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Thoughts on purchasing a rental proerpty now.

xryanx 59 23 October 4, 2015 at 08:31 AM
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So I'm really just looking for some insight from some other financially minded individuals on purchasing a rental property. I've lived in my current home for about four years and have paid it off in full. I got lucky and got in near the bottom of the housing market in my area, but prices have risen substantially. I paid $80k, but the bank is estimating the current value is somewhere in the neighborhood of $110-$120. I'm considering purchasing another house in the area in a similar price range for use as a rental. I have $20k I can use as a down payment, and the rest would be financed with a 10 or 15 year mortgage. With the dramatic price increases in housing we've seen, and the slowing economy, I'm concerned that housing values could drop 30+%. It seems like a strong possibility that the Fed has built another housing bubble with the artificially low interest rates, and I'd hate to buy in at the top and have the thing pop. At the same time, I don't want to sit on the sideline with this cash and miss out on the rental income either. I'm plenty capable of making the payments even if the market goes belly up and rents suffer, but I'd obviously rather not.

What are your guy's thoughts?

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#2
what are rents around the area

,make sure its in a good school district

what interest rate

http://www.goodmortgage.com/Calcu...perty.html
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#3
Property taxes are capped at 1%. It is suburban is a suburban area with easy access to the interstate to get to employment opportunities. At least the asking rate for rents is around $1050 a month.

10 Year - 2.875%
15 Year - 3.125%
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#4
Quote from xryanx View Post :
Property taxes are capped at 1%. It is suburban is a suburban area with easy access to the interstate to get to employment opportunities. At least the asking rate for rents is around $1050 a month.

10 Year - 2.875%
15 Year - 3.125%
those will go up when you tell them its rental
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#5
If they will go up, and I find a close by property, I'd consider moving and renting my current home since it is owned outright.
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#6
If you don't want to move just get an equity loan/line on your present home, add that to your 20K and you're off to the races. It sounds like your current cash flow issues are in a good place and a percentage point or two won't make that much difference to your bottom line.

Shop carefully and buy smart. There's lots of money to be made in real estate, not just buy and hold land lording. (but that works too)
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#7
I did something similar and it has worked out well for me. My 2 cents is to get a multi-family unit if you can. 1 property tax/water/insurance/etc. bill and 1 location to deal with, but multiple incomes. Much better than several single family units IMO.
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#8
Just a thought...I bought some REITs about 3-4 years ago that have been generating some pretty good cash. This is another way to invest in real estate without the headaches of ownership. Plus, these are focused on commerical properties so probably not as exposed to any potential housing bubble that you referred to.
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#9
I agree about the multi family or buyting two very small properties. The more properties the lower your risk of vacacies, etc...

I own multiple condos... and that has worked for me.

About 30% devalutation... anything is possible but I do doubt it. People who have taken a variable rate mortgage will suffer... but I would assume most people in the last few years have done a fixed mortagage.

I would also do a 30 year fixed mortagage and pay it off faster if you can.

Stay away from the RIET, go with real property. Good LUCK.

Quote from mr3putt View Post :
If you don't want to move just get an equity loan/line on your present home, add that to your 20K and you're off to the races. It sounds like your current cash flow issues are in a good place and a percentage point or two won't make that much difference to your bottom line.

Shop carefully and buy smart. There's lots of money to be made in real estate, not just buy and hold land lording. (but that works too)

This is what I am planning to do. But need to pay off mortagage money first... save up some cash first an then I will pounce... my time line is in about three maybe four years and maybe two years.
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Last edited by joshuaNH October 15, 2015 at 06:36 AM
#10
What's the best way to use a HELOC to buy property? As I understand it, the interest is deductible. I've read about some people never paying the loan down and keep taking the deduction.
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#11
Quote from Grinner View Post :
What's the best way to use a HELOC to buy property? As I understand it, the interest is deductible. I've read about some people never paying the loan down and keep taking the deduction.
Yes, the interest on your principle residence is tax deductable... but you need to be below the standard deduction to benifit.

First off... you can take a HELOC up to (70 or 80%) not sure of the value of your home. Personally, I have a HELOC for $30K... I used it (the entire amount) to help pay off a mortgage that I have for a rental property... which was at a higher rate. Right now... I am focusing on paying off this mortgage, may take up to two years so I am keeping my HELOC at the max until the mortage is paid off and then I will work down my HELOC.

I got an amazing deal on my HELOC... .75% below prime... and the credit union which I have it with does HELOC specials and just locked it in at 1.79% for one year and then it goes back to .75% below prime.

Don't fully understand your question... but I hope this helps.
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#12
Quote from steve-auction View Post :
Just a thought...I bought some REITs about 3-4 years ago that have been generating some pretty good cash. This is another way to invest in real estate without the headaches of ownership. Plus, these are focused on commerical properties so probably not as exposed to any potential housing bubble that you referred to.
Wanted to add... I purchaed 4 properties 3 - 4 years agao. And I have almost doubled the investment in equity and I have pulled out thousands in revenue. You talk about a time when prices were really low. I am sure RealEstate has beat REITs that were purchaed 3 - 4 years ago.
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#13
Quote from joshuaNH View Post :
Stay away from the RIET, go with real property. Good LUCK.
Could you elaborate? I'm not familiar with the pros/cons of REIT. A couple of people have described REIT to me, and they made it sounds good, but they don't mention the cons. It sounds like REIT will take all those issues with bad tenants away, which is the main reason why I'm still hesitant to get a rental property.

Thanks.
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#14
Quote from Loopy07 View Post :
Could you elaborate? I'm not familiar with the pros/cons of REIT. A couple of people have described REIT to me, and they made it sounds good, but they don't mention the cons. It sounds like REIT will take all those issues with bad tenants away, which is the main reason why I'm still hesitant to get a rental property.

Thanks.
REIT is like buying a stock. They are usually a high dividend yield.

I mentioned before... that if I spent $100 in REITs 4 years ago I may have made a profit or a nice profit 8% ROI... instead I invested in REAL ESTATE and I have almost doubled my investment.

I am not saying this is always true... but this thread is about REAL ESTATE not stock picking.
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#15
Quote from xryanx View Post :
So I'm really just looking for some insight from some other financially minded individuals on purchasing a rental property. I've lived in my current home for about four years and have paid it off in full. I got lucky and got in near the bottom of the housing market in my area, but prices have risen substantially. I paid $80k, but the bank is estimating the current value is somewhere in the neighborhood of $110-$120. I'm considering purchasing another house in the area in a similar price range for use as a rental. I have $20k I can use as a down payment, and the rest would be financed with a 10 or 15 year mortgage. With the dramatic price increases in housing we've seen, and the slowing economy, I'm concerned that housing values could drop 30+%. It seems like a strong possibility that the Fed has built another housing bubble with the artificially low interest rates, and I'd hate to buy in at the top and have the thing pop. At the same time, I don't want to sit on the sideline with this cash and miss out on the rental income either. I'm plenty capable of making the payments even if the market goes belly up and rents suffer, but I'd obviously rather not.

What are your guy's thoughts?
How good is the rental market in your area? Will you be able to readily rent to high-paying renters? Being a landlord is stressful. Depending on what state you're in, if you let an asshole into your property, you're going to spend lots of time, money, and effort removing them. If you can screen good people, your life is much easier. Not that high-paying renters are always great, of course.
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