[torifile]

My wife and I are looking at buying a new home. This is a great time to buy for us since our income is relatively recession-proof (I'd wager to say that mental illness goes up in a recession...). The downside of that is that it's an awful time to sell.

We've got a fair bit of equity in our current house. We need to refinance since our ARM will adjust in 2 years. With interest rates being relatively low, it seems like a good time to do that.

We're pretty solvent, cash-wise, but we don't have enough to make a sizable down payment on another house, without taking money out of our current home.

What we're thinking:
- we'd keep our current house and rent it out using a property manager.
- we'd refinance and take some of the equity out of the current house and use it as a down payment.

Is this a sound financial move? If the house went unrented for a few months at a time, we'd be fine floating the payments for both houses, so we're not overextending ourselves.

Do we refinance first and then buy? Or do we buy and then refinance? Any other thoughts I'm missing?

[turtle]

While I'm not a guru, I always take a specific approach when choosing to rent out the home or sell it. "Would you buy the home you're in now just to rent it out?" If you wouldn't buy the home just to rent it out then you'd be better off selling it.

With the market being what it is, you might be better off renting it for a year or two to maximize the return from the sale.

I'd also say get a property manager unless you really want the hassle of doing it yourself. We have a rental and let the property manager do everything. In fact, if it wasn't for the current tenants being so great, they wouldn't even know who we are. We have stopped by before, but not with them knowing who we were.

If you go to buy the other house too, make sure you can afford the mortgage on both incase you don't find a renter and you have to cover it all out of pocket. Plus, most lenders want you to have 3-6 months of rent in the bank for the rental before they'll consider loaning.

[ronmexico]

I'd wait..I would only sell if i had to (job relocation ect). I would only rent if I knew the occupants were 100% reliable. With any investment, don't set yourself up for a bad story.

[Moogs]

I wouldn't do anything right now. Common sense dictates you should wait until the market stabilizes a bit. You'll still be able to find a new home at an attractive price because I believe the market is flooded with homes, but you'll be able to get more from selling yours if you wait. Renting sounds like a headache to me... wouldn't you still have to do all the work to sell it afterward? What if damage occurs, etc? Renting seems like it would be a PITA at different points... I'd just wait.

[torifile]

Well, the plan isn't to just rent the house for a short time. We plan to make it an investment. What's better than having someone pay off your mortgage? We've been looking at ways to invest in something less volatile than the market ( ) and we're sitting on top of this thing already.... It just seems logical. :shrug:

[Moogs]

Well... I suppose if it's a long-term strategery and you have a very reputable property mgmt company you can use to help you keep tabs on the place, etc... then it's worth considering. But are there a lot of rentals in your area in general / is the area demographically suited to the same? Durham is a college town isn't it?

[torifile]

Originally Posted by Moogs Well... I suppose if it's a long-term strategery and you have a very reputable property mgmt company you can use to help you keep tabs on the place, etc... then it's worth considering. But are there a lot of rentals in your area in general / is the area demographically suited to the same? Durham is a college town isn't it?

We have a friend who has a property manager he really likes - they handle everything and only take 10% + cost for maintenance.

There are a few rentals on our street, but not many. It's a residential area with lots of families. Lower middle to middle income, I'd say. Our mortgage is very low on it because we put a lot down and we got a great deal (bought it from our sister-in-law), so it'd be very affordable rental-wise and would still likely bring us some profit after costs.

Really, the question is, do we take equity out to put down on another house, do we sell some of our stocks/mutual funds (and take a loss unless I move my AAPL, which I don't want to do), or do we just put less down and get hit with PMI?

[colivigan]

Don't ever pay PMI if you can avoid it - what a waste of money! And don't lock in losses on your investments by selling now.

I'd refinance and take out some equity for the down payment on your new place. Dead equity is a sin, or so they say. Take out as much as you can while still getting the most favorable interest rates and avoiding PMI. Use the balance to invest in more stocks/funds/bonds.

