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Old 12-20-2012, 08:55 PM   #16
Join Date: Mar 2011
Location: Pennsylvania
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Originally Posted by bluefoxicy View Post
The home I bought I'll pay off in 3 years at $1000/mo mortgage payment.

They rent for $1200/mo around here.

The market is down now. That's how the market works: bubbles burst and the market goes down. See how expensive gold is? That will collapse one day. The housing market is barely being supported--artificially--by QE, which is fancy talk for the Federal Treasury keeping interest rates unsustainably low (an economic disaster). Once interest rates increase--and they absolutely must increase--home values will... well, stay the same. The difference is a $400,000 house that you take a $320,000 loan on and pay a total of $525,000 now becomes a $200,000 house that you take a $160,000 loan on and still pay $525,000, but more of that $525,000 goes to the government and about as much (give or take, depending on market pressure for lower interest loans) goes to the bank. The consumer says: "MY HOME EQUITY WENT DOWN!" "Houses have become cheap!" and so on. The first is true for current owners; the second is not, for anyone.

Buying into the housing market now is a big risk. It could turn around. It could continue to spiral down when interest rates increase.

You're right. I need a real rental plan, not "oh well if it doesn't work out I'll rent." I need to know what I'm getting into because that could be a real thing--and could be better. Besides, flipping could be a jump-off point... I could do that to raise capital for a couple iterations, then snag up a handful of houses and make those my rental properties. It's a lot faster than working an honest job trying to save petty cash.

The most important part of renting is going to be disclaiming all my liability ... insurance policies, management companies, the like. There should be tenant insurance or something, something I can claim against to cover my maintenance, and if tenants destroy the place they go after them and sue for damages and I don't need to retain lawyers or risk the tenant never being able to pay the judgment. Yes that has a cost and lowers income; it also lowers work and risk.
Well, there's always risk, whether it's interest rate risk or the risk of a tenant smashing your rental property. The question is what your risk appetite is. If I were to do this, flipping or renting, I would only do it if I could pay cash, or could easily afford to carry the mortgage payment for the second property, even if it didn't sell or rent. If you want to be conservative, you could pay off your own house first, and then buy an investment property once you own your own place free and clear. If you only have 3 years to pay on your mortgage and, I think you said you have a good amount of disposable income, then I would consider just trying to pay it off faster and then start with the flipping or rental thing. This would take you a little longer, and the market might be a little different once you're ready, but it would be a more conservative approach.

Where are you located?

How long ago did you buy your own house, and how much work did you do to it? You might want to get a realtor to come and take a look at your place and give you a realistic estimate on what it would sell or rent for. Then you could use your own house as a case study to run the numbers to see if flipping a similar house would be worth the effort.



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