That's good to know. I'm probably still several years away from this happening, but just tossing around ideas.
yeah this is the real value in it. Equity and rental income down the road. I was looking into buying 3 condos and living in one. I would have broken even on the rent of two units. But it was $15k down and mandatory refinancing within 5 years. Just felt like a lot of risk if anything went wrong with the units. I would have done it for sure if I had a co investor or had more liquid cash. I'm hoping they wont sell and I can talk the owner into splitting them.
What got my mind running on this whole thing is that my sister and her friend currently live in this crappy, college-type house that her friend's aunt bought for like $25k in foreclosure. They each pay $250 in rent, and the aunt just paid cash for the house. I was thinking that I could do something similar, though I have a lot of learning to do.
That would be ideal. Especially if you knew who was renting it so you could commit tax fraud and lie about how much you were earning. You have to depreciate it over like 27.5 years so on cheap houses you're not saving much in depreciation.
you don't need a commercial mortgage, you just can't get PMI for an investment property, so you have to put 20% down or get creative.
I highly suggest you do not buy a rental property if: A - it doesn't cash flow well, B - you don't have cash on hand for any type of major repair C - you don't want to be a GOOD landlord. From learning and talking with people these are the 3 biggest hurdles and all 3 are intertwined. As for The Banks question, I don't think anything would happen to your mortgage. The lender cares about getting paid and as long as you lived there for a year (look it up) you can rent it. Baseballman86 I have no idea of the rental market in your area but a 50k house might not necessarily be cheap, just like a 1 million dollar house might not be expensive. Research what the rental market is like in that area. What the vacancy rate is, what the average cap rate seems to be and what gross rent multiplier people are buying houses at in certain neighborhoods. Also, it is not easy renting to friends just an FYI. Sounds like a short sale/foreclosure or are you buying it from another landlord? I love real estate investing but if you don't do your homework, don't have cash flow/reserves and don't want to landlord....stick to index/mutual funds IMO. I don't know everything but I am uber passionate about it and happy to provide any insight I have to anyone.
Not to answer for Skoolie here but in the area where he's at, you have a lot of bad landlords that prey on college kids that live off-campus. They charge these insane rents for houses that in some cases have not been updated since the early 1960's. Most come by once a month for their rent payment and to make sure the place is still standing and that's it. Obviously you would buy rental properties to turn a profit, but at the same time you have to ask yourself "would I be OK with living here?"
Being a good landlord has everything to do with communication, a good lease and a list of vendors to call quickly when a problem arises. Landlord's get a bad rap because they don't want to address problems that pop up with owning a home, go the cheapest route on fixes, don't screen properly and don't respond to complaints. That all ties back into having good cash flow, cash reserves on hand and wanting to landlord. You also have the option to hire a property manager, but that cuts into your cash flow. And ALP110305 you are definitely correct in some instances, although more and more older homes are getting renovated by people like me, which is good to see. Try buying the properties from these people, they are out of their mind with the prices they ask considering the shape the homes are in. IMO they hope someone hasn't done their homework on the area and thinks because it "cash flows" or because their accountant told them to buy a rental, it's a good buy.
For anybody else in the "early retirement as a goal" crowd, does it seem reasonable to accomplish that without real estate in your portfolio? I guess the way I've looked at it since this became a goal was that the passive cash flow generated through rental properties (especially once paid for) would be a relatively simple way to generate enough income to live on for those 15 years or so before turning 65. Without that, it would seem that you'd have to invest a huuuge percentage of income or get very lucky in the market to be able to generate enough to live on from dividends/stocks/bonds/funds alone. Thoughts?
I haven't done the math on it when it comes to a rental property. But home ownership in general is a loser when it comes to long term investing. When adjusted for inflation home prices have essentially not gone up over the last 100 years. Home ownership is generally a good investment only because it forces an individual to save money in an asset that has value. Obviously with a rental property that changes a bit when the renter is essentially paying the cost of the home. But it seems like to generate enough rental income per year to live on you would need to own a lot of properties. That means you would have a lot of money tied up in down payments that could have been in the market earning returns.