Equity in real estate may give you a warm fuzzy, but that money is doing nothing for you - property values are going to rise or fall by the same amount regardless of how much equity you have. Much better to have your money actually working for you.

[torifile]

Originally Posted by UncleJohn Don't ever pay PMI if you can avoid it - what a waste of money! And don't lock in losses on your investments by selling now. I'd refinance and take out some equity for the down payment on your new place. Dead equity is a sin, or so they say. Take out as much as you can while still getting the most favorable interest rates and avoiding PMI. Use the balance to invest in more stocks/funds/bonds. Equity in real estate may give you a warm fuzzy, but that money is doing nothing for you - property values are going to rise or fall by the same amount regardless of how much equity you have. Much better to have your money actually working for you.

Interesting perspective.

The only issue is that the interest is tax-deductible on a primary residence, but may not be on an investment property. If I shift equity from our current residence to our new residence, I'm paying more in interest on the current (investment) property. I don't know the absolute numbers, but it's something I've been thinking about.

I should look at our 2007 tax return to see how the interest was deducted. It may only make a little difference.

Next question: do I refinance or take out a home equity loan? Our ARM won't reset until 2010, so we have time before that decision has to be made. It seems as though an equity loan may be a good way to "test the waters" for the rental thing. I haven't looked into home equity loan rates, but it could work out saving us on closing costs for the refi, right?

edit: doing a quick search for HELOC, at 30k out, it would add about $156/month to our payments over the life of the loan (say a 30 year, to go along with our mortgage). I'm sure I'm missing something but this idea is just in its infancy.

[Partial]

Wait another year before you buy the second house and save up your pennies to put 20-25% down. The housing market hasn't seen anything yet and with tons more foreclosures coming you're going to see prices hit rock bottom.

I would wait another year, then buy the new house with more down, and then rent it out.

Do you have a 15 year mortgage on the current house? If so, I would keep paying at that rate. If its a 30 year, whenever it is rented out I would continue to pay the mortgage plus put all the rent money down as well to knock the principal out.

[apple007]

Originally Posted by Moogs I wouldn't do anything right now. Common sense dictates you should wait until the market stabilizes a bit. You'll still be able to find a new home at an attractive price because I believe the market is flooded with homes, but you'll be able to get more from selling yours if you wait. Renting sounds like a headache to me... wouldn't you still have to do all the work to sell it afterward? What if damage occurs, etc? Renting seems like it would be a PITA at different points... I'd just wait.

Exactly right. Not only is this a bad time to buy or sell a house, buying a second house for investment purposes is even worse. Between unsold newly-built homes/condos, foreclosures and flippers who got stuck, the rental market is very tough right now, and poised to get even tougher.

Originally Posted by torifile Well, the plan isn't to just rent the house for a short time. We plan to make it an investment. What's better than having someone pay off your mortgage? We've been looking at ways to invest in something less volatile than the market ( ) and we're sitting on top of this thing already.... It just seems logical. :shrug:

If you have money burning a hole in your pocket, try investing in gold, or anything but the dollar. But using the word "investment" to describe the current real estate market is beyond risky. Only a few shameless shills in the r.e. business believe the r.e market is anywhere close to bottoming out, and add a banking/credit crisis to the equation, and the status quo could persist for another 2 years or more.

Originally Posted by torifile Really, the question is, do we take equity out to put down on another house, do we sell some of our stocks/mutual funds (and take a loss unless I move my AAPL, which I don't want to do), or do we just put less down and get hit with PMI?

Actually, the question is, Are you really sure you want to do this?

Originally Posted by UncleJohn I'd refinance and take out some equity for the down payment on your new place. Dead equity is a sin, or so they say. Take out as much as you can while still getting the most favorable interest rates and avoiding PMI. Use the balance to invest in more stocks/funds/bonds. Equity in real estate may give you a warm fuzzy, but that money is doing nothing for you - property values are going to rise or fall by the same amount regardless of how much equity you have. Much better to have your money actually working for you.

