Home buying thread
- Thread starter Tuco
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Kill All the White People
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Okay dude, whatever.
You agree with me, that people are playing some kind of fucking games with their mortgages. It"s OBVIOUSLY not everyone, but it"s pretty prevalent, which is what I said. It"s more than just the guy down the road, it happens everywhere. CLEARLY there are still some upstanding citizens left that do shit the right way, but more and more the world is run by what your tax lawyer/account tells you. If your accountant tells you that you can save some money by doing shady practice or technically kinda sorta somewhat legal practice X, you do it. Whether or not he"s giving you correct information or not is up to you to figure out.
All I"m saying is that"s pretty much all the cases my wife had when she was a revenue agent...anyone who had a home of substantial value had no equity in it, it was just interest only loans refinanced every couple of years. Clearly not everyone gets their tax returns looked at every year and clearly not everyone does it, but chances are, if you have to ask how much money you"d need to make in order to buy a 2 million dollar home, you don"t fall in the category of people doing it the right way.
That"s why I don"t feel the need to explain it, because you guys clearly don"t understand what I said and clearly don"t give a shit and just want to go your own direction with it, so keep on doing what you"re going to do.
You agree with me, that people are playing some kind of fucking games with their mortgages. It"s OBVIOUSLY not everyone, but it"s pretty prevalent, which is what I said. It"s more than just the guy down the road, it happens everywhere. CLEARLY there are still some upstanding citizens left that do shit the right way, but more and more the world is run by what your tax lawyer/account tells you. If your accountant tells you that you can save some money by doing shady practice or technically kinda sorta somewhat legal practice X, you do it. Whether or not he"s giving you correct information or not is up to you to figure out.
All I"m saying is that"s pretty much all the cases my wife had when she was a revenue agent...anyone who had a home of substantial value had no equity in it, it was just interest only loans refinanced every couple of years. Clearly not everyone gets their tax returns looked at every year and clearly not everyone does it, but chances are, if you have to ask how much money you"d need to make in order to buy a 2 million dollar home, you don"t fall in the category of people doing it the right way.
That"s why I don"t feel the need to explain it, because you guys clearly don"t understand what I said and clearly don"t give a shit and just want to go your own direction with it, so keep on doing what you"re going to do.
do we have anyone with experience in looking at the most expensive suburb in dallas that can chime in on this?
anyone?
anyone?
Big Phoenix
Pronouns: zie/zhem/zer
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I see adds for this during Top Chef.Picasso said:
Most Eligible Dallas - Season 1 - Bravo TV Official Site
Hey guys. Looks like there"s a lot of experienced people here, so I thought I"d run my plan by you all and see if you have any feedback.
I"m planning to buy a duplex this year. My ultimate goal is to buy properties and retire on the rental income. So I"ve read a few books, got a lot of info on the internet and I"ve come up with 3 basic criteria for myself.
(Expected Rents + Tax Advantages) - (Mortgage, Property Tax, 5% Vacancy, 1% Repairs, Property Insurance, Owner Paid Utilities)
The expected rents is assuming that both of the units are rented, even though I"ll be living in one of them.
With this I"ve found a few properties that could be potential deals, but they end up selling only a few days after they hit the market. This gives me a little confidence that I"m going in the right direction, but it means that I will have to make an offer as soon as something comes up without sleeping on it. A little scary.
Also my plan is to finance the entirety of the purchase. I have a VA backed loan, so I can get a low interest rate with 0% down. From shopping around it looks like I can get a 3.6% 30 year fixed loan with 0 down. People always frown at me when I mention 0 down, but I think they"re thinking of 0 down ARM loans and the trouble people have gotten into over the past decade.
I"m planning to buy a duplex this year. My ultimate goal is to buy properties and retire on the rental income. So I"ve read a few books, got a lot of info on the internet and I"ve come up with 3 basic criteria for myself.
- Monthly cash flow must be positive by over $100
- With no tenants, it must be affordable month to month
- It must be an area I"d be comfortable living in. Low crime, not ghetto, etc
(Expected Rents + Tax Advantages) - (Mortgage, Property Tax, 5% Vacancy, 1% Repairs, Property Insurance, Owner Paid Utilities)
The expected rents is assuming that both of the units are rented, even though I"ll be living in one of them.
With this I"ve found a few properties that could be potential deals, but they end up selling only a few days after they hit the market. This gives me a little confidence that I"m going in the right direction, but it means that I will have to make an offer as soon as something comes up without sleeping on it. A little scary.
Also my plan is to finance the entirety of the purchase. I have a VA backed loan, so I can get a low interest rate with 0% down. From shopping around it looks like I can get a 3.6% 30 year fixed loan with 0 down. People always frown at me when I mention 0 down, but I think they"re thinking of 0 down ARM loans and the trouble people have gotten into over the past decade.
My buddy was just looking at buying a 4plex. From what I remember the bank estimates 50% vacancy, although if you can afford it month to month with 0 tenants then it may not matter.
How are you estimating utilities? That would require getting the numbers from the previous owner who may or may not have them, and even if they do it will take longer than a few days to get them. Even with a single family property, this could easily fuck up your >$100/mo requirement if you plan on paying for utilities.
