"SHOW ME THE MONEY" VIEWS on HOW to make MONEY GR

[retailguy]

I'm strongly considering making my first real estate investment. 2,000 sq foot home on Whitewater Campus that normally is rented out to students for $1200 per month. From what I could pick it up as a FSBO for around 120G and I'm pretty sure it's worth more. The owner just wants to get rid of it after having two wrestlers do serious damage to the place; he's got er looking good again but wants out.

Any landlord's in here ? Anybody want to share good or nightmare experiences ? Or Biases ?

The scary part is that location and house wise it's the ultimate party house everybody would dream of renting in college.

My bias would be to try to rent to chicks; right or wrong it's my view they'd take care of the property better. Stict lease...etc.

Thoughts to share from experience ?

Maybe Retailguy would talk me out of this as a bad idea ?


Cheers,
B

Nah, I wouldn't talk you out of it as a bad idea (it's not), but you better make sure that you're properly capitalized before you leap. I've owned several rental properties (none at the moment), and someone WILL trash your home eventually no matter what you do. The more rentals you have the higher the possibility. The two worst incidents that I've had are: one guy used the kitchen drawers as "boxes" to move his things and left the apartment a complete disaster, and two - the toilet plugged, instead of calling me, the tenant got an axe, cut a hole in the floor and shit in the hole for three months. I had to get a hazmat crew in to clean it up. The odd thing was, he lived there for 18 months and NEVER missed a rent payment. Never paid it late, either.

If you are not capitalized to the point that you can bank some rent money to fix problems, or can afford to have it sit vacant for a couple of months to find the "right" tenant, then it is not the right time for you to buy. I'd probably pass on a rental for "students" unless you are a contractor who can remodel frequently. It is not a market for the fainthearted, although it can be very lucrative. Lots and lots of risk, though.

There is a reason that the bank wants to see 10% down on an investment rental. You know this first-hand, I'm sure.

What concerns me, in my limited vantage point into your life, is that you said you upgraded your home recently, back to a 30 year mortgage, and you couldn't pay it down right now. If that's the case, how will you "fund" the rental? Why put your beautiful new home at risk? There is a time and place for everything, don't put your exisiting home at risk. Your wife will not be impressed when something "goes awry", and she has to move to an apartment.

[Partial]

Great to see you back RG, it's been awhile.

I was wondering if anyone has any opinions on buying a small house versus a condo right after I graduate. My dad was saying buying a one bedroom condo is a really bad idea since its really hard to sell. I posed the point of it I bought anything bigger, I wouldn't be able to pay above the minimum mortgage payment for a few years and would end up paying a lot more for the place than what I would be able to sell it for when I got married and I wouldn't use the space.

I guess I am pretty naive to how much of my money will really be dedicated to a mortgage payment each month, but it just doesn't seem like a good idea to get a bigger place for the added eventual value of it if I have a hard time paying anything above the minimum payment.

If I did go for the one bedroom one bath condo, I would pay it off probably within 5-6 years.

[MJZiggy]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.

[retailguy]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.

Pretty amazing? Why?? Pretty smart. Every American could have a PAID FOR house in 10 years, no matter their income. The process is actually quite simple.

1. You need 20% down. (There are ZERO exeptions to this).
2. You need to purchase two homes.
3. The first needs to be approximately half the value of the home you ultimately want to own. A small house/condo/duplex is PERFECT. Location is important. You need to look to re-sale value.
4. You need a 15 year mortgage to take advantage of the lower interest.
5. You need to run an amortization schedule to pay the home off in 5 years.
6. You sell 1st home at 5 - 6 year point, hopefully adding a bit of appreciation.
7. You purchase Home number 2 - your dream home identified in the beginning- at a slightly higher price than you would have 5 years ago, and dump EVERY DIME of equity/cash you received from home #1.
8. You again take the 15 year loan, or lower term if available focused on MINIMIZING the interest rate.
9. You again run an amortization schedule for 5 year repayment.
10. You invite all your friends over for a "mortgage burning" party, and begin to live debt free for the rest of your life.

Yes, I realize that this is ambitious and not something everyone would consider. It, however, CAN BE DONE for EVERYONE. Whether it is a 2 bedroom trailer or a small condo, or a 30 room mansion, it WORKS. It takes discipline, it takes persistence and it FORCES you to live below your means. You cannot make two $500 a month car payments and pay a mortgage payment approaching $2200 a month (for most of us, anyhow), but you CAN MAKE THAT payment if you don't have two car payments.