Except the above strategy will leave a self-employed guy maxed out on not one, but two mortgages in a time of very tight credit and in a r.e. market with years' worth of homes for sale.

Originally Posted by torifile ... Next question: do I refinance or take out a home equity loan? Our ARM won't reset until 2010, so we have time before that decision has to be made. It seems as though an equity loan may be a good way to "test the waters" for the rental thing. I haven't looked into home equity loan rates, but it could work out saving us on closing costs for the refi, right?

You need to run the numbers on this, but it might end up moot given that your current mortgage was almost certainly written as a "primary residence" loan and not for an investment property. Depending on the lender and/or whether or not you want to potentially play with fire, you might need to modify or replace the mortgage on your current property to reflect its new status as a rental/investment property. (A mortgage for a primary residence almost always carries a lower interest rate than for an investment property.)

[apple007]

Just as a follow-up to the above, if you would like to do something now but don't have to do it, have you considered putting your current home on the market just for the hell of it, even as a FSBO? If you get lucky, you could sell the current place and be in the driver's seat financially for buying a new place, and if it doesn't sell, you haven't lost anything.

[torifile]

Either it's a bad time to sell and a good time to buy or vice versa. It can't be both at the same time. It is, in my opinion, a very good time to buy. The market is depressed and interest rates are low. Could the market go down further? Sure, but there's no guarantee that it will.

I want to make sure I get the logic behind the "do nothing right now" opinion: The market is going to get worse, so I should wait it out. Keep in mind that I'm not buying a second house for investment purposes, I'm keeping the first one - one that, when the market returns to normal, will have made me a nice profit.

It seems a waste to miss out on an opportunity to buy into a buyer's market. Plus, the timing is right for my family (in between kids)... and we need a bigger house, etc... I dunno....

Anyway, if you *were* going to do something like this, how would you choose to finance it? Let's go with the supposition that moving is not a debatable point. Just for the sake of this thread. Thanks.

[apple007]

Originally Posted by torifile Either it's a bad time to sell and a good time to buy or vice versa. It can't be both at the same time.

Sure it can. The r.e. market is clearly a mess right now, on many levels, but if someone comes along and buys your house for the price you want, then it's a great r.e. market for you.

Originally Posted by torifile It is, in my opinion, a very good time to buy. The market is depressed and interest rates are low. Could the market go down further? Sure, but there's no guarantee that it will.

Perhaps, but yours is a minority opinion. There's also a difference between changing/upgrading homes and going into the rental business, while heavily mortgaged, in the middle of the worst r.e. market in decades.

Originally Posted by torifile I want to make sure I get the logic behind the "do nothing right now" opinion: The market is going to get worse, so I should wait it out. Keep in mind that I'm not buying a second house for investment purposes, I'm keeping the first one - one that, when the market returns to normal, will have made me a nice profit.

Right to the first part: Why pay 'x' for something that will almost undoubtedly be worth less a year or two from now? If you're talking about a long-term investment, e.g., a home you'll be living in, then it's no big deal, but if you don't have to buy right now, why lose money just for the hell of it?

The second part of the above seems like little more than semantics.

Originally Posted by torifile It seems a waste to miss out on an opportunity to buy into a buyer's market. Plus, the timing is right for my family (in between kids)... and we need a bigger house, etc... I dunno....

If you truly need a bigger house, then you might not have a choice (and good luck with the move). Otherwise, this seems somewhat uncharacteristic of you. If I recall, you've both returned an MBA and exchanged a Mac Mini for an Apple TV this year because you didn't want a few hundred dollars needlessly tied up in computer products. But now, you're proposing to simultaneously buy a house and go into the rental business in the middle of the worst r.e. and banking environments in decades. This doesn't make a lot of sense from a general standpoint, but as I mentioned in my first sentences above, the r.e. market is really a case by case type of thing. If you can buy a house for good value and get strong rental income on the other place without a ton of cost or hassle, then it could work for you.