How are you estimating utilities? That would require getting the numbers from the previous owner who may or may not have them, and even if they do it will take longer than a few days to get them. Even with a single family property, this could easily fuck up your >$100/mo requirement if you plan on paying for utilities.
Big Phoenix
Pronouns: zie/zhem/zer
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The first thing you need to do is to assess the occupancy rate of rental properties in your area. You seem to already know the first rule of real estate which is location, location, location, so obviously spend a little more and buy in a nicer area.Manseed said:
Once you"ve assessed the occupancy rate, then it"s time to find a property. You mentioned the ones you are looking at are getting snatched up, which is a good sign that rentals are doing well in your area.
I"m not sure what your current finances look like, but the whole 3.5% down thing I would frown upon. You can look back on the previous pages when there has been disagreement back and forth about whether that"s a viable strategy or not, but I will give you 3 reasons why it"s bad for an investment property, let along your primary residence.
1) The first is it"s a huge red flag that you can"t afford the place, not meaning that you can"t get a loan and get the place, but that you don"t have enough in reserves to ride out bad times like a recession. If you did have the resources, you would be able to put more money down.
2) The less money you put down, the more the property is going to cost you in the long run, and the longer it"s going to take to pay it off. You lose equity. Interest rates are ridiculously low right now, which is good news....but even at 3.5%, that"s a loss that"s not easily regained in other investments. I would be happy to get a steady 4% annual ROI, for example. You are giving almost the exact opposite up. If you were to take any money you would potentially not use on a down payment and invest it, you would need to make 7.5% just to make up for the interest vs. me putting it into a 4% money market account, for example.
3) The larger your debt, the more your debt ratio increases, and the smaller the loans you will qualify in the future. Again, not knowing anything about your finances, but if money is tight, and you have a large loan out on this rental property, that will count against you when it comes time to get a loan for, say, your primary home.
Also, I"m not sure a monthly case flow of over $100 is worth it, unless the property is dirt cheap, and I"m talking under $50,000. It would take just one broken water heater to really eat into any profit you might be making. For reference, the cheapest rental property I own is a $500,000 home, and I"m netting about $1500 a month on it....so taking 1/10 of that, would be $150 a month on a $50,000 property.
Again, the positive would be making about $1800 a year on a $50,000 property....someone is paying off your mortgage.....but the downside is your margins are very slim on cheaper properties, if shit starts breaking down you are going to end up putting more money in the home than you are bringing in.
With all that said, there probably isn"t going to be a better time to get an investment property. Interest rates are at historic lows, and the number of people renting are at historic highs. I just personally think financing almost the entire venture is a mistake.
I would say getting positive cash flow with your suggested setup is difficult if not impossible. General rule of thumb with SFH purchase is to put at least 20% down, and this is if you are very experienced in managing property, tenant selection, etc. I would recommend 25% to 30% down to first time landlords. Duplexes are a bit more forgiving in the numbers, but there are notable downsides. You end up cutting off a lot of the population who wont tolerate living in close proximity to others. Generally you get a younger, less wealthy, and more transient tenant pool. This leads to higher turnover, higher vacancy, and higher wear and tear on the property itself than say a sfh in a nice development.Manseed said:
Also, I noticed the formula doesn"t reference the profits tax you would pay from the rental income, although it does reference "property tax" and "tax advantages". This seems odd to me, although I might not know about your particular tax location.
Lastly, your point about 100 dollar cash flow minimum makes me think you cannot afford to pay the mortgage unless its rented. I would plan worst case scenario to have cash backup of 3 months to plan for unusually long vacancies. Otherwise you will be pressured to take the first (undesirable) tenant opportunity, and possibly be cornered into dropping the price.
Thanks so much for the reply, this is all really helpful.Izuldan said:
So just to be clear, this is not a straight investment property. I will be living in one unit of the duplex. My plan with this property is to both get out of renting and get my feet wet in real estate. Also, I am definitely not buying more than I can afford. It is very important to me that if I NEVER get a tenant I want, I will still be OK month to month.
So, I had the mindset that leveraging more money from the bank was to my advantage, since I can get a low interest rate with my VA guaranteed loan. I could definitely put down a lot more up front. Are you suggesting that the equity I get in the house from a larger down payment is just a better investment than having it on hand?
I am not planning to flip the house. My plan is to keep it and once I eventually move to rent out both of the units.
I would borrow as much as you know you can make the payment regardless of tenant situation.
The main concern of the 20+% downpaymenters is that if you don"t have 20% to put down you can"t afford it -- which is a good rule of thumb but certainly not a catch all.
I wouldn"t really give a shit about the extra interest you"d be paying by putting less down if it meant you got a better place to stay and had an increased cash flow from the tenant.
footnote -- i"m 23 so don"t bet the farm.
The main concern of the 20+% downpaymenters is that if you don"t have 20% to put down you can"t afford it -- which is a good rule of thumb but certainly not a catch all.
