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I'm considering buying another single-family home in a city a couple of hours from where I live to rent out, and would like an outside opinion. The home is a 4-bd SFR in a semi-rural area on a little over an acre of land. It's priced at $360k which, hey! is coincidentally what my first house cost me. The reason I'm considering this home in particular: - The house neighbors my uncle's home, and he would manage the property. He's a good handyman and has lots of contractor friends, so I'd be able to get renovations/fixes done on the cheap. I hope to rent to church friends of their family's so we know they'll be good renters. I've rented to lovely tenants before and I don't want to do that again. I would pay my uncle (if he lets me), but it's nice that he would be the property manager for me since I know and trust him. - The place is semi-rural, down a dirt road right now. However, the area it's in is surrounded on three sides by rapidly developing cities. The county is pushing to be more business-friendly and while the area got hit hard by the recession, it's coming out of its slump and the place is booming with new property development. While my home in San Diego is valued at 90% of its peak price a few years ago, this house (and the surrounding areas) are valued at just 60% of the peak. In my opinion this house is in an area ripe for development with corresponding value increases. However, if the economy crashes again and it stays undeveloped, it might make a nice home to retire to in the future since I would like to retire on a large, semirural property anyway. Financial deets: Savings I have $60k sitting in the bank right now as a possible down payment and could also get a home equity loan on my first home if I needed to cover any unforeseen costs (I owe $250k, it's valued at $540k, so I don't think that's a terrible risk if I need a little extra $$). I have $120k saved up for retirement and will be continuing to max out my IRA and 401k even with this new debt. Cash Flow Right now I make $6k/month pretax at my day job and approximately $8k/month from my side business (this is variable, though). My current mortgage is $2k/month with 14 years left on it, and my expenses are around $3k/month. The new mortgage would likely add an extra $1500-2000 to my expenses, and I'd want to rent it out for $2000-$2500 or so, giving me an 8% return renting it at full capacity. Of course this doesn't take into account tax benefits, etc. I understand that this kind of return is lowish for real estate, and am looking for ways to lower my down payment so that I have more leverage and a better rate of return. Any thoughts?
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Dec 30, 2013 06:00
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| # ¿ May 4, 2024 01:25 |
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Harry posted:Unless you have the financing already, it's pretty drat hard to get an investment property without 25% down. Which it looks like you don't have. I also think they will instantly reject you for having to take out a home equity loan for it (not sure on that one though). Ideally I would hold off on buying another property until I had more cash saved up, but the combination of low interest rates and a depressed valuation of the house (in my opinion) makes it very tempting to me to begin investing now. I want to take my big financial risks as early as possible so I have time to bounce back if need be, and I'm turning 30 this coming year 
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Dec 31, 2013 01:33
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SlapActionJackson posted:Overall I agree with Dazzleberies assessment - this does not seem like a good income producing opportunity, but possibly a lower-cost way to acquire this house or speculate on its value. The tax requirements for deductions I believe I'll fall within next year, since I plan on basically handing over my side business to my unemployed boyfriend so he can deal with all that money. I just got paid $20k for October's sales and will get an extra $10k next month for November, so I'll have a bit more buffer for a down payment by the time anything happens. The other possibility I'm looking into is buying a lot on Maui's west side. My mom's boyfriend has built up a commune in that area so he'd be able to build a house with me paying for materials and providing labor. We're visiting there at the end of the month so I guess we'll see if anything looks promising. I'm certainly not in a huge rush, but with interest rates so low and no other investment type looking good right now, it makes me a little fidgety just sitting on a big pile of cash. And maybe I should be looking into n-plexes for diversity's sake and I'm just nervous since I've never owned anything like that and San Diego's prices are back to pretty high levels. If I'm being really stupid by taking that off the board, feel free to slap me.
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Jan 3, 2014 23:12
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I think that correlating interest rates to short-term home prices is dangerous to do, especially in the California market. Harry, do you have any outside blogs/articles that you read about rental houses that you'd recommend? I'm definitely a newbie at this. Dazzleberries posted:In terms of a rental you'd want to live in, is that because you don't want to be a slum lord or something else? quote:What I'd suggest is to just do some reading and start to evaluate properties. I had a spreadsheet where I could drop in the list price, the likely rent, and my expense ratio and it would spit out everything from the mortgage payment, to the profit numbers. You'll start to see what can work and what can't and can decide from there how to proceed. quote:I have never bought a lot to develop but I've been looking and it has it's own set of issues. For example, does it have access to sewer, if not can you even put in a septic system? That's one of the many questions that you need to answer as a contingency on your offer, and to do so will cost you money, regardless of the results. If the land is not feasible to build on, the deal falls through but you're still out potentially thousands of dollars. I've had similar things happen to me on rentals and while it saves me money in one sense, it makes me want to vomit that I spent so much money and was right back where I started.
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Jan 4, 2014 04:24
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Considering getting a property manager to rent out my house for the next half year or so. Thoughts on how to get a decent property manager?
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Oct 10, 2014 19:42
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I don't want to do it myself, managing renters sucks rear end. I just don't want to sell until I know for sure I want to move, which is why for such a short period of time. Just was wondering if there were any common questions I should be asking.
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Oct 12, 2014 21:07
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There's a reason landlords have pet deposits. If he lied about having pets or their size, that's one thing, but I would expect to have to refinish my floors if I was renting to someone with multiple large dogs, and charge accordingly with the pet deposits to cover that likelihood. What's in the lease to cover this situation? Follow that. That said, I refinished my floors in my last house and it wasn't that hard and it only took a weekend. Rent a sander from Ace, buy stain and sealer, and it'll look better than when you moved in. Unless it's engineered flooring, in which case they really should not have rented to someone with dogs. Everybody in this situation seems to lack foresight.
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Aug 31, 2015 02:05
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| # ¿ May 4, 2024 01:25 |
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We only did two coats and yeah, San Diego humidity, but it was definitely a weekend since it was a one day rental for the sander and we got it from Ace on Friday so we could have it over the weekend. My point was it's not that much work if they want to do it themselves and save on the bill. As a possible future-hardwood-landlord, I'm trying to think what would be the best solution - would it make sense to just put in cheapo carpet to protect the floors if you care about scratches?
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Aug 31, 2015 05:04
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