[torifile]

If you truly need a bigger house, then you might not have a choice (and good luck with the move). Otherwise, this seems somewhat uncharacteristic of you. If I recall, you've both returned an MBA and exchanged a Mac Mini for an Apple TV this year because you didn't want a few hundred dollars needlessly tied up in computer products.

apple, don't act like you know me from my electronics purchases. You may be able to hound some people because you disagree with their discretionary spending, but I won't let you do that to me. Either answer the question or don't. If you can't understand the difference between "fun" money and real money, you've got issues.

Now, do me a favor - avoid my threads unless you can keep it on a less personal level. Mmmkay? Thanks.

If you can buy a house for good value and get strong rental income on the other place without a ton of cost or hassle, then it could work for you.

This the crux of the issue. I won't go into this without having a good sense of what I can get for rent and getting a good deal on a house. We're not going to jump in blindly, which is why I'm asking these questions.

Now, let's assume that I can get a reasonable rental income (paying mortgage and expenses) and a good deal on the new house. How do you pay for the down payment on the new house? HELOC? Re-fi? Sell stocks/mutual funds?

[apple007]

Originally Posted by torifile apple, don't act like you know me from my electronics purchases. You may be able to hound some people because you disagree with their discretionary spending, but I won't let you do that to me. Either answer the question or don't. If you can't understand the difference between "fun" money and real money, you've got issues. Now, do me a favor - avoid my threads unless you can keep it on a less personal level. Mmmkay? Thanks.

Here we go again ... Yet another AN member who "asks for advice" and then jumps people who don't give the "advice" they were hoping for.

Anyway, most people would consider blowing $200 on a piece of electronics to be much more responsible than jumping into r.e. investing, oh, 3 years too late (and at a potential cost of tens of thousands of dollars), but whatever.

[apple007]

Originally Posted by torifile This the crux of the issue. I won't go into this without having a good sense of what I can get for rent and getting a good deal on a house. We're not going to jump in blindly, which is why I'm asking these questions. Now, let's assume that I can get a reasonable rental income (paying mortgage and expenses) and a good deal on the new house. How do you pay for the down payment on the new house? HELOC? Re-fi? Sell stocks/mutual funds?

If you need to take out a loan to raise the down payment for House #2, you're probably over-leveraged in a good market, and way over-leveraged in a down market like this one.

As for the specifics (HELOC, re-fi, etc.), it likely depends on the numbers in question. Each has specific costs and benefits that are largely dependent on the underlying financials and interest rates.

Anyway, this thread started with you asking general advice about the current r.e. scene, yet it appears your mind is made up. If that's the case, the macro advice you're getting here isn't going to be much help. You need to find someone you can trust in your local market who can navigate you through the r.e. and banking processes.

[torifile]

Originally Posted by apple007 If you need to take out a loan to raise the down payment for House #2, you're probably over-leveraged in a good market, and way over-leveraged in a down market like this one. As for the specifics (HELOC, re-fi, etc.), it likely depends on the numbers in question. Each has specific costs and benefits that are largely dependent on the underlying financials and interest rates. Anyway, this thread started with you asking general advice about the current r.e. scene, yet it appears your mind is made up. If that's the case, the macro advice you're getting here isn't going to be much help. You need to find someone you can trust in your local market who can navigate you through the r.e. and banking processes.

Ok. Now move on so I can hear from others. You've got the tendency to monopolize a conversation.

[torifile]

Originally Posted by apple007 Here we go again ... Yet another AN member who "asks for advice" and then jumps people who don't give the "advice" they were hoping for.

Actually, I asked this:

Originally Posted by me Do we refinance first and then buy? Or do we buy and then refinance? Any other thoughts I'm missing?

My question was about my strategy for making what I proposed happen. I appreciate other thoughts, of course, but not when they happen to be as harassing[ as you are.

