built after 1978 to avoid lead paint.

Avoid Asbestos

Unless you perform detailed testing to rule out the presence of asbestos, every pre-1981 building must be treated as if it contains asbestos.

Avoid Plaster Walls

Plaster walls were used to finish interior houses up until the 1950s at which time it was replaced with drywall. Plaster walls are like stucco. Since they are hard, cutting and drilling a hole for, say, hanging a picture is difficult.

If possible, buy a house after the 1950s to avoid having to deal with plaster walls.

Avoid Old Wiring Systems

Old homes used knob and tube wiring till around 1920. After that, flexible cables were used till the 1940s. After that, cables were run through metal conduit till around 1965. Around 1965, homes began using modern NM cable commonly called Romex.

If possible, buy a house after 1965 to avoid having to deal with old wiring systems.


Roofs are one of the most expensive parts of a house. Replacing the shingles on a roof can cost around $10,000. Shingle roofs commonly have a lifespan of 25 years.

If possible, find out when the roof was installed to determine whether the roof will need replacing soon or not. Concrete tile roofs are very long lasting so it would be good to get a house with that.

Transfer Tax and Title Fees

Don’t assume that your agent will draft an agreement correctly that is in your best interest. Certain things such as title and escrow fees and city and county transfer taxes are either paid by the seller, buyer or both, depending on which county the property is in. For California, you can reference this table.

Avoid Flood Zone

If the property is in a flood zone and you need a loan to buy the house, the lender will require you pay for flood insurance. That is yet another expense you should avoid have to pay. To determine if a property is in an flood zone, enter the address at FEMA Flood Map Service Center.

If the property is in a Special Flood Hazard Area (SFHA), then you will be required to buy flood insurance.


Some properties may appear much cheaper than others for the same square footage. Beware, however, that these properties can be just as expensive or even more expensive because they may be part of an association and require a monthly HOA fee which can range from $25 to over $500 per month.

Homeowner’s Insurance

Shop around for homeowner’s insurance. State Farm is the largest insurer with 17% of the market. They also provide an instant online quote and replacement cost estimator and their premiums are usually cheaper than other big name insurers.

When choosing insurance coverage, one of the biggest issues is the cost to completely rebuild your house. One way to determine this is by using Some appraisers use this.

Mortgage Shopping

When shopping for a mortgage, you can probably get a better rate from a non-bank lender. Here are some rate comparison sites:

Some low-cost lenders I’ve used in the past are

Recessions, Home Prices, Unemployment and Inflation

When an economic recession occurs, one thing that happens for sure is the unemployment rate goes up. You can see a graph of the California unemployment rate since 1967 on the St. Louis Federal Reserve Bank’s website. Below is a copy of that graph until 2019-01-01.

The shaded areas indicate a recession. As you can see, the unemployment rate has jumped up during each recession. Logically, as unemployment goes up, incomes go down since fewer people are working. Following is the graph of real median household income in California over the years.

So how do you know when a recession will occur. It turns out that the best indicator of a recession is when the Treasury Yield Curve inverts.

Continue reading Recessions, Home Prices, Unemployment and Inflation

House-Buying Strategies

Buying a house can be stressful, especially in a hot market. If you wait too long to put in an offer, it may be too late as the seller may have already accepted a existing offer in which case the buyer would be “in contract” (pending sale) in which case the seller can’t accept other offers while in contract. Therefore, getting “in contract” quickly blocks other buyers.

Property Appraisal

Of course, the more you offer to buy a house, the more interested the seller would be to accept your bid. However, you don’t want to offer too much as you could be overpaying. Let’s say you find a duplex on sale for $360,000. You then do some research to determine if $360K is the market value.

Redfin Estimate
According to Redfin, you find that the house is estimated at $360K. However, Redfin shows you how they came up with that estimate using comparable properties in the area. After looking at the comparables, you find that Redfin’s automated estimation algorithm is using single family homes as comparables instead of duplexes. Obviously, single family homes are not good comparables if the subject property is a duplex.

Continue reading House-Buying Strategies

Creating House Floor Plans in 2D and 3D

If you need to only create 2d house floor plans, I personally have found Lucidchart to be easy to learn and intuitive to use.

If you need to create 3d house floor plans, I have found Live Home 3D to offer the best features for the price. At $10 (on sale), you can easily create 2d and 3d home plans. You download and install the program which allows for faster 3d rendering. My typical workflow to design a house is as follows:

1. Create a room by clicking the Room button

2. Draw a room (2d) by dragging the shape of a rectangle

3. Pick a door style

Continue reading Creating House Floor Plans in 2D and 3D

Invest in Real Estate or Stock Market

Average rate of return:

ROI based on own money or borrowed money:

  • If you invest $100,000 in stocks, with a 10% ROI, you’ll get $10,000 at the end of year 1.
  • If you invest $100,000 in real estate (20% of a $500,000 house), with a 10% ROI, you get $50,000. Your ROI is based on a lot of money you’ve borrowed from the bank, not just the initial deposit.

Of course, you can also borrow $500,000 and dump it all into buying stocks but

  1. no one will lend you $500,000 to invest in stocks
  2. stocks are volatile and investing in them is more risky
Continue reading Invest in Real Estate or Stock Market