Home buying first time, humbly asking advice

[Dadhawk]

Originally Posted by Irace86.2.0

Worst case scenario is the renters paid off a house you don’t want to live in, so you sell it and move into a similar sized or smaller home. Most people move anyways.

Another option is to buy a home you can pay off on a shorter term than 30 years (we financed our home for 15 years and paid it off in 10), then live "rent and mortgage free". Even if we move, which is likely when we retire, we will not buy so that we have a mortgage.

I agree that buying is not for everyone though.

[NoHaveMSG]

Originally Posted by Irace86.2.0

Worst case scenario is the renters paid off a house you don’t want to live in, so you sell it and move into a similar sized or smaller home.

Two words. "Capital Gains." The only way out of it would be to do a 1031 like kind exchange, continue to rent the new place for at least another year. Then evict and move into it.

The issues with rentals right now is the eviction moratoriums. Making a normal blue collar wage but having a renter not pay for 9 months with no end in sight is not sustainable.

[Spuds]

Originally Posted by Irace86.2.0

Well, initially I said live in a cheap rental, which could be an apartment or whatever. In general, a rental is cheaper than owning with even the same amenities. The difference can be invested in a diversified account. Depending on the savings, this can lead to the generation of more wealth for retirement, which should be on everyone’s agenda. And of course a house is an investment. It shouldn’t be the only investment, nor should people assume it is a guaranteed investment or that a renter is not making a sound decision to rent and not buy. I’ve demonstrated that renters could live a quality life, while reaching retirement at a similar or even a higher financial level than a buyer. Renting isn’t inherently wasteful.

I leave rental properties better than when I moved in. That isn’t the typical case, but it really depends on the home and the type of occupants. Even if the home isn’t maintained well cosmetically, at the end of 30 years the cosmetics can be taken care proportionally cheaply relative to the gains from this strategy.

I listen to a few finance channels. One guy rents, but he owns seven different rental properties. Renting affords him more flexibility, saves him money and fits his lifestyle. Buying a home doesn’t need to be for everyone, even if they could afford it.

Hypothetical situation:
You buy a house, you pay mortgage, insurance, and maintenance on it. You rent that house out. That rent income is equivalent to 90% of your mortgage. You rent a house for yourself, let's say same amount as what you are getting in rent for the house you own. You now pay out all of the rent you are being paid to someone else, while still having to cover the mortgage, insurance, and maintenance on the house you don't get to live in.

Renting that other house is certainly cheaper than owning it too, but you are already paying for a house you own. And you are already incurring risk on that house as well, while avoiding such risk is a primary reason for renting in the first place.

The situation allowing you to invest extra money only works if you buy a really nice house, and rent yourself someplace dirt cheap, such that the 10% mortgage + insurance + maintenance + your rent is less than the 90% of the mortgage paid to you by renters. Anything less than that is paying into the house as an investment in itself. And if all I am going to do is break even, I sure as hell want to live in the nice house while doing it.

[Dadhawk]

Originally Posted by Spuds

Hypothetical situation:...

Buying and managing a rental while renting yourself really does sound like the worst of both worlds to me, fiscally and physically.

[Capt Spaulding]

I was a long distance landlord for about 8 years. Never again.

[Irace86.2.0]

Originally Posted by Dadhawk

Another option is to buy a home you can pay off on a shorter term than 30 years (we financed our home for 15 years and paid it off in 10), then live "rent and mortgage free". Even if we move, which is likely when we retire, we will not buy so that we have a mortgage.

I agree that buying is not for everyone though.

That can be better, but often it is not. It definitely feels better to have a home paid off completely, and it gives someone flexibility and financial security to invest in different things like a second home as a rental or whatever. Why is it not better? If you could borrow money at 3% and invest that money and make 8% then would you do it? Of course you would. You would make 5% interest using someone else’s money. Similarly, if you have a loan for 3%, and you have extra money to pay off the loan faster, if you instead invest that money at a higher rate of return than your mortgage then that would be the smarter investment, technically.

[humfrz]

I think I have the ultimate housing plan. Just live in your parents basement, rent free and no upkeep expenses. After they pass away they will you the house.

[Irace86.2.0]

Originally Posted by Spuds

Hypothetical situation:
You buy a house, you pay mortgage, insurance, and maintenance on it. You rent that house out. That rent income is equivalent to 90% of your mortgage. You rent a house for yourself, let's say same amount as what you are getting in rent for the house you own. You now pay out all of the rent you are being paid to someone else, while still having to cover the mortgage, insurance, and maintenance on the house you don't get to live in.

Renting that other house is certainly cheaper than owning it too, but you are already paying for a house you own. And you are already incurring risk on that house as well, while avoiding such risk is a primary reason for renting in the first place.

The situation allowing you to invest extra money only works if you buy a really nice house, and rent yourself someplace dirt cheap, such that the 10% mortgage + insurance + maintenance + your rent is less than the 90% of the mortgage paid to you by renters. Anything less than that is paying into the house as an investment in itself. And if all I am going to do is break even, I sure as hell want to live in the nice house while doing it.

Ideally, a person does this in their 20’s. They live below their means when they are young. They scale their rental as they grow with a family, but they also get to scale their rental property. Someone who buys at 25-30 will have the home paid off at 55-60, which gives them an opportunity to bank on the rent from their rental for 5-10 years before typical retirement at 65.

Typically, it is suggested someone has six months of salary, but having a rental requires more cash savings of course, which is a consideration, but it doesn’t count against someone; it just can’t be invested.