Anyway, most people would consider blowing $200 on a piece of electronics to be much more responsible than jumping into r.e. investing, oh, 3 years too late (and at a potential cost of tens of thousands of dollars), but whatever.

What the fuck are you on about? I have a "budget" for my electronics that I like to live within. It's completely separate from the rest of our lives. Is that hard to understand?

[apple007]

Originally Posted by torifile Ok. Now move on so I can hear from others. You've got the tendency to monopolize a conversation.

Well, it's 10:15 p.m. Eastern on a Sunday night. That might have something to do with it.

Anyway, people aren't shy here. If anyone disagrees with anything I've said, I'm sure we'll hear about it soon enough.

Originally Posted by torifile Actually, I asked this:

No, your leading question was, "Is this a sound financial move?", which inspired about 10 different people to chime in.

Originally Posted by torifile My question was about my strategy for making what I proposed happen. I appreciate other thoughts, of course, but not when they happen to be as harassing[ as you are.

What part of my posts were "harassing"? I posted my thoughts as plainly as possible and you replied with a snarky message assailing my logic (which was practically identical to other people's comments).

Anyway, if you want to know if you should re-fi before or after you buy House #2, I'd say wait. For one thing, you might be able to save money by doing everything at one time with one lender. For another, your FICO scores will likely take a (big) hit if a bunch of new credit inquiries are made, and a brand-new, maxed-out mortgage and/or HELOC shows up on your reports.

Originally Posted by torifile What the fuck are you on about? I have a "budget" for my electronics that I like to live within. It's completely separate from the rest of our lives. Is that hard to understand?

Is English your fourth language or something? I paid you a compliment above -- when I said "this seems somewhat uncharacteristic of you," I meant you seem like a very financially-savvy guy -- and you're acting like I insulted your kids. Good grief.

[torifile]

Originally Posted by apple007 Well, it's 10:15 p.m. Eastern on a Sunday night. That might have something to do with it. Anyway, people aren't shy here. If anyone disagrees with anything I've said, I'm sure we'll hear about it soon enough.

I'm sure we will. But I don't want this thread to be any more of a war of attrition between you and whoever disagrees with you than it already has become.

No, your leading question was, "Is this a sound financial move?", which inspired about 10 different people to chime in.

I guess you're right. I take it you're of the opinion that it's not, as a general rule, a good time to get into real estate. But in my particular situation, where I got the property practically handed to me in 2005 at 2001 prices, is it still a bad idea? We got our tax appraisal last month - a 25% increase over what we paid. I understand that it's likely way off, but even at 12.5%, it's worth holding on to, if we can. Generalizations are great to get a "macro" view, but it's kind of short-sighted to assume that they can provide an answer to every question.

What part of my posts were "harassing"? I posted my thoughts as plainly as possible and you replied with a snarky message assailing my logic (which was practically identical to other people's comments).

You're relentless when you think you're right. That's harassment. I'm not the only one who's accused you of it. And this isn't the first time you've done it.

Anyway, if you want to know if you should re-fi before or after you buy House #2, I'd say wait. For one thing, you might be able to save money by doing everything at one time with one lender. For another, your FICO scores will likely take a (big) hit if a bunch of new credit inquiries are made, and a brand-new, maxed-out mortgage and/or HELOC shows up on your reports.

Finally, some advice about what I'm actually asking about!

Aren't credit scores supposed to take hits when you get big loans? In my 16 years of having credit, I've got *zero* late payments and carry no balances on my credit cards. I've got a car loan, mortgage and student loans to pay off. That's it. There's a reason I've worked so hard to keep my credit good.

Is English your fourth language or something? I paid you a compliment above -- when I said "this seems somewhat uncharacteristic of you," I meant you seem like a very financially-savvy guy -- and you're acting like I insulted your kids. Good grief.

