It reminds me of Mitch Hedberg talking about the Home depot, and the Apartment Depot. "the Apartment Depot, which is just a big warehouse with people standing around saying 'hey, we ain't gotta fix shit!'"
I agree it's a bad idea to be chained to your home because you bought too expensive a home, but unless you're on the street you're buying somebody a home. Might as well be yours. I have also had clients who rent their own home because they don't want to be tied to an area, but still invest in a retirement home that they rent out until they retire.
Yeah. My garbage disposal breaks, I call building maintenance and it works again. Home owner? They schlep to home depot and buy a new one or call a plumber. fuck that man.
Thats what I would want to do personally. But if I didnt have tenants for a while, I would be screwed.
I am not ruling out buying a home somewhere, just not in LA. It just doesn't make a lot of sense. I think I've stated, I've actually been looking at somewhere like Nevada or Texas, where home prices are low and there is not a lot of taxes. I'd still keep my place in LA...its just pretty cheap. My mom was telling me that in their condo in LA there are several foreclosures and short sales for like $200k or so....I just told her that I wouldn't want to live there, I like living by the beach for a number of reasons. Unless I'm pulling in $750k a year though, it does not make sense to buy a house here.
My clients bought a 4 year old 2100sf home on 10 treed acres with a Mt Bachelor view here for $245,000. Everything we looked at in that price range up there was built 40-100 years ago, needed massive fix-up, and had maybe an acre or 3. Not many foreclosures that I noticed, so maybe that's the problem. No pressure to sell.
If you do get a financial adviser, do NOT go to Edward Jones. In the small fine print (which they didn't tell me about), on top of their high fees and maintenance fees (no problem with those), they get 10% of all your profits- that is a stinger. So fully understand all fees...
5 Reasons Home Ownership Trumps Renting The seemingly endless run of bad housing news is discouraging some potential home buyers from considering a purchase. But the truth is that the advantages of home ownership have very little to do with investment gains. The best things about owning a home have a lot more to do with personal comfort and satisfaction. Here are five of them: · Be your own landlord. The bank can only kick you out if you don’t pay; a landlord can be much less dependable – deciding to sell the property or choosing to live there themselves. · Paying the principal is forced savings. Yes, it’s possible that home prices will fall further. It is also possible that your 401(k) will lose value. But over the long haul, both are likely to enjoy modest gains in value. · Fixed-rate mortgages never rise – and eventually you pay them off. With mortgage rates at record lows, people who buy now are locking in real bargains. · Good schools. Family-sized rentals are harder to come by in areas with excellent public schools. · Spacious properties in pleasant neighborhoods. Sizable homes in attractive communities are almost always owned – not rented. Source: The New York Times, Ron Lieber (08/27/2010)
Don't forget the enormous tax advantages of owning a house. Not only are you adding equity with your monthly payments, all of the interest you pay on the loan is tax deductible, and depending on the amount of your loan, it will significantly lower your taxable income.
Which is why a recession is the best time to buy a house. There are also many programs out there that will allow the double income love birds a way to get in with less than 20% down....sometimes nothing down. Another way to go is forclosure. Most likely they could get into a house for a few hundred dollars more than they are paying in rent right now. Depending on how well they save or not, they could easily make a 150,000 mortgage payment of 800.00 or so a month (5% interest) And stick $200 a month in a high earning savings account, then suppliment their property taxes at the end of the year with money they will get back in taxes because of their house. It's insane to rent if you have any ability at all to buy. I rarely agree with her, but Crandc probably gave you the best advice so far. A good financial advisor (harder to find than you'd think) is worth every penny. That being said, I am 100% confident that any advisor will tell you what I said already. Buy real estate, and get a Roth IRA. One thing that worked for a friend of mine was that he bought a duplex, and rented one side out. It cut his mortgage payment in 1/2. He got in at the right time though, and has since moved out of that duplex and has several properties. I just think you should buy a house for you to live in, not as an investment property.
That's exactly what I did with our first home several years ago. I bought a duplex and was making $1000 house payments, but my upstairs tenant was paying $600. So my net payment was only $400. Add in that the interest was tax deductible, and it was probably more like $350. You can really start saving if you only have a $350 house payment. I made a killing when I got out of that one. But I'm not really interested in being a landlord again. I had one tenant commit suicide, and a couple bailed on me without paying rent. The worst was the last one, though. Just a very nice, decent, poor family of three. Great daughter. I had to show the place while they were still living there. At one point this cute little 6 year old asks me, "Are you going to make us leave our home?" I said no, but I sold it a month later. (Had to for financial reasons.) The next landlord immediately evicted them so they could do a major remodel and restore it to a single dwelling. I guess you can get property managers to deal with that kind of stuff, and if I had to do it again I might. But when I think back about that little girl, I think I'd really rather just make money doing other things.
A rule of thumb that I found to be true is that you had to count on your rental to be vacant for at least one month a year. Also about another month of rent/year should be allocated to maintenance (lawn, plumbing, new carpet, socking away for a roof every 20 years, repairing the light fixture the tenant strangled himself from, etc). So if you are trying to work out if a rental property will cash flow (you pay roughly the same in mortgage as you collect in rent), a conservative real estate investor will count on 10 months of rent/year. When factoring in cash flow, though, you have to also remember that it generally gets better for you as the years go on if you get a great fixed rate mortgage. You may charge $1000 in rent now and have an $1100 mortgage payment now. In five years you'll (hopefully) be able to charge $1150 in rent but you'll still have that same $1100 mortgage. In 20 years you may be charging $3000/month, and still have that same $1100 mortgage.
BTW-- here's a really good comparison of investing in stocks vs real estate: http://beginnersinvest.about.com/od/realestate/a/real-estate-vs-stocks.htm For me, the flexibility and diversity of owning stocks makes much more sense than real estate.
