It doesn't make sense for me to wait for the "bottom" if buying a 2 family...anyone agree with my logic? (tenants, duplex)

[mookie3333]

I feel this way for the following reasons:
-I am currently renting, so basically throwing away cash each month while building no equity. ($750)
-Being that I am renting, I have no tax deduction. (Maybe $800/month?)
-I am missing out on potentially $1600 per month that I could be making on the 3 bedroom unit (this is a 2 family that I am buying).

In total I figure that I am "losing" a little over $3000 per month by waiting for prices to come down. I am in contract to buy a 2 family in Queens, NYC at a price of 465k so the tax deduction will be pretty substantial.

Am I off target here, or does this logic make sense to anyone else? I think it's a pretty good deal also because there are 2 3bedroom units and a huge basement- the city assesses the market value at $660k, although it would never sell for that much in this market. Thanks for your opinions!

[crazyma]

If it is right for you and your family, and you desire a HOME, and want to stay there a while, then why not go for it???? Just remember you will be living next to tenants...screen them WELL.
Talk to a tax person too, for the best info on how this will affect you taxwise, in regard to it being a primary as well as rental.
Good luck!~

[KCfromNC]

I think you should include mortgage interest, insurance, taxes, PMI and so on as money "you're just throwing away" on the buy side of the ledger. It seems that even if you can rent the other half 100% of the time, your housing budget has just doubled, with most of the money going towards things you won't get back when you sell. I don't see how currently paying half of what you plan to for housing means that you're losing $3K a month if you don't buy.

I also think you're misunderstanding the tax deduction. All it does it give you a partial refund on the interest you pay, essentially just reducing the effective interest rate a bit. It's one of those "pay a dollar to get 20 cents back" kind of things - you just throw away less in interest, not gain money out of thin air.

And unless you can get the city to reassess their view of the market value, all that gains you is higher taxes on a house that's worth less than the most recent assessment. The only way to find out if the house is a good deal is to look at comparable houses that have sold recently and see if you're paying substantially less.

[Silverfall]

I think your math is off. How much are you putting down on that 2 plex?

When purchasing properties for investment purposes, you should be looking at ROI and cash flow.

[mookie3333]

Thanks for the replies. I am putting 0% down and paying no PMI because this is through a first time home buyer program (www.naca.com). My principal, interest, taxes, insurance will be about 2500/month. I understand the tax deduction in that if I buy a house and all mtg interest, property taxes are deductible, this will reduce my taxable income by something like 25k per year. (I will also have to claim rental income). Also, my aim is to buy a house and start building equity- not live in a studio for 750/month. While this does mean generally more expenses (roughly double what I am paying now), I am saying the loss of ~3k per month by waiting each month for prices to come down. as opposed to buying right now.

[sterlinggirl]

Instead of living in a studio and throwing away $8K a year, you'll be living in a duplex and spending $30K a year. Out of that $30K, you'll lose $27K, and only pay about $3K on principle. If the market declines some more (the smart money says it will), you'll very likely lose more equity than you pay on the principle. I think it would make a lot more sense to wait it out until you're really confident that values in your area will increase in the near future.

Another thing you need to think about:
Can you cover both halves of the rent if you lose your tenant?

[bigtrees]

Originally Posted by mookie3333

I feel this way for the following reasons:
-I am currently renting, so basically throwing away cash each month while building no equity. ($750)

Yes, when you buy a house you stop throwing money away on rent and start throwing it away on interest, taxes, maintenance, and insurance!

Remember - the way loans are paid you pay interest first and principle last. About 91% or so of your first payment will be interest, which you will never see back.

Originally Posted by mookie3333

-Being that I am renting, I have no tax deduction. (Maybe $800/month?)

In order to take advantage of the tax deduction, you have to itemize which means you no longer can take advantage of the standard deduction. It makes the tax deduction less valuable if you currently take the standard deduction (don't itemize).

[Humboldt1]

Please don't buy. With 0 percent down I don't want my tax dollars bailing you out wheb you have negative equity and walk away from this thing in a couple of years after realizing you owe more than the place is worth.

As a first time homebuyer you have no business getting into a duplex, especially in this market with no down payment.

[SKB]

Originally Posted by Humboldt1

Please don't buy. With 0 percent down I don't want my tax dollars bailing you out wheb you have negative equity and walk away from this thing in a couple of years after realizing you owe more than the place is worth.

As a first time homebuyer you have no business getting into a duplex, especially in this market with no down payment.

ROFLMAO, thanks for saying that perfectly!!!

Some people are just to thick to listen to reason, you have to say it completely like it is!!!!

[mookie3333]

Originally Posted by Humboldt1

Please don't buy. With 0 percent down I don't want my tax dollars bailing you out wheb you have negative equity and walk away from this thing in a couple of years after realizing you owe more than the place is worth.

As a first time homebuyer you have no business getting into a duplex, especially in this market with no down payment.

Thanks for your input, but you know what they say when you ASSume- this goes for you too, SKB. Do you know what my credit score is? Do you know how much cash I have on hand in the bank? Do you know what my income is? Do you know how steady my job is? And for one, do you know for sure that the values of real estate will plummet lower than they already are? NY is not equal to Florida. I know you saw a crisis in Florida (as well as the rest of the country) because home prices were high, salaries were low, etc. NY salaries are high compared to the rest of the country so most real estate, with the exception of shoe-box sized million dollar condos, will not drop significantly, because the overwhelming majority of people living in NYC can still manage to make their mortgage payments. Foreclosures are rampant in some parts of Queens, but in the other 95% of the borough, they are very sparse, and needless to say, neighborhoods are still very stable(yes, even as a result of the subprime lending in the past 5 years). The house next door, same style, sold for 620k 6 months ago. I am getting this house for $465k because an old couple owned it who is now in a retirement home and couldn't be bothered with squeezing a buyer for every last cent. The house would sell in todays market for 550k easily, this is why it went into contract twice within 2 weeks of listing.

*Any members familiar with the NYC market can chime in now and confirm that the avg. price for a 3500 sq. ft. 3br/3br attached brick barrel front row house within 2 blocks of the subway IN GOOD CONDITION, in a safe neighborhood, should sell for WELL over 465k. Single family ~1200 sq. ft. homes are selling for high 3's in this neighborhood.

The point is that you are making one too many assumptions. I didn't say I had no down payment, I said the program that I am using requires no down payment. Why throw cash into a house when the program doesn't require it? Cash is always more valuable on hand. FYI I have cash reserves to make roughly 2 years of PITI payments. I understand your concern, but please try to understand my situation before judging me.

Lastly how will your tax dollars bail me out if I happen to stop making payments? 700 billion tax payer dollars have been spent and I have yet to see a cent of it going to help defaulting homeowners- only to bail out banks that put us in this situation in the first place!

$1600 in rent for a 3br unit will be put towards paying a $2400 mortgage, taxes, and insurance payment. Tenant pays own heat, electric, gas, I pay my own utilities. Being that I have the cash reserve that I do, do you still think that your tax dollars will be "bailing me out" in a couple years?