I admit, I'm predisposed to reading maliciousness in your words when you disagree with someone. Despite this, you don't know me from Adam, as the saying goes, so don't draw conclusions when they aren't even relevant to the thread.

[MCQ]

Originally Posted by torifile I want to make sure I get the logic behind the "do nothing right now" opinion: The market is going to get worse, so I should wait it out.

True in many markets, but not all. I'm not sure if I'm reading the OFHEO data correctly, but it seems like Durham had a pretty modest rate of price apprecation the last 5 years, so it probably doesn't need a huge correction like many other markets.

http://www.ofheo.gov/media/pdf/4q07hpi.pdf

It might help to post some more concrete numbers (i.e. current home equity in %, what % you want to heloc for a down payment, etc.) so we have an idea of what you're looking at.

[torifile]

Originally Posted by MCQ True in many markets, but not all. I'm not sure if I'm reading the OFHEO data correctly, but it seems like Durham had a pretty modest rate of price apprecation the last 5 years, so it probably doesn't need a huge correction like many other markets. http://www.ofheo.gov/media/pdf/4q07hpi.pdf It might help to post some more concrete numbers (i.e. current home equity in %, what % you want to heloc for a down payment, etc.) so we have an idea of what you're looking at.

Let's assume that the tax appraisal is off by 5%. (This is just an assumption, it could be more or less but not too much...)

We've got 34% equity in the home.

I was thinking about taking out down to 20%, so 14% in the HELOC or refi.

This 14% would cover a little less than half of the down payment on the new home. We would make up the rest of the down payment on the new home using savings.

Does that help? BTW, our neighborhood probably has about 2 or 3 homes for sale or rent right now. I did a quick search of the area and there were 2 homes sold recently (within the last month).

[Trumpetman]

Originally Posted by torifile My wife and I are looking at buying a new home. This is a great time to buy for us since our income is relatively recession-proof (I'd wager to say that mental illness goes up in a recession...). The downside of that is that it's an awful time to sell. We've got a fair bit of equity in our current house. We need to refinance since our ARM will adjust in 2 years. With interest rates being relatively low, it seems like a good time to do that. We're pretty solvent, cash-wise, but we don't have enough to make a sizable down payment on another house, without taking money out of our current home. What we're thinking: - we'd keep our current house and rent it out using a property manager. - we'd refinance and take some of the equity out of the current house and use it as a down payment. Is this a sound financial move? If the house went unrented for a few months at a time, we'd be fine floating the payments for both houses, so we're not overextending ourselves. Do we refinance first and then buy? Or do we buy and then refinance? Any other thoughts I'm missing?

Honestly the best person to ask about this is the loan person you are going to be using. The banks are tightening up their standards and they can best tell you which will work for or against you. I will tell you that for me, it has never had to be either. I worked with the loan officer and they clearly knew that I was refinancing for the purpose of putting it into the new property and originated the new home loan and refinance concurrently.

The most important thing to ask yourself is if you really want to be a landlord or if you just don't want to deal with the current market in terms of selling your house. If you do desire to be a landlord then go for it, but if you just don't want to deal with the market, I would say quite simply don't do it at all. It really isn't the sort of thing you can KINDA do.

The other thoughts you might be missing is tax considerations. Most rentals are good write-offs because depreciation makes them lose money on paper even when making money in reality. However that depreciation must be recaptured when you decide to sell. This might make things look less favorable depending upon the timeframe you can considering.

I manage all my properties myself and wouldn't pay a property management company for just one property unless the distance was considerable. However if it is, that is a consideration as well. As was noted most charge 10% and often charge additional fees to fill it. That is a ton of money in my view.

[Taskiss]

Refinance your existing home if you can lower your interest rate 2% or more. If not, get a straight loan for whatever money you need to buy another home as well as a loan for the down payment. You should be able to get very reasonable rates at this time.

Leave the equity in your existing home - you're spending money you haven't really earned yet if you use that, since you're not going to know for sure what you're going to actually get for your house unless you actually sell it. Estimates aren't fixed in stone, and I don't gamble with money.

