So I live in NY. I want to take advantage of the current mortgage rates and housing prices by buying some property. I don't want to buy in NY as I really like where I live now and finding something of equal awesomeness would cost me way tooooo much. My wife and I would like to possibly move back to Austin in 5 years..but that's not necessarily a factor. What I'm looking to do is just buy a home in Austin where we would want to live. So mainly Travis Heights/South Congress area. I would then have to rent it. So from what I can tell, as long as I can rent the house out for somewhere near the mortgage rate (plus all the various income taxes and interest tax deductions etc.) this seems like an OK idea. If I have to spend a few hundred a month to cover the mortgage I would still be making the appreciation of the house. In addition, I'd obviously have to find a management company which I hear runs about 5%? That sucks...but I'm in NY and can't really be there. Aside from all the risk factors like having to do repairs, non-paying tenants, etc. what am I missing here? Mortgages under 4.5% are stupid, and I want to take advantage.
If you have the money to invest it's not a bad thing. I do think that finding a reliable Property Management company can be a challenge though. My wife and I plan to do something similar for our retirement home. We plan to invest in a condo in Seattle (we live in a suburb now) that we could rent to begin paying down the mortgage. Oh...check to see whether you can get that rate on an investement property. From what I've seen so far the best rates are normally reserved for owner occupied homes.
Agree with above. Not sure you can get the best rates for a rental property. Mainly it would be a good thing if you believe that housing prices will go up in the next 5 years or so. In Austin at the moment, this looks likely.
How long can you bleed if your renter stops paying or jumps their lease and you cannot immediately get it rented. You might do good if you can find a not so nice house and keep it rented. The idea being that when you guys want to move down you remodel the whole thing. plus your renters can't destroy as much if you get a bad one.
As people above have mentioned, you won't get as good of a rate on something that isn't your primary residence, but even still those rates are also at historic lows. Further, you'll have to put down more $$ upfront for an investment property, usually 30% (though I'm sure there's creative instruments to get around that). Bottom line, if you've got the cash to make the down payment, eat the management company $$, make up any shortfall between your note and the rent (from it either being empty or just the rental market), and take care of the inevitable maintenance/upkeep (for a rental I'd factor in 3-5% of the home value), then it's not a bad idea. The Austin housing market has held up well over the past decade plus, and that includes a couple of serious national downturns; if you're going to be back here at some point anyway and you've got the jack, I'd do it...
Not a bad idea but as someone who owns several rental properties, its very difficult almost to find homes in desirable neighborhoods (travis heights and the like) where rent will cover the mortgage and other expenses unless you put a large amount down. This is primarily due to the fact that prices in these neighborhoods are high enough to require a significant amount of rent to cover your nut and your rental pool decreases dramatically above a certain price point. My experience is you have to identify "less desirable areas" which will turn in five or so years to make it make sense financially. Just my two cents.
As has been pointed out, you won't be able to get as low of an interest rate as you can get on a primary residence. Expect about an additional 2% or so. You'll also need to put down 20-30%. Leasing single family homes is challenging. First, nice homes (read pricey) won't rent for nearly enough to cover your expenses. That's why most rental property is in modest neighborhoods. Second, it's difficult to find a tenant who will take care of the yard. If you want the yard to stay nice plan to pay for water (in this drought for a typical yard, $100-300+ a month during hot weather) and a yardkeeper. Also, a single family house generally invites kids most of whom are hard on a house. Kids invite pets which are even harder on a house. Don't be surprised to have to replace flooring, trim, etc. Bottom line, I wouldn't do this if I intended it to be my future primary residence. The only exception might be if the house was already in need of major remodeling which I'd do after renting it and before moving in myself.
SO what I'm hearing is it might be a better idea to buy a house in a less desirable area (cheaper) and think of it as an investment vs. a home that I might someday want to live in. I agree that it would be hard to rent a house in travis heights for enough money to cover a large mortgage plus all the other expenses. And I dont' really want have to worry TOO much about somebody messing up my house. I've got a call with our guy later today to talk it through. But I like the idea -- get in on the down market as an investment and then see what happens.
I don't know how down the market is, but I get a foreclosue list each month and there are a vareity of homes to be fought over. If you like Travis Heights look either across ther freeway for a home to rent out, or go find something between Lamar and Congress probably fairly close to oltorf to hit your renter price point. Or wait... and hope for collapse and then swoop in to buy one of the high rise condos!
I would definitely treat it as an investment. If you buy in a modest neighborhood that makes sense financially your downside risk is much less. That is the way I've always approached it and done better at this type of investing than any other by a longshot. Leverage is great when **** appreciates and sucks when it does not. My take has always been that appreciation of houses in modest, up and coming neighborhoods typically equals and usually beats percentage gains in more established neighborhoods although the actual $ amount is less. It's some work but not as much as you think and I've had fun and learned alot. Good Luck!
Yeah -- so after talking with my broker it is looking like we were approaching this the completely wrong way. It's not feasible for us to buy a house in the Travis Heights area and expect to break even on the mortgage through rent. He suggested we look for one (or two) cheaper houses that would both return a positive cash flow month to month but also appreciate over time. This is a little different that what we were thinking. THe plan to buy a home we would move into made sense for austin...but buying rental properties in Austin while we live in NY just because seems weird. But I guess it's a good market. he did verify that I'll need 20% down and I wont get 4%..probably closer to 6%. And I wont qualify for first time home owners tax rebates or anything. So i'm going to crunch some numbers and see what he comes up with. Buying a modest house and using it as an investment vehicle seems like a good enough idea...so long as I can keep it rented. THanks.
The absentee owner thing is another challenge. I never hired someone to take care of my places as I really don't think they bring much to the table other than added expense. At the end of the day you still end up paying for repairs, cost to lease etc. The only thing that interests me is a reasonably priced handyman they may have on staff. The cynic in me also is wary of deals they may have with repair folk. You'll find that everything costs $200 when there is a problem absent a repair guy you can count on to handle stuff. I was absentee for my stuff in Austin but I lived in Houston which is 2.5 hours which is obviously much different than New York. There can be some really cool tax benefits (like writing off trips to Austin to look after your house for football games ƒº) if you plan right but they tend to disappear when you get to a certain tax bracket. Like I said I¡¦ve made more money at this than any other form of investing but sometimes life circumstances affect your ability to do some things. Never hurts to look and crunch the numbers and it really is a lot of fun¡Ktill **** breaks. Good luck!!
I have been in and out of rental and flipping properties time and again. I would not do it though unless I was around to watch over it or had someone that I trusted more than myself.
I didn't read all of the above posts so sorry if this has already been mentioned but remember property taxes will run $4000-10,000 a year so account for that in your cyphering.