Yea that's a good point regarding the down payments. I guess when you factor in opportunity costs, even a positive cash flow rental can be misleading as an investment. I view a house you live in as more of a liability than an asset, and definitely would not consider my live-in home as a part of my retirement portfolio. That being said, I will definitely be buying a home if for no other reason than eventually I will own it outright, whereas renting is just in perpetuity. When that time does come, I'm going to try to resist the urge to spend anywhere close to what the bank approves me for. Just from car shopping, I know how difficult that's going to be.
Any thoughts on the new fiduciary standard for brokers? I can't see why it would be a bad thing, but maybe I'm missing something. Obviously the financial services industry is fighting it hard. Heard on NPR this morning that they said it could "raise costs for consumers." Bull fucking shit. I personally think the issue is getting more people to a level of basic financial literacy, but this is a good start.
JMO, you're going to see insurance guys who are only Series 6/63 licensed be the biggest fighters against the standard. You could even argue advisors who sell wrap account could be threatened. It all depends on how deep the gov't wants to regulate the industry.
My first "investment property" was a condo that i bought and lived in for a few years. Then got married and kids etc and grew out of the condo. Instead of selling the condo i just rented it out and bought a new house. Mortgages on investment properties usually run you 1%-2% higher than a traditional mortgage. You can get around this by buying a place, living there for a year and then start renting it out. Expenses i run into for my condo these days have included maintenance like new hot water heater, painting, refinishing floors (every 3-4 years) refinishing deck and other small shit. I also pay a rental company one months rent to find tenants for me (although every tenant i have had has stayed at least 2 years so far). All in all its has been a subpar investment for me and I will sell it when the current tenants move out. Most of the reason its subpar is that i dont have the time to find the tenants, do the repairs etc myself. If you treat it as your job and do a lot of the maintenance yourself then i think it becomes a much better investment. And yes, all of your assumptions above seem to be correct. You should be able to plug it into a spreadsheet and come up with a rate of return to compare to other investments.
Just curious about this. Is that your opinion or are there studies done on it? Most advice that i am aware of seems to think that home ownership is one of the best investments you can make.
Yeah there are studies on it. Home ownership is incentivized by the government and like I said it's seen as a positive because it forces someone to invest. It's become one of those great America myths. http://www.usatoday.com/story/money...y-your-home-is-not-a-good-investment/8900911/ Don't bring this up in the homeowners thread or they get fiesty.
Stating that buying a home is a bad investment is misleading. It's not a good investment in the truest form, but it's essentially a savings account with very little interest, if any. You won't make money off it (typically) but if you don't make financing mistakes, much of your mortgage payment goes into a "savings account" instead of your landlords pocket. The main problem with the "buying a home is a terrible investment" argument is that you need a place to live regardless. Either pay a mortgage or pay a landlord. Those are your options.
This may fly in the homeowners thread but in the investing thread I doubt anyone is going to call a savings account a good investment. And a wise investor will make more by paying rent than paying a mortgage.
I never called a savings account a good investment. And Warren Buffett wouldn't make more money paying rent over a mortgage. Rent is inherently more expensive than a mortgage. You can't make money off money you don't have.
I've been a homeowner for 15 years and 3 different houses. All "home ownership" costs plus mortgage/tax/insurance added up are less than it would have cost me to rent a house for the same time period. And instead of lining the pockets of a landlord, I've only lined the pockets of the bank and my equity.
Or you could have rented a home for cheaper and put those savings in the market and taken advantage of compounding interest.
I mean, that's making a big assumption that his rent is cheaper than all of his other homeowner payments combined. Most landlords will price so that rental prices are cost of ownership + a premium. If you were renting out a house, would you charge less than what it costs you to own it? He could also just buy a smaller house, put those savings in the market, and take advantage of compound interest.
I've only lived in Texas, Florida and Ohio and I've never seen a market where rent was cheaper than mortgage/tax/insurance +
you do realize that not all landlords have mortgages on a house right? I get it, you've been told it was better to buy your whole life so it's hard to get that it really isn't.