I personally would use a rental management company if I had a house now. I've sold mine a couple of years ago but refused to buy a new one 'cause I believed the market was WAY over-inflated. I've been leasing a town home since then - payed about 40k for rent, saved over 100k by not buying in an inflated market.

I'm in the market at the moment. I'm seeing 30% off the prices of some homes just over the last 18 months here in St. Louis. We keep all the ML reports on the houses we look at, and we've been looking almost every weekend for the past 2 years.

[torifile]

Thanks for all the advice so far.

I will say that I've been interested in buying real estate for some time. Last year, I was looking at buying a building for my practice, but when nothing came up as suitable, I came up with this idea. I can continue to rent my office space and use the money I would have used (not the home equity, but the savings I'm going to be using in the new purchase) to keep my current house.

I definitely would like to keep the houses long-term. I see it as a reasonably safe way to secure a retirement. Not 100% safe, but over the course of 2 or 3 decades, I'm sure it'll be a wise move.

Now I need to find a loan officer. I don't have any sort of relationship with my current banks - Wachovia, ETrade and Fidelity - or my mortgage company - WaMu. Any ideas about where to start with *that* one?

[apple007]

Originally Posted by torifile Aren't credit scores supposed to take hits when you get big loans? In my 16 years of having credit, I've got *zero* late payments and carry no balances on my credit cards. I've got a car loan, mortgage and student loans to pay off. That's it. There's a reason I've worked so hard to keep my credit good.

Your FICO scores will take a hit just for applying for a loan; that's why it's probably best to go through the process once rather than twice.

Originally Posted by torifile Let's assume that the tax appraisal is off by 5%. (This is just an assumption, it could be more or less but not too much...) We've got 34% equity in the home. ...

Tax appraisals are notoriously inaccurate. Recent sales prices of comparable homes in your neighborhood would yield a much more accurate estimate of home value. Also, banks are being very conservative with appraisals these days, so you'll need to make sure they don't lowball you or else PMI could come back into the equation, especially if the bank knows House #1 is about to become a non-owner-occupied investment property.

Originally Posted by torifile I will say that I've been interested in buying real estate for some time. Last year, I was looking at buying a building for my practice, but when nothing came up as suitable, I came up with this idea. ...

From an investment standpoint, the above sounds like a much better idea than a house rental. Have you revisited the search for office space recently?

Originally Posted by torifile I definitely would like to keep the houses long-term. I see it as a reasonably safe way to secure a retirement. Not 100% safe, but over the course of 2 or 3 decades, I'm sure it'll be a wise move.

Perhaps, but 2 or 3 decades is a very long timeframe. How old is the potential rental home right now? Is the neighborhood trending upward or downward? Is the home missing anything considered a standard feature/amenity in today's market?

Owning a home is a necessary evil/"good investment" in the sense that it puts a roof over your head. But owning two homes in a stagnant r.e. market isn't necessarily the American Dream times two.

Remember, there are only two ways to make money in the home rental business: Having a big enough spread between rental income and mortgage payment to make a profit, and/or realizing appreciation of the underlying property. The latter is what drove 95% of the r.e. boom but it's an unlikely outcome for you in the short term. As for the former, if you head into this with an 80% mortgage on the rented property, your spread between rental payment and mortgage payment will likely be relatively small (meaning little or no profit) while the front-end interest of the mortgage (and stagnant r.e. prices) will mean you'll still have relatively little equity in the property 3-4-5 years from now. That could translate into a whole lot of hassle for little or no gain.

The people I know in the home rental business sort of approach it like the guys who buy sports teams: They're willing to deal with the year-to-year hassle of trying to break even, or turn a little profit, because they know the underlying asset is appreciating. But with substantial r.e. appreciation unlikely for the next 3 to 5 years (or more, depending on the area), the monthly numbers need to be really favorable for this to be worth the time, money and effort.