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Or stop listening to all this doom and gloom and talk to people who actually have done precisely this whether by choice or not. It isn't half the disaster the pessimistic folk make it out to be. I wonder if some of these people have even tried to get a loan. No I don't mean ask one banker, get a quick no and then give up. I mean go out and find that if you pay say 4.75% instead of those headline 4% rates a world of options opens up. Based on the numbers you give I'd say its 98% likely you get a loan at rates that just a year ago would have seemed very low.
As for landlording, you can pay 10% or so to a management company or you can do it yourself and keep a budget at the ready. Don't listen to the myths, the calls at 3am rarely if ever come and even if they do you are under no obligation to answer the phone then. An occasional trip out might be called for, but most of the time any repairs can be handled over the phone by calling in an expert. Quite frankly my tenants expect a plumber or repair man, not me, to fix things.
I really don't get why people take such a gloomy view of things today. I get that you hate to lose money and want to be fearful of things you don't know, but maybe try something a bit and you'll see most of the things you fear aren't all that bad or risky. There is no such thing as easy money, but all the myths about landlording and buying a house are making it a lot easier to profit than it should be. So thanks
When turning a former primary residence into an investment property as you are there are 2 things that come into play. 1 is you must document 30% equity in the property by having an appraisal done. If not 30% can't use any rental income. If 30% or more you can use 75% of income from signed lease agreement. To use this amount you will need to provide signed agreemenet and cashed deposit check.
Thank You, I had done an appraisal about 6(or 5?) months ago when I was considering selling and with those numbers I'd have right around 50 % equity.
I'm doing the exact same thing. We moved from MI to NC (rented out our house in MI, bought our house in NC). When we were doing our NC mortgage application, I believe they took into account 80% of our MI rental income (not the entire amount, because of the risk of it not staying rented).
I'd do it again...I used a property management company for the first tenants (2 year term) and now I'm renting it privately to a friend of mine.
I am in the same boat as you. I plan to rent out my primary home and move to another state in a couple of years. Not everyone is underwater. I know three landlords that are doing well and have a considerable amount of equity in their homes. I say go for it but you have to be smart. I think what hurts people is that they do not realize it is a business. A business requires reserves to deal with problems and a strong knowledge base. I recommend that you save a sufficient amount of money to account for lost rent and repairs. I would also require the tenant to purchase renters insurance.
I would not use a property manager. It is the responsibility of the tenant to report problems to you. I am sure you already have a list of contractors that can address problems as they arise. I am not sure how far away you are moving. I will be three hours away and I plan to visit the property semi-annually. This expense is completely tax deductible. I recommend that you get the "First-Time Landlord- Your Guide to Renting Out a Single-Family Home" by Nolo and the rental guidelines for your state.
Why do you want to buy in a state that you plan to stay temporarily? Your timeline is not very long in homeownership years. Do you plan to rent it out in the future and return to your primary home?
As for buying a second property, I was told that you have to prove that you have been receiving rental income for two consecutive years. I believe the rental income needs to be documented on your tax form; it will count towards your income. However, I am not sure if they will count the entire amount. I have not done any in-depth research on this. I do not plan to buy again for several years.
Good luck!
Luckily, I run a business currently so I have a feeling that will help me in the long run. I tend to take the business approach to everything and really do research in on everything I think about.
I believe I do already own that Nolo book so I'll have to check for it. Its an older version if I have it.
Yep, I plan on buying in the new state once I rent for about a year to figure things out. The plan would be to rent it out after living there unless I absolutely love the new area. I don't look at real estate as a quick & easy investment. However, it does interest me to eventually have multiple properties in different areas I like to visit. Well not exactly multiple areas just maybe two different places. I still plan on paying off my current house in less than 10 years even if I acquire another mortgage. I would also plan on paying of the new mortgage within 15 years if possible(but with a 30 year loan) Just so if things go empty I'm not still paying the actual mortgage.
Unless it has recently changed, I believe you have to have it as your primary residence for two of the previous five years before profits are taxable, giving the seller up to three years to rent the place before having to pay capital gains.
Good info and I'll check into that. If I do keep the house I don't see myself selling it unless I moved out of the country.