In the end, it isn't a "stretch" or "overly ambitious", it is about choices. We all make them, we just don't focus on the impact of some of those choices.

Off my soapbox now...

[Fosco33]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.

Pretty amazing? Why?? Pretty smart. Every American could have a PAID FOR house in 10 years, no matter their income. The process is actually quite simple.

1. You need 20% down. (There are ZERO exeptions to this).
2. You need to purchase two homes.
3. The first needs to be approximately half the value of the home you ultimately want to own. A small house/condo/duplex is PERFECT. Location is important. You need to look to re-sale value.
4. You need a 15 year mortgage to take advantage of the lower interest.
5. You need to run an amortization schedule to pay the home off in 5 years.
6. You sell 1st home at 5 - 6 year point, hopefully adding a bit of appreciation.
7. You purchase Home number 2 - your dream home identified in the beginning- at a slightly higher price than you would have 5 years ago, and dump EVERY DIME of equity/cash you received from home #1.
8. You again take the 15 year loan, or lower term if available focused on MINIMIZING the interest rate.
9. You again run an amortization schedule for 5 year repayment.
10. You invite all your friends over for a "mortgage burning" party, and begin to live debt free for the rest of your life.

Yes, I realize that this is ambitious and not something everyone would consider. It, however, CAN BE DONE for EVERYONE. Whether it is a 2 bedroom trailer or a small condo, or a 30 room mansion, it WORKS. It takes discipline, it takes persistence and it FORCES you to live below your means. You cannot make two $500 a month car payments and pay a mortgage payment approaching $2200 a month (for most of us, anyhow), but you CAN MAKE THAT payment if you don't have two car payments.

In the end, it isn't a "stretch" or "overly ambitious", it is about choices. We all make them, we just don't focus on the impact of some of those choices.

Off my soapbox now...

That's great advice if I could A) find something is SoCal under half a mil and B) have 20% of a half a mil in cash handy...

Guess I'll either have to suck it up and by a property somewhere else and move back here for 'the second house'. Bummer...

Anyway I can put down just 5 or 10%? Should I tap my 401k savings (one-time w/o penalty) to do this OR just continue renting/investing?

[retailguy]

That's great advice if I could A) find something is SoCal under half a mil and B) have 20% of a half a mil in cash handy...

Guess I'll either have to suck it up and by a property somewhere else and move back here for 'the second house'. Bummer...

Anyway I can put down just 5 or 10%? Should I tap my 401k savings (one-time w/o penalty) to do this OR just continue renting/investing?

Fosco, So-cal is an "almost" unique anomaly. I owned a home in Camarillo in the Heights. I bought in 1990 for 217,000, I'd suppose that's about an $800,000 home right now.

End of the line, it's all relative. You can buy with less than 20% down, however, it'll delay the formula. Of course, 15 - 18 years is still much better than 35 - 40 years which has to be the median in the LA market right now (it wouldn't surprise me if it's higher). I'd think that most families in Southern California won't ever have a paid for house and just accept that. It is very sad to have to "rely" on appreciation to make it work. Appreciation will end one day, it has to, the only alternative is for income to rise, and that is not likely to happen.

Watch out for PMI no matter what you do.

If you can leave So-Cal, I'd do that. While I recognize it is a wonderful place to live, at least related to weather and activities, there are many other great places out there where you can make a better overall purchasing decision.

[Partial]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.

Pretty amazing? Why?? Pretty smart. Every American could have a PAID FOR house in 10 years, no matter their income. The process is actually quite simple.

1. You need 20% down. (There are ZERO exeptions to this).
2. You need to purchase two homes.
3. The first needs to be approximately half the value of the home you ultimately want to own. A small house/condo/duplex is PERFECT. Location is important. You need to look to re-sale value.
4. You need a 15 year mortgage to take advantage of the lower interest.
5. You need to run an amortization schedule to pay the home off in 5 years.
6. You sell 1st home at 5 - 6 year point, hopefully adding a bit of appreciation.
7. You purchase Home number 2 - your dream home identified in the beginning- at a slightly higher price than you would have 5 years ago, and dump EVERY DIME of equity/cash you received from home #1.
8. You again take the 15 year loan, or lower term if available focused on MINIMIZING the interest rate.
9. You again run an amortization schedule for 5 year repayment.
10. You invite all your friends over for a "mortgage burning" party, and begin to live debt free for the rest of your life.

