buying homes, then renting them out...

Mark

Golden Member
Oct 9, 1999
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so my coworker wants to start purchasing real estate in other states(texas). anyhow he thinks if he purchases a home he can basically rent it out at a price which will cover his mortage payment. is this true or not? i always thought people rent because they couldnt afford mortage payments. so which is true?
 

LS20

Banned
Jan 22, 2002
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not really. for a typical house around here, a standard 30 year mortgage with average rate and average downpayment % would yield a substantially lower monthly payment than rent for a comparable house. the only difference is having cash up front for a downpayment. the monthly mortage is offset by having to pay taxes and etc, but rent is expensive comparatively.

people rent for different reason. i, for example, dont plan to live in my location for more than 2/3 years. thus it makes sense to rent and not be attached to a mortgage, and lose money through fixed costs such as taxes
 

geecee

Platinum Member
Jan 14, 2003
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It really depends on the rental prices in the area and the size of the mortgage being taken out. In places like NYC, this is possible. In places with a much less active rental market, probably not. Being a landlord is not as easy as one thinks. You have to deal with maintenance on the place (repairs & upkeep to appliances and/or structure itself). You also have to deal with potential deadbeat tenants and tenants who trash the property (knowingly or unknowingly) and the security deposit may not be enough to take care of the problems. This can quickly put you into a financial hole, if the rent is simply covering the mortgage payment.

A lot of people rent because they can't afford the buy-in (i.e. downpayment & closing costs) to own a home. Others just don't want to be tied down.
 

OutHouse

Lifer
Jun 5, 2000
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unless this guy has a lot of money that he can afford to loos for the next 5+ years it is a very bad idea.

 

waggy

No Lifer
Dec 14, 2000
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Originally posted by: Mark
so my coworker wants to start purchasing real estate in other states(texas). anyhow he thinks if he purchases a home he can basically rent it out at a price which will cover his mortage payment. is this true or not? i always thought people rent because they couldnt afford mortage payments. so which is true?

well he may get more in rent then the mortgage. but adding on tax's and insurance i doubt he will get that much.

people rent for diffren treasons. usually rent is far cheaper then a mortgage. bu tpeople also rent because they will only be in the area a year or so. Or they don't want to take care of a house. etc.


 

randomlinh

Lifer
Oct 9, 1999
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he might be able to. but buying a home requires a bit more than monthly payments...a person needs to a) have a decent enough down payment, and b) qualify for that mortgage. My friend's uncle does this and does fairly well. But there's probably more behind how he actually profits than I know
 

JulesMaximus

No Lifer
Jul 3, 2003
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People rent for many reasons.

-Poor credit/can't qualify for loan.
-Can't come up with down payment (and don't want to be strapped with one of those 100% finance schemes).
-Not planning on staying in that are very long.
 

Queasy

Moderator<br>Console Gaming
Aug 24, 2001
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I have a co-worker that does this and it takes quite a bit of work and luck with getting the right property for the right price.

I don't think I could recommend trying to buy and rent houses in a different city much less a different state from which you live...especially when just starting out. It makes managing the property especially difficult.
 

ElFenix

Elite Member
Super Moderator
Mar 20, 2000
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generally better to buy rental props when the market is down, then you get rent to cover the mortgage and prop taxes. then when the market comes back up you sell the house and get your real profits. depending on property tax laws it'd also be a good idea for a house you might want to move into down the line, as you might end up with a value (for tax purposes) far below the actual value of the house when you actually come into possession.
 

Gilligansdingy

Golden Member
Jun 2, 2005
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My brother owns 10 dublexs and 5 houses here in Texas. He lives in Memphis. On average he makes about $200 a month per renter after mortgage fees. He drives down every few months to purchase a new property or remodel one. When hes out of town, my mother and I take care of the renters. So far hes done really well.
 

Minjin

Platinum Member
Jan 18, 2003
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Finding a cash flow positive property isn't easy but not impossible. I have one I've thought about renting out but I'm not sure I'm ready to deal with the hassle of being a landlord. And it can be a real hassle. You don't just sit back and collect the checks...
 

rivan

Diamond Member
Jul 8, 2003
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Originally posted by: Citrix
unless this guy has a lot of money that he can afford to loos for the next 5+ years it is a very bad idea.

This is spot-on. Unless you can soak losses for a variable amount of time (the length totally depends on how real estate does in that area) it's not immediate income. There are also added costs which have to be fronted like maintenance and management fees, if you own in a city where you don't live.
 

DrPizza

Administrator Elite Member Goat Whisperer
Mar 5, 2001
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Depends on the location... In my area, there are a lot of homes on the market for between 15 and 50k. Taking out a 30 year mortgage keeps the mortgage payment pretty low. It's not hard to at least break even. If you can break even for 30 years, you're in great shape! Because after that mortgage is paid for, you just have maintenance and taxes. The rest is profit, including the sale of one of those homes (which hopefully would appreciate.) Don't forget, if you have a fixed interest rate, your monthly payments are going to be steady. And, generally speaking, home prices increase as well as average rent. Thus, even if you're losing $50 a month now, 10 years from now, you may be making 100 a month.

edit: I have a property with a $300/mo mortgage. Rent is $500. After taxes, I lose about $250 a year. But, there are all sorts of things that happen with income tax:
I can write off mileage for going to the house. I can write off any improvements or repairs I have to make. I can write off tools I need to purchase to make those repairs. I can write off the taxes paid on the house. I can depreciate the house if I wanted to... So, while up front, it looks like a $250 loss over the course of the year, I gain more than $250 in equity in the house from my mortgage payments as well as the increase in property value. Of course, within a few years, I'm going to have to replace the furnace. That'll be about a $700 hit. Other than that, I can't think of any other expensive repairs... roofs are relatively new.
 

hellokeith

Golden Member
Nov 12, 2004
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Another way to look at it is that even if your renter was paying 75% of the mortgage payment and you the other 25%, you are getting the equity. So long as you are comfortable with the additional debt, in 15 years (assuming a 15 yr mortgage) you'll have the property paid in full, and in another 5 years of renting, you'll have your 25% back. It's definitely a long term venture, and you'll need a hefty source of income during the time to ride out the bumps.
 

thedarkwolf

Diamond Member
Oct 13, 1999
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I"ve thought about buying a duplex or triplex and doing the same. Around here houses are cheap as dirt including the plexes so one side would cover the mortgage easy and the other would be $$. I'm just not sure it would be worth the hassle.
 

Rapidskies

Golden Member
May 27, 2003
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I think your friend should think about how difficult it is to find a decent tennant much less try and find one out of state.

How is he going to do any repairs when he is out of state when his tennant calls up at 2am with a flooding kitchen (more $). Is he prepared to do background checks on people or is he going to turn this over to a company to handle it for him (more $). Another huge issue is properties are not occuppied 100% of the time his property might go a month or two or three between tennants or even longer in a bad location. Is he going to be able to put enough money down that the monthly rent will cover his costs? I've read you just break even on single occuppancy rentals if you do most repairs yourself and have a reliable tennant and that by far the biggest issue is getting a good tennant and keeping them.