[Spuds]

Originally Posted by Irace86.2.0

Ideally, a person does this in their 20’s. They live below their means when they are young. They scale their rental as they grow with a family, but they also get to scale their rental property. Someone who buys at 25-30 will have the home paid off at 55-60, which gives them an opportunity to bank on the rent from their rental for 5-10 years before typical retirement at 65.

Typically, it is suggested someone has six months of salary, but having a rental requires more cash savings of course, which is a consideration, but it doesn’t count against someone; it just can’t be invested.

Why aren't you doing this yourself again?

[Dadhawk]

Originally Posted by Irace86.2.0

If you could borrow money at 3% and invest that money and make 8% then would you do it? Of course you would. You would make 5% interest using someone else’s money.

No, actually I wouldn't and don't. Also, in your scenario you aren't making 5%, it might be 2.5% all said and done and that doesn't take into account risk. Ultimately it's a personal choice, and that is one I do not, will not and have not done.

[Irace86.2.0]

Originally Posted by Spuds

Why aren't you doing this yourself again?

Who says I’m not?

I’m not.

I was a grad school dropout. My career in personal training and management was lucrative, but not reliable enough to make any long term commitments. I was looking at homes when the 2008 crash happened. Had to cash out my 401k and Roth IRA at a loss and start over like a lot of people. Changed careers in favor of a reliable paycheck. Moved. Retook classes that had expired for nursing. Got married. Now I’ll be starting nursing school. I’ll be 41 when I start my nursing career. My sister has been working as a PICU nurse since she was 23. Luckily, my great grandma lived to 102 and my grandpa to 96, both without meds, pacemakers, heart procedures or orthopedic replacements, where the both played golf in their 90’s, so if I have those genes, which seems to be the case, then it is like I am in my twenties, right? Well no.

I started a Roth IRA when I was 16. If I hadn’t had such a hard hit from the recession life would have been very different. If I had gotten into nursing school in 2010 when my requisites met the standards before they changed the standards then I would have been a nurse for the last 10 years, and things would have been different. That is life. Shit happens. I invest 25% of my income and have 6 months of savings. Considering the late start or having to start over, we will likely buy once. We don’t have kids, so we don’t need to go big then go smaller. We might buy and rent to stay flexible or to be a traveling nurse to see the country, while working for a premium and to stay mobile with these fires. It is not final. It isn’t just up to me. I subscribe to happy wife, happy life, so that is a huge confounding variable. The second is wanting a big garage and a place to build projects. My one car garage is maxed out, but I don’t want to rent larger.

[Irace86.2.0]

Originally Posted by Dadhawk

No, actually I wouldn't and don't. Also, in your scenario you aren't making 5%, it might be 2.5% all said and done and that doesn't take into account risk. Ultimately it's a personal choice, and that is one I do not, will not and have not done.

Well, you are almost guaranteed a profit over a 30 year term. The risk is fairly low. Most huge corporations with billions in cash reserves still hold debt because the interest payments are less than the gains from investing that money (along with being in a better tax position). Small business loans are all about pulling in a greater margin than the interest on the loans. Rarely is anything in the business world built on pure capital.

I think if I had a house, and I had six months of cash savings to fall back on in case I lost a job then I would feel entirely comfortable investing the money than paying off the loan faster, especially if the market is moving up or down aggressively.

[soundman98]

Originally Posted by Irace86.2.0

Seems like he needs to screen his tenants better lol That, and hopefully he collects a large deposit.

there's only so much screening one can do. the easiest determiner is a credit report, and 9/10's of the applicants are going to have a low 300 at best, usually with at least 1 bankruptcy...

it's a balance between leaving the house vacant for 10 years while waiting for that perfect tenant, or renting it out, and at least getting the mortgage for the place covered. paying for an empty house is much worse while waiting for that perfect tenant. out of those 30 years, he's only had 1 of 'perfect tenant', and i don't believe they're above a 500 on their credit reports...

the general rule around the midwest is that the people not competent enough to save the money needed to buy are also the same type of person that has very little comprehension of money, so there's usually a history of bad financial choices that increase as they continue on through life.

[Irace86.2.0]

Originally Posted by soundman98

there's only so much screening one can do. the easiest determiner is a credit report, and 9/10's of the applicants are going to have a low 300 at best, usually with at least 1 bankruptcy...

it's a balance between leaving the house vacant for 10 years while waiting for that perfect tenant, or renting it out, and at least getting the mortgage for the place covered. paying for an empty house is much worse while waiting for that perfect tenant. out of those 30 years, he's only had 1 of 'perfect tenant', and i don't believe they're above a 500 on their credit reports...

the general rule around the midwest is that the people not competent enough to save the money needed to buy are also the same type of person that has very little comprehension of money, so there's usually a history of bad financial choices that increase as they continue on through life.

Really? Wow. We both have over 800 scores, have long/stable/high incomes proportional to our rent, no criminal history, don’t smoke/party/play loud music, have a clean rental history and had impeccable references. We do our own maintenance and have even made reversible improvements to the property. Humble brag: you mean to say not all renters are like us?

I realize the bar is low, but a credit report, rental report, criminal background check, income verification, and interview can all go a long way. We have a vacancy that hovers around 1-3% in a fairly affluent area, so finding renters isn’t hard, but I’m sure there are some meth-head tweakers that slip through the cracks of even the most thorough screening.