Yes, I realize that this is ambitious and not something everyone would consider. It, however, CAN BE DONE for EVERYONE. Whether it is a 2 bedroom trailer or a small condo, or a 30 room mansion, it WORKS. It takes discipline, it takes persistence and it FORCES you to live below your means. You cannot make two $500 a month car payments and pay a mortgage payment approaching $2200 a month (for most of us, anyhow), but you CAN MAKE THAT payment if you don't have two car payments.

In the end, it isn't a "stretch" or "overly ambitious", it is about choices. We all make them, we just don't focus on the impact of some of those choices.

Off my soapbox now...

That sounds like exactly what I want to do, but only build the second house myself. Maybe even buy two and work the system to make money and build my third house as the keeper by the time I am 40 or so.

What is an amortization schedule? Just by looking at the logic behind this it seems like a really good idea because it keeps cutting down the amount you're going to pay in interest on the bigger house that you want. That's not a bad idea at all as a matter of fact.

[Partial]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.

Pretty amazing? Why?? Pretty smart. Every American could have a PAID FOR house in 10 years, no matter their income. The process is actually quite simple.

1. You need 20% down. (There are ZERO exeptions to this).
2. You need to purchase two homes.
3. The first needs to be approximately half the value of the home you ultimately want to own. A small house/condo/duplex is PERFECT. Location is important. You need to look to re-sale value.
4. You need a 15 year mortgage to take advantage of the lower interest.
5. You need to run an amortization schedule to pay the home off in 5 years.
6. You sell 1st home at 5 - 6 year point, hopefully adding a bit of appreciation.
7. You purchase Home number 2 - your dream home identified in the beginning- at a slightly higher price than you would have 5 years ago, and dump EVERY DIME of equity/cash you received from home #1.
8. You again take the 15 year loan, or lower term if available focused on MINIMIZING the interest rate.
9. You again run an amortization schedule for 5 year repayment.
10. You invite all your friends over for a "mortgage burning" party, and begin to live debt free for the rest of your life.

Yes, I realize that this is ambitious and not something everyone would consider. It, however, CAN BE DONE for EVERYONE. Whether it is a 2 bedroom trailer or a small condo, or a 30 room mansion, it WORKS. It takes discipline, it takes persistence and it FORCES you to live below your means. You cannot make two $500 a month car payments and pay a mortgage payment approaching $2200 a month (for most of us, anyhow), but you CAN MAKE THAT payment if you don't have two car payments.

In the end, it isn't a "stretch" or "overly ambitious", it is about choices. We all make them, we just don't focus on the impact of some of those choices.

Off my soapbox now...

That's great advice if I could A) find something is SoCal under half a mil and B) have 20% of a half a mil in cash handy...

Guess I'll either have to suck it up and by a property somewhere else and move back here for 'the second house'. Bummer...

Anyway I can put down just 5 or 10%? Should I tap my 401k savings (one-time w/o penalty) to do this OR just continue renting/investing?

Do California salaries correspond with the ridiculous cost of living? I mean it wouldn't be so bad paying that much if everybody with an office job is getting 100k

[Fosco33]

To my mind, it depends on the location. If it is in a neighborhood that emphasises schools and kids/etc. then it might be a problem. If it is in an urban area, there will be a market based on young, single professionals. At any rate, if you can get it paid off in 5-6 years and manage to live in it that whole time, that would be pretty amazing. Don't forget though, with condos come association fees so you also have to measure what amenities are available and what all you get for that money.

Pretty amazing? Why?? Pretty smart. Every American could have a PAID FOR house in 10 years, no matter their income. The process is actually quite simple.

1. You need 20% down. (There are ZERO exeptions to this).
2. You need to purchase two homes.
3. The first needs to be approximately half the value of the home you ultimately want to own. A small house/condo/duplex is PERFECT. Location is important. You need to look to re-sale value.
4. You need a 15 year mortgage to take advantage of the lower interest.
5. You need to run an amortization schedule to pay the home off in 5 years.
6. You sell 1st home at 5 - 6 year point, hopefully adding a bit of appreciation.
7. You purchase Home number 2 - your dream home identified in the beginning- at a slightly higher price than you would have 5 years ago, and dump EVERY DIME of equity/cash you received from home #1.
8. You again take the 15 year loan, or lower term if available focused on MINIMIZING the interest rate.
9. You again run an amortization schedule for 5 year repayment.
10. You invite all your friends over for a "mortgage burning" party, and begin to live debt free for the rest of your life.

