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Why are the rentals not carrying mortgages?
Is this part of a strategy you've discussed with your CPA?
He/she is so far playing it safe, a strategy which seems to be popular only after economic crashes, and then people quickly forget that things don't always go as you expect them to. And the cycle continues.
The problem with leverage is that it only works well if a few people are doing it, or if the ratios are moderate (meaning, not highly leveraged), but when everybody does it and goes crazy, the economy becomes unstable.
He/she is so far playing it safe, a strategy which seems to be popular only after economic crashes, and then people quickly forget that things don't always go as you expect them to. And the cycle continues.
The problem with leverage is that it only works well if a few people are doing it, or if the ratios are moderate (meaning, not highly leveraged), but when everybody does it and goes crazy, the economy becomes unstable.
In essence, a tragedy of the commons.
Yes, I’ve played it very safe. I do like the simplicity of not owing anyone anything aside from property taxes. I feel like I’m safe enough to cover a $3500 payment on $7200 gross rent considering it will cover my taxes/insurance/primary residence/vehicle (hopefully last 10+ years).
Essentially, I take on more risk but I buy into a solidly middle class lifestyle as far as location, house, schools and car I drive.
Is my arithmetic bad? As an interest-only loan, that's about 8.4% That's a VERY expensive loan. Inflation is hovering close to zero and might actually be negative. Paying 8.4% is unconscionable.
Yes, I’ve played it very safe. I do like the simplicity of not owing anyone anything aside from property taxes. I feel like I’m safe enough to cover a $3500 payment on $7200 gross rent considering it will cover my taxes/insurance/primary residence/vehicle (hopefully last 10+ years).
Essentially, I take on more risk but I buy into a solidly middle class lifestyle as far as location, house, schools and car I drive.
Worth the risk?
Depends. How long have you owned these properties? You have to add up all the hidden costs, and those costs might be a lot more than you think.
What is your NET income, after expenses, on those properties? Check your tax returns if you need to.
Is my arithmetic bad? As an interest-only loan, that's about 8.4% That's a VERY expensive loan. Inflation is hovering close to zero and might actually be negative. Paying 8.4% is unconscionable.
But maybe I made a mistake in my arithmetic.
Loan is at about 4.5%. Payment includes taxes and insurance on all properties aside from primary.
Depends. How long have you owned these properties? You have to add up all the hidden costs, and those costs might be a lot more than you think.
What is your NET income, after expenses, on those properties? Check your tax returns if you need to.
Bought all between 2010 or so and 2017 or so. I probably average $250-300/month for repairs. Out of all properties I’ve had maybe 6 months where one property was vacant.
Market value for my rents is probably closer to $7500-$7600 but I don’t raise rent often.
Seems very doable considering I currently live on $1500/month. I’d probably throw $1000/month at an ETF and use the remaining $1000 for whatever I want.
The $3500 payment includes taxes/insurance for everything except my primary. So basically the only “expense” I’m looking at is maintenance/repairs/vacancy.
Income tax isn’t bad considering all my money is generated through rental income.
Essentially I would have 8 homes and a ~$500k mortgage.
I'm a bit confused by your posts so I cannot answer your question without more information. In your original post you said your monthly expenses was $1,500 and above you are saying its $3500 except for your primary residence. So what is your total monthly expense of your all your properties (tax, insurance, HOA etc.)? Or are you saying that AFTER the $500K loan, your total expenses for the mortgage, taxes, insurance etc. will be $3500 for ALL your properties combined? Also, have you calculated the cost of potential repairs, vacancies and maintenance on all the properties you already own? Also, what is the total value of all your properties (without accounting the new house you will purchase)?
It would be much easier to answer your question if you gave us the NET income from all your rentals instead of the gross and then gave us the amount of your personal expenses you need to cover. If you could address the concerns I listed above I would be happy to give you my opinion on you getting the $500K loan.
I believe in taking risks and extending one's self, however I always had a good job to back me up in case of an unforeseen situation. I own several rentals and love to see the checks come in every month. There have been occasions when a renter unexpectedly gives notice and one or more checks don't come in for a month or two. While that rental is vacant, there are costs, sometimes HUGE costs, to prepare it for another renter. Today due to the pandemic some renters aren't required to make payments for, who knows how long.
This past winter a furnace went out in a rental, in the coldest part of winter. $2000 unexpected dollars later, the renter was warn and I was 2k poorer. Last month was replacing a central A/C unit to the tune of $3500. You have to be prepared for any and all unexpected events. A nice employment income every month can sooth over those rough spots.
At 35 years of age, why aren't you working? When I was in my 20's, 30's, 40's etc, I was acquiring properties but also working two or more jobs, often for seven days a week, to make sure I could handle any emergency that might arise.
All the risk, hard work and stress pays off eventually, several of my properties have more than doubled in value, and the renters paid for them.
Good luck with your decision.
Last edited by Grumpy ol' Man; 06-02-2020 at 09:28 AM..
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