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A friend of mine bought a $40k house in a crappy area.
It needed $15k in renovations.
He rented it out for $1100/mo.
Those are the cold hard numbers, period.
For the life of me, I can't figure out who would rent for $1100.
$15k + $40k mortgage at 4% is $263/mo.
Taxes are $2k or $170/mo
Insurance another $100/mo?
Utilities $250/mo
$263 + $170 + $100 + $250 = $783/mo.
Why on earth would someone elect to rent for $1100 when they can own for $783 ?????????
$40k house. 10% down is $4k
Let's say renter does not have $4k, so he is forced to rent.
That would makes sense to me.
Until he gets $4k, he will need to rent for $1100, instead of own for $800.
Cycle of poverty. Is that the explanation?
Or is the problem the $15k cash needed for renovations?
Is that what keeps renters away from buying?
That would makes sense to me.
Until he gets $15k for renovations, he will need to rent for $1100, instead of own for $800.
Cycle of poverty. Is that the explanation?
But, aren’t there ways around this cash renovation barrier?
“Cash back at closing”
$40k house? Needs $15k of work?
Just get appraisal to come in at $55k, and pay $55k for the house, financed 100%, and get a $15k rebate at closing.
Cost of renovation rolled into mortgage, which is now $850/mo and not $750.
But still below $1100/mo.
Or are these renters really just closeted hedge fund contrarian economists who are betting the housing market will fall due to interest rates rising?
Or are they planning on moving in a year, where their monthly $350 savings will not cover the 10% transaction fee to sell ($4k)? That break even is only 11 months. Seriously, who moves knowing they are going to be moving again in just 11 months? No one.
But, even with PMI, and 0% down, it may be cheaper than $1100/mo.
Or do you think these savvy renters broke out the amortization tables in Excel and figured out that PMI makes their cost to own exceed $1100/mo, even when factoring in a deduction based on whether they itemize their 1040? So, they rented?
If you’ve got $1100/mo for rent, maybe you can scrap together 5%, which is $2k. ****ing $2k?
In order to save $300/mo forever ? No brainer.
Ok, so you’re saying they won’t get approved for a mortgage.
That would be a valid barrier to entry, as well.
Even if they had $4k down, they can’t get the rest of the money.
So, that’s how this dude with $40k cash steps in and jacks the rate to whatever he wants.
Bad FICO renter has no ability to buy, so it’s either be homeless, or rent a crackhouse for $8000/mo,
if that’s what the owner decides to charge, until you scrape together your own $40k in cash?
Cycle of poverty. Is that the explanation?
And some people just don't want the responsibilities attendant to ownership.
Ok, so with that logic, renting is a luxury. You pay more to not have to deal with repairs. But, if that were the reason, then why is renting cheaper than buying in some other parts of the country ? Since it's inconsistent, that can't be the reason.
Quote:
Originally Posted by MikeJaquish
Who will write the loan?
.
I thought anyone with a pulse can get a loan.
Low FICO and even bankrupt people have people begging them to take their loans.
Credit card solicitations by the dozen. Even the family dog.
I thought anyone with a pulse can get a loan.
Low FICO and even bankrupt people have people begging them to take their loans.
Credit card solicitations by the dozen. Even the family dog.
I think that you'll find that mortgage loans will have considerably stiffer requirements for credit worthiness and loan security than a personal loan or credit card with a low limit. The mortgage loan will also have considerably lower interest rate than these other loans that border on loan sharking.
That's why the personal loans are relatively easy to get because they command such high interest rates, lend much smaller amounts, and have a certain percentage of defaults built into their business model... not to mention that their collection practices can be quite aggressive. And just because you get a card in the mail advertising easy money loans is no guarantee that YOU will get a loan. These shysters are simply casting out a big net over a wide area in hopes of catching a few fish that they can fillet.
With 3% down loans widely available, the downpayment on a $40k house is one month's rent, so that's a moot point.
So, is the main reason for renters choosing to pay 50% more per month because no one will lend to them?
1. They don't have cash for down payment.
2. They wouldn't qualify for a loan particularly one with a low down payment.
3. Not many mortgage lenders loan for a 40k house.
4. Insurance may be quite a bit trickier(and more expensive) since at 40k value replacement cost is high and any casualty event is likely to get you there fast. Most people I know who own 40k rentals paid cash and don't insure them.
5. Lots of people rent because they see their residency as transitory. Why buy when you may move in six months or a year? You don't, especially in that price range where your prospective buyers are a relatively small number of landlords.
6. They can't do the math.
7. $1100 in rent for a 40k property is a pretty rare thing to find. That's a 33% cap rate. So the question is why would someone actually sell you a house like that for that cheap.
8. Because the house is maintenance intensive or has problems. This circles back to the down payment issue. Most of the public doesn't have the money to replace an ac unit when implodes in late July. Their rent(and the premium for it) is a form of insurance. They pay a bit extra so they know that's what it will cost to live there every month. If the house is 40k it's pretty close to replacement or more likely falling apart and being demolished at least in probable time frame of someone's life who's signing up for a 30 year mortgage.
Ok, so with that logic, renting is a luxury. You pay more to not have to deal with repairs. But, if that were the reason, then why is renting cheaper than buying in some other parts of the country ? Since it's inconsistent, that can't be the reason.
Quote:
Originally Posted by multifarious
I thought anyone with a pulse can get a loan.
Low FICO and even bankrupt people have people begging them to take their loans.
Credit card solicitations by the dozen. Even the family dog.
"Logic?"
Since when is that a consideration?
Your posts indicate a mammoth detachment from realities in real estate. People do what they do for reasons of their own.
"Never count the other guy's money."
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