Yes, I realize that this is ambitious and not something everyone would consider. It, however, CAN BE DONE for EVERYONE. Whether it is a 2 bedroom trailer or a small condo, or a 30 room mansion, it WORKS. It takes discipline, it takes persistence and it FORCES you to live below your means. You cannot make two $500 a month car payments and pay a mortgage payment approaching $2200 a month (for most of us, anyhow), but you CAN MAKE THAT payment if you don't have two car payments.

In the end, it isn't a "stretch" or "overly ambitious", it is about choices. We all make them, we just don't focus on the impact of some of those choices.

Off my soapbox now...

That's great advice if I could A) find something is SoCal under half a mil and B) have 20% of a half a mil in cash handy...

Guess I'll either have to suck it up and by a property somewhere else and move back here for 'the second house'. Bummer...

Anyway I can put down just 5 or 10%? Should I tap my 401k savings (one-time w/o penalty) to do this OR just continue renting/investing?

Do California salaries correspond with the ridiculous cost of living? I mean it wouldn't be so bad paying that much if everybody with an office job is getting 100k

Well, I know there are more millionaires in SoCal than anywhere else in the USA - mainly due to their real estate as part of there overall wealth.

Regarding salaries, even someone making 6 figs could barely afford a half-million dollar condo (trust me). I heard the formula was something like (max property value = 4 X's annual gross salary) - meaning someone making 100K could only afford a $400K home.

I'm in a tough spot right now though - the ladyfriend is a CA native and while she wouldn't mind moving, she's very happy here. In addition, I'll be travelling from LA to NY every week for the forseeable future - so time to research out of state properties is nill.

But this is a great forumula - I'm sending to my bro-in-law who just bought a summer house in WI. Thanks again, RG.

[mngolf19]

If you are not investing for your retirement, you are investing in failure. Social Security will not pay your bills, that is only additional help to what you should already have saved. A simple plan for where your money should go is: Figure your debts and investments by their interest or % gain/loss. Always deal with the highest ones first. If you have high interest rate debts, pay them off first with any extra money. Example-Visa 18% or 401k at 10% ? Pay off your 18% Visa(regardless of matching funds). Then continue the % rate comparisons. Also, you have to have a place to live when you retire. So you better pay that off as well before then. Once you have your mortgage on track to pay off by retirement, and your interest rates comparisons are lined up, then invest in whatever you are most secure with. Stocks are my bet, and I have done very well. I avg. 45% a year. I started out small and have grown. I didn't know alot about stocks until I read a book called "A beginners guide to short term trading". Very easy to understand, I recommend it to all.

[Partial]

bump

[Fosco33]

bump

Nice. I'd second the bump and encourage any new readers to PR and the Romper Room to actually read this whole thread - lots of good stuff here.

[Partial]

bump

Nice. I'd second the bump and encourage any new readers to PR and the Romper Room to actually read this whole thread - lots of good stuff here.

Heh, I was thinking the samething myself, thats why I bumped it. I've got a few questions still but those will all come in due time

This is by far and away the most useful thread on the forum!!

[Scott Campbell]

What is an amortization schedule?

An amortization shedule is a list showing each loan payment made broken out into the amount going each month towards interest, and the amount going towards paying down the principal of the loan. At the beginning of the loan nearly all of your payment goes towards interest. At the end it's nearly all principal. If you make additional payments on a loan, you want to make sure the extra amount goes towards paying down principal. I've heard of some lenders using the excess to prepay interest.

Here's a little amortization calculator I found that lets you play around with what if scenarios.

http://www.hsh.com/calc-amort.html

[Scott Campbell]

Do California salaries correspond with the ridiculous cost of living? I mean it wouldn't be so bad paying that much if everybody with an office job is getting 100k

The short answer is absolutley not. There are those people there who have incredible amounts of money tied up in there homes if they've been in them long enough. Those people hit the lottery but have to move out of the area to cash out. And then there are those people with stock option plans from the late 90's that made ridiculous amounts of money during the dotcom bubble. Some secretaries made millions. Many of these people lived in California - Bay Area specifically. All that money chasing limited housing options really inflated values. Typical earners can't compete with that.