I wouldn"t really give a shit about the extra interest you"d be paying by putting less down if it meant you got a better place to stay and had an increased cash flow from the tenant.
footnote -- i"m 23 so don"t bet the farm.
If this is the case, you can finance more of the purchase. The fact you are living in half the property means you can treat the other portion as "renting a room", which means periodic non essential income. If you account for the full value of the monthly payment in your finances and do not rely on rental income to meet the mortgage payments, then I would consider this a very low risk approach.Manseed said:
The downside to this is that your personal living condition will be somewhat lower than you can afford in the meantime. Basically you are taking the "live poor now so I can live rich later" philosophy, which is a good thing!
If it was me, yes, I would put more money down on the property, but I am fiscally conservative. Then again, I"ve had a very specific path in creating wealth that has worked well for me.Manseed said:
I guess I would ask you.....if your duplex was $200k, and you could put down 20% (40k), or you could put zero money down and invest the 40k......what would you invest it in?
So this would go to your personal knowledge of investing. Remember, with your loan, even at historic lows, you are losing 3.5%....so if you can do better than that, reliably, then obviously taking the money and investing is a good idea. However, and this comes from years of experience and mistakes, it"s never as easy as it seems. You can be doing well in the stock market one year, making 20%+ returns, and then BAM, market tanks and your stocks are worth what you bought them for 5 years earlier. With the money you put into your property, that"s money is already invested. One way to look at it, every dollar you put into your duplex is returning you 3.5%. How much better you can do than that should determine how much risk you want to take. If you don"t have a clear investment strategy, then put more into the property.
You guys have been hugely helpful. That last post gives me a lot to think about, Izuldan.
I had the idea that I would keep more cash in reserves to do improvements on the property. But, even thinking about that now I realize I need to do more research. Whether or not my improvements would equal 3.5% is something that I don"t know. I"d love to hear your experiences on upgrades and improvements that you"ve done in your rental properties and how much extra rent you"ve been able to generate from them.
I had the idea that I would keep more cash in reserves to do improvements on the property. But, even thinking about that now I realize I need to do more research. Whether or not my improvements would equal 3.5% is something that I don"t know. I"d love to hear your experiences on upgrades and improvements that you"ve done in your rental properties and how much extra rent you"ve been able to generate from them.
I don"t do any improvements on my rentals. Zero. Repairs? Yes. Additions? No.Manseed said:
I think it"s more important to find a good rental property that does not need much in the way of fixing or improving.
Two things about improvements.
First, you rarely get out of it what you put in. This goes for even your primary house. Exceptions *might* be stuff like the kitchen, but remember not everyone has your taste. Things like a swimming pool will only add about $20,000 to the value of your house, and it"s very easy to spend more that that putting one in. Improvements should be about making your house more enjoyable to live in, you shouldn"t think about it as an investment. In fact, it"s better to think of it as the exact opposite, a money sink.
Secondly, and this goes for rentals, renters by and large do not take care of a rental home like they would their own home. So whatever fancy upgrades you think you might put in......stainless steel appliances, pool, crown moulding, plantation shutters, etc......that"s just one more thing they can fuck up on their way out that you will have to repair.
For rental properties, keep them simple.
Pasteton
Blackwing Lair Raider
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So my loan officer at wells Fargo has been needling me on to go with arm or interest only loan products. Interest rates being what they are, a 30 yr fixed at 4.1% is pretty tempting, but so is a 7/1 arm at 3.1%. Are ARMs really that bad? I feel like everyone pushes me towards the fixed rate mortgages which will cost me severa thousand more a year in interestt
First things first. A loan officer is looking after the bank"s best interest, not yours, so always be wary. Why does he want you to go the ARM route? Probably because the bank will stand to make more money from you in the long run. Also, I"m not sure why he"s not offering you the traditional 20%down/fixed route, except maybe you then would not qualify for the amount you need.Pasteton said:
The big thing is although you may save thousands a year in interest in the short term, in the long term chances are that you will lose money, because after 7 years your mortgage rate is going to adjust, and more than likely it"s going to adjust a lot higher, because it"s hard to think that interest rates are going to stay this low forever. What happens if the interest rate is 10% seven years from now? Can you afford it? How long can you afford it for? How much money would you be losing then compared getting into a fixed mortgage now for only 4%? With a fixed mortgage you know exactly how much you are going to owe every year, so it"s easier for you to manage your finances. With an ARM, once it adjusts, you are at the mercy of interest rates....who knows if you will be able to afford your mortgage in the future.
There are, however, some situations in which an ARM makes sense. In your case, ask yourself how long you plan on living in that house. If the home is a flip or a temp, and you don"t plan on owning it for more than 7 years, then the ARM makes more sense. However, if you plan on this being your home for a while, or you just aren"t sure how long you will be in it, then you are better off with the fixed mortgage.
Even then though, proceed with caution. Think about how many people in the past decade got into ARM loans, figuring they could sell there house in 5 years for a profit.....then when the market crashed their house got upside-down, they couldn"t sell their home, their ARMs adjusted to something they could no longer afford, and they ended up losing their home and/or declaring bankruptcy.