I rent. That doesn't mean that you saying "Rent, it's cheaper" is any different than saying "buy a cheaper house." A landlord isn't going to cut your rent in half because he paid off his mortgage. He's still going to charge what he can get in the market, which is going to be close to what the mortgage + tax + insurance was.
you do realize that not all landlords have mortgages on a house right? I get it, you've been told it was better to buy your whole life so it's hard to get that it really isn't.
Coming from someone who does not have much knowledge either way, but has heard it is better to buy than rent, could you elaborate further on this? My uneducated thought is even though owning a house will not create returns, it is better to do that and get some of your money back when you decide to sell rather than giving money to a landlord that you will never see again.
I have to wholeheartedly disagree with the notion that home ownership is not better than renting. Your suggestion of renting and then putting that money in the market is true and could be said for any investment. However, this is also putting all of your eggs in one basket. If you treat your personal finances like a portfolio and you follow modern theory then your portfolio should be diversified and balanced to suit ones needs. Real estate makes up a part of ones portfolio, rent or buy, and its hard to find a better asset in real estate than home ownership. You can't discount incentives like the mortgage tax deduction and tax shelters on the proceeds of primary residence sales, because they are there to be used. Interest rates are at historical lows and you can use this money to finance other higher returning assets. The average person will not have access to cheaper debt than a mortgage.
This assumes that the costs are the same between home ownership and rent. They aren't. It's cheaper to rent. Your down payment alone in the market is going to grow. That money isn't going to grow as your down payment for a house. Then you factor all of the other costs with owning a home you don't have as a renter. But you're still thinking, "After thirty years I won't owe a monthly rent payment with my home purchase." While true, but at that point your savings from renting will generate enough of a return to pay your monthly rent anyway plus some. While your home will just be sitting there generating essentially zero return.
I think the assumption of the Rent over Mortgage argument is that the person would have perfect discipline and invest all extra money saved by not having a mortgage. In that case, it's easy to believe that the returns would make the long term outlook more profitable for the renter. In reality though, the average person is going to blow that extra cash on dinners, frivolous shopping etc. Example, it may cost $900 (monthly) to rent or $1,050 total average cost for home ownership, but 9/10 people will just waste the saved $150 on random things throughout the month rather than putting the money on autopilot. That doesn't make the premise less true, just makes it less likely to actually happen for most people. That's just my opinion though.
Absolutely. That's why I prefaced it with the forced savings is what's best about homeownership. But that is a loser for someone that is disciplined. Likewise, people who buy more home than they can afford because it seems cheaper end up double losers.
We will just have to disagree on this one. I don't see the value in diversifying into an asset that doesn't increase in value. If the stock marker collapses that means the housing market will collapse as well. People don't buy homes when they've lost significant amounts of income in the market or are unemployed as a result of the downturn in the economy. Think of how poor those investments into homes in Detroit are now that they're selling for a $1? There is no guarantee with homes. You would be better off in treasury bonds.
The cheapest apartment I could find in my city, somewhat equivalent to my house was 250 more a month than my mortgage including taxes and insurance. Educate me on how rent is cheaper.
It's not. But he's claiming that costs associated with owning a house (repairs, ???, etc) exceed the delta between a mortgage and rent. I disagree with his assessment and have real life experience to prove it. At the same time, I'm basing my argument on a 15 year note. His argument holds a little water on 30 year notes.
Please do not listen to watson. Pay rent and have it go down the drain. Or, pay a mortgage and get tax incentives plus equity and hopefully appreciation. You can still invest in either scenario, so don't let him try to tell you otherwise.
I obviously don't know your individual situation. I believe you have a government subsidized loan so in your case it might be advantageous to purchase. Frankly, you don't strike me as someone intelligent enough to take advantage of the renting strategy. So I wouldn't encourage you to do it. No offense.
An intelligence insult coming from you? Who would have seen that coming? Good thing I don't need validation from some retarded internet troll to succeed in life.