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Howdy. Been thinking about this for the past 6 months or so, and more as of late. I'm wondering if you folks could give me your opinion about my situation, and if home ownership might be a good option for myself.
I'm 25, and moved to Illinois a year and a half ago for work. I'm in the machining trade, and it's been very stable for the past 3 years. It was kind of rocky before, but I always seem to be able to find work without a problem. I have a good chunk saved up for my age, since I've been working and saving since 16. My rent right now is $650 which is very manageable, and I could afford more and still save. My income is around 45K straight time, usually make about 8%-12% on my equity investments, have about 8K in a 401K, and I'm able to work an extra 15 hours most weeks if I want to. I don't have a SO or children. Work always occupied quite a bit of time, leaving little free time.
I have found houses around my area for around 80K, but if I looked harder, I'm sure I could find better deals. I would love to find a fixer upper. If I found something, I'm kind of thinking about either renting it out, and possibly buying more with the intent of renting out, or getting a roommate while using the extra money to look for another house to rent out. Basically, I'm looking for a 2nd source of income besides working 2 jobs or something, which I have done during most of my younger years.
I'm seeing a lot of great buys out there, and it seems were are shifting to a nation of renters. I would like to watch prices drop a little more before making a move, but I think it's getting close to an optimal time to buy. Might be a good time to hedge at least. Being young, I feel it's the best time to take a risk, and I can afford to take some risks that wouldn't be as tolerable later in life. Just wondering what others think. I really have no experience in this realm, but the best way to get experienced is to give it a try Anyways, I would appreciate any opinions or advice.
If you've never owned a home before, you may have a hard time finding a lender who would let you buy a home as an investment and not as an owner occupied property. Do you have enough saved to put 20% down up front? If so, I'd say to go for it, live in it and work on it at the same time. You can rent it out in a few years when you're ready to buy your next investment. Make sure whatever you buy is in a good location -- that's something you can't change.
I would only buy a primary residence for myself, not investment property. Not at this point.
Get some years of home ownership and all the not so fun things which can happen under your belt first.
Being a landlord is not the easiest job in the world. I've got 4 units and sometimes I feel like tearing them down and planting the property over.
This is kind of what I'm afraid of. I know it can go both ways, and finding the right renters can be a challenge. I've heard the horror stories, but at the same time you've gotta work for anything in life and be smart about it. I figure if there's a way to prevail, I'll find a way.
Quote:
Originally Posted by WendyK
If you've never owned a home before, you may have a hard time finding a lender who would let you buy a home as an investment and not as an owner occupied property. Do you have enough saved to put 20% down up front? If so, I'd say to go for it, live in it and work on it at the same time. You can rent it out in a few years when you're ready to buy your next investment. Make sure whatever you buy is in a good location -- that's something you can't change.
Yes, I can cover the 20%. It would be more risk than I'm used to, but then again, I've never really taken much risk before. The plan would be to find something that needs some work, and live in it while I do the work. After that, I guess it would be a wait and see type thing.
As for the location, I believe the area I'm in now is a great area, and the prices are pretty reasonable.
In the long run (usually more than 5-7 years) it is better to buy than to rent. The mortgage interest tax deductions and other benefits of owning a home won't be going away anytime soon. Also, if you did buy a fixer, and put some sweat equity into it, you could probably sell it for a profit later. Finally, the mortgage rates being as low as they are, I would basically take advantage of it as soon as you can. 4% interest rates won't stay around forever.
From a practical matter, once you see how much maintenance and work a house is, especially a fixer, you would be surprised how little time you will have left if you have to have a job + overtime plus dealing with renters. For many people, they end up either quitting or become a landlord full time.
So I would buy now (or wait until you can put 20% down), get rid of all your high interest debt (credit cards esp.), and then see the work of home ownership prior to attempting to be a landlord.
If I were you I would forget renters right now-find a fixer-upper house in good location with good bones-invest your time into fixing it up for resale. The old addage is "find the worst looking house in the best neighborhood" and go for it. Later you might consider a duplex for living in and renting. The thing with renters is do a back ground check-credit check and get enough in security to repair any damage done, be very selective when choosing renters.
You have described two very different, and very significant challenges. One, is to buy your first home and at this time you are like most first time homebuyers, not well educated in what this entails. I mean no disrespect by this statement. So first, you educate yourself by talking with a variety of persons. Perhaps your family, your parents, another trusted person who has bought and sold a few homes. Talk to 2 or 3 lenders about what type of mortgage you will need and what that all entails. What are the tax implications - good or bad? Find out.
Then, you have the 2nd scenario, being an investor and a landlord. You think finding good tenants can be a challenge? Let me tell you right now, there is no "can be". there is "will be".
Take it one step at a time and begin to gather around yourself quality people who can advise and help you sort out your options and define your true goals.
I think your first investment house should be one you buy as your principal residence. Buying a fixer-upper is a smart way to go. As long as you're handy (which it sounds you are), and can do most of the repairs yourself, that is one of the best ways to build up equity. Live in it for a couple of years and sell it and you will pay no income taxes on the gain (within limits). Don't count on the mortgage interest deduction always being around, though.
After you own your own home, you could consider buying houses as rental investments, but be forewarned: tenants can be a pain to deal with. You can have a number of good tenants which aren't much of a problem, but if you get one bad tenant it can spoil everything. I know from experience. Although I did okay on some rentals, if I had it to do over again I would have just tried to flip the houses once I repaired them. (I exclusively bought fixer-uppers, but I got tired of fixing a couple of houses multiple times once tenants trashed them.) Many people, however, do make a decent income off of rentals. If you become a landlord, and if you're going to manage them yourself, the best advice I could give would be to make sure that the rentals are nearby to where you live, just so you can check on them often.
I think that, generally, the housing market has bottomed out. The economy is doing better, and the housing market is improving much better than certain politicians would have you believe. Heck, if the President were a Republican, then the Republican Party would be trumpeting how much we have improved over the last 4 years (and I'm pretty conservative). I think now is a good time to buy, although, of course, local situations will vary. Most real estate agents across the country seem to be upbeat about home sales, and interest rates are still low. I just got a good deal on a house, and there are a number of good deals still out there--especially REOs and fixer-uppers. Good luck.
I'm 25, and moved to Illinois a year and a half ago for work. I'm in the machining trade, and it's been very stable for the past 3 years. It was kind of rocky before, but I always seem to be able to find work without a problem. I have a good chunk saved up for my age, since I've been working and saving since 16. My rent right now is $650 which is very manageable.
If you can put 25% down your loan will be around 60k. If you pay $650mo rent, you'll knock about $100mo off on a 10 year 3.2% loan. Absolutely do that and it'll be like putting your money in a bank, except it'll appreciate faster than the 1% interest a bank will pay you, and probably better than your 6-8% returns.
It'll be a great start for you. There's nothing like home ownership.
Be glad you live in an area with Mayberry prices. A home in Cali starts at $100k in the desert, and $500k here in LA.
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Anyways, I would appreciate any opinions or advice.
