Profile picture for aquaman123

by secound home to rent good or bad idea?

i just bought a house last year i was going to move in it and rent it with some friends but that didnt work out so i rented it to a nice little family there paying $1298/month i paid 200,000 i owe 159,800 im at 5.75%

payment 1050
HOA        135
taxes      216


i want to by another small house for my wife and i to move in there asking $115,900
is now the time to by or should i wait


i make 45000 a year only
have house payment 1050.00
  • February 20 2011 - Salt Lake City
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Answers (2)

Generally single family homes are not good investments, as you know with the one you currently have you are loosing money every month and that doesn't take into account any major repairs.
I would suggest renting for now and then either moving into the house you already have if you can afford it or buying a duplex or triplex and selling that house. You will get a better return renting half and living in the other half, plus it is much easier to manage and take care of.
Then when you outgrow that, buy a house for yourself and turn the duplex into a full time rental property, I've helped a number of clients do exactly this and it has gotten them years ahead on their path to financial freedom.
If you have any questions feel free to get in touch.

Peter Reiter [contact information deleted by Zillow moderator.   Please refer to our Good Neighbor Policy for posting guidelines]
  • September 02 2011
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Profile picture for JasonTrue
The answer really depends first on how comfortable you are with the risks of renting out a home and how comfortable you are with managing the recurring maintenance.

Additionally, you need to consider the financial impact. Would the money that you'd be putting into the house likely perform better in some alternate investment vehicle? If you look just at percentages, investing in stock would likely result in greater appreciation; on the other hand, you gain a bit more leverage when purchasing a house, since you can borrow more against it than you can borrow against stock. After making the down payment, will you have a few months cash reserve to make payments in the event that the home stays unoccupied or needs unexpected maintenance?

We chose to buy a duplex that we were already renting, primarily for these reasons: 1) Based on the current rental market, we would be able to get about 8% of the purchase price per year in rent if we rented out both sides of the house, and the mortgage, taxes and insurance would be more than covered.  2) It actually slightly reduced our monthly housing expenses, except for occasional unforeseen maintenance. and 3) We didn't want the hassle of moving halfway through my wife's pregnancy if someone else purchased our home. 4) We didn't see a better value in the market, after everything else was considered. Our house had been recently remodeled, and we got it for basically the pre-remodel price thanks to the down market. 5) Once paid off, the rental income would be close to what our social security payment is theoretically supposed to be, if social security still exists when we reach retirement.

But, to put it in perspective, the stock that I sold to get our down payment together would have gained about $75-100,000 in value over the last 7 months, had I not sold it. We'd be in a better position to buy a "nicer" house today, though perhaps not one with the same kind of value as a rental as what we bought.

Our tenants have been really excellent so far, and we have no reason to believe that we have to worry about the landlord horror stories that you often hear about. We use a tenant verification service to screen tenants' credit history and eviction history, and use simple but consistent rules about who we would rent to.

If you're buying a house as an investment property, you will likely need a higher down payment than if you plan to live there, usually about 25%; you'll also pay a higher interest rate. If you plan to occupy the property for at least the first year, you can qualify for normal owner-occupied mortgages and have more flexibility.

If you end up moving away from the town where your rental property is, you'll likely need to hire a management company, and they'll usually take 5-10% of the rent just to deal with the basics, plus any maintenance costs. They may also charge a commission on new tenants when you have turnover.

  • February 20 2011
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