Or stop listening to all this doom and gloom and talk to people who actually have done precisely this whether by choice or not. It isn't half the disaster the pessimistic folk make it out to be. I wonder if some of these people have even tried to get a loan. No I don't mean ask one banker, get a quick no and then give up. I mean go out and find that if you pay say 4.75% instead of those headline 4% rates a world of options opens up. Based on the numbers you give I'd say its 98% likely you get a loan at rates that just a year ago would have seemed very low.
As for landlording, you can pay 10% or so to a management company or you can do it yourself and keep a budget at the ready. Don't listen to the myths, the calls at 3am rarely if ever come and even if they do you are under no obligation to answer the phone then. An occasional trip out might be called for, but most of the time any repairs can be handled over the phone by calling in an expert. Quite frankly my tenants expect a plumber or repair man, not me, to fix things.
I really don't get why people take such a gloomy view of things today. I get that you hate to lose money and want to be fearful of things you don't know, but maybe try something a bit and you'll see most of the things you fear aren't all that bad or risky. There is no such thing as easy money, but all the myths about landlording and buying a house are making it a lot easier to profit than it should be. So thanks
Thank You, I pretty much figured I would just return calls in the morning if something happened and then call someone local to fix it. Or heck give them someones name and have them call me with estimates to approve things. 10 % is exactly the quote I just had gotten from a company to manage the property. I also have a lawn & flower guy that I would continue to have maintain things. Glad a couple of people on here are optimistic! I figure I'm 26 now so I can afford to make mistakes!
We have been renting out the house we couldn't sell for 5 years now. It has worked out pretty well since we got good renters but it is just one more thing to worry about. If you move out of state I would suggest using a property management company. We are in the same state but about 3 hours away. We get back there several times a year to visit so it works out ok.
We have had to do some repairs over the years, the roof was the big one but other smaller ones. We had a pipe leak in the basement (slow drip) and that got the drywall ceiling wet and had to be replaced. We have a handyman that does all of the work and is fantastic.
If we had issues with renters, this would be a different story though.
I don't even know what my question is just yet. I guess its how do banks look at this? Is it really going to hurt my chances of getting approved for a different home? I would prefer to keep my current place since I do plan on going back in 6-10 years. The interest rate on it is great and I have someone interested in renting it for 30% over what its costing me every month in total. It's been my primary residence for 3 + years now with 24 years left on the loan. (refinanced at the start of the first year+paid extra each month)
My mortgage and tax payment each month equals out to 15% of my monthly pay. I have a down payment saved up for my next home. Planning on renting in the new area for a year before deciding weather to buy. Wondering if I should instead pay down this mortgage with the money ? Then renting an extra year or two to save up money again for a down payment.
I've spoken to several people at my bank but it seems like I get different answers all the time. Including how things are just changing so quickly on lending that no one knows.
If you can afford (in their eyes) both homes and have 20% down, they will give you a mortgage.
I am not sure that I would pay your down the existing mortgage with your down payment. In your situation, cash on hand is probably a good idea. What if your renter stops paying, just for example. Cash is a nice thing to have unless you have a lot of it sitting around otherwise.
My situation is similar but not quite. We can't get our mortgage+taxes+insurance payment for rent. We'd be short easily a few hundred a month. I also don't deal that well with the stresses of unknown (like an unreliable renter) I feel like the house would just be looming over my shoulders , so I am almost positive we'll be selling it, albeit at a loss.
Last edited by joe moving; 09-14-2011 at 04:06 PM..
Thank You, I had done an appraisal about 6(or 5?) months ago when I was considering selling and with those numbers I'd have right around 50 % equity.
I don't even know about what this person said. Your Mortgage+taxes+insurance are 15% of your gross monthly. This is not going to come into play I don't think. You can probably afford both homes, even if house #1 is sitting empty, yes? You have no other debt ? I guess what I am saying is that it does not sound like you need banks to consider your rental income as a factor for buying your 2nd home.
Defintiely you will need a manageent company living in a different state.Otherweise you will be responsible to fix everyhting in a timely manner. You need a accoutant because your home become a business investment and has expenses to be accouted for likie maintainace.The two years on capital gains is on selling:I believe;not renting.
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