Real Estate Questions

[watersnowdirt]

So.... my latest hairbrain idea is that I need to become a real estate mogul(ette). I'm thinking pretty seriously about trying to buy real estate that I can rent out and 25 - 30 years down the road cash out and have that be the bulk of my retirement fund. So, I have lots of questions and I figure there are some people here with good ideas/experience. I've already talked to AG a bit and she's been a huge help. Some of these questions go beyond SLC specific stuff, too.

1) what markets are still undervalued? Or, what markets are such that you can still rent them out and cover your mortgage?

I would ideally love to have two places - one that I rent out as a vacation rental and thus get to use it myself, and one that's strictly a full time rental. I'm thinking SLC for the first one and maybe a place like Raleigh, NC (just a totally random thought) for the second type of place.

2) What are ways you can avoid putting 20% down?

3) how smart of dumb is it to put a down payment down on a non-primary home using a home equity line of credit?

4) is this a viable investment plan?

etc, etc, etc.

Thanks all. Any advice, guidance, non-sequitorial responses, and mockery welcome.

[monoman]

1. Good luck

2. Never have rentals that you cannot periodically check up on. Management companies suck.

3. I have, worked good. Primary home doubled so I was safe.

4. yes but be wise

[natty dread]

I'm no expert, but I think picking the right location is crucial, especially if you're thinking this is going to be your retirement. Got to have a feel for the area and pick the right neighborhood. I chose well in portland, the hood where I bought a duplex was kinda drive-by central a few years ago, now values have gone up 15+%/yr over the last two years and it ain't stopping. I knew it would go up because new seasons was putting a market in nearby and light rail was going to be a few blocks away. But portland's hot pretty much all over.
I know there are some areas of slc that are going off too, I'm sure ag took care of you on that.

[ill-advised strategy]

Viewing real estate as investment is one of the things wrecking our society.

IMHO, if you're going to do it, you should tread carefully so as not to be:

1) a jerkoff yuppie 2nd home owner contributing to a housing shortage and a lack of community ("I don't care about the schools, I only come here to ski"..ever heard that? please don't be that person) by owning a mostly vacant home.

2) an asshole landlord jerking people around because you're more concerned about your "investment" than the fact that people need a place to live.


I've said all this before and everybody always flips out (because this board is apparently full of people who seem to find the above situations normal and acceptible) but I don't care...IMO you should approach this with some conscientious awareness of the impact that real estate investment has on communities and lower/middle income residents of those communities.

[mitch buchannon]

There's plenty of ways to avoid putting 20% down, however there can be a difference in the way a lender looks at a vacation home versus an investment property. Many times lenders are less willing to do any sort of 100% financing structure on non-owner occupied properties. Maybe see if you can play it off as either a house you're going to live in ... There's a few different ways to get around it, just wanted to throw it out there so you're aware.

It's not dumb to use equity in one property to buy another as long as you're cognizant of the risks involved.

[Benny Profane]

I just read that half of new home mortgages written in '05 were no money down. This may be good news for you, but was part of an argument that we (Americans) are, of course, in a very bad collective debt situation. Read the fine print very carefully, and don't be seduced by widely variable rates.
There is mucho evidence out there that the housing bubble is bursting. Hot markets like Phoenix, Vegas, and South Florida condos are seeing a rapid rise in inventory. I would love to see the figures for ski homes in both the east and west. I suspect that, with our wonderful winter in Vermont, many are suddenly on the market.
The above advise about management companies sucking is wise, because, if anything, they suck pretty much all your profits away. Try to stay close enough to at least periodically check your place once a month, and do basic maintenance.

A good blog the NY Times just started up: http://walkthrough.nytimes.com/?8dpc Don't believe anybody in the real estate industry, or even friends with overly optimistic rosy eyed views of the industry because they are richer on paper. I would be very careful and patient if buying right now. You don't want to be the biggest fool.

[mrw]

A friend of mine purchased several rental properties with no money down. Initially,all went well.A year or so into this venture, he had a 3 month vacancy on one then a vacancy in another. In an effort to stop the negative cash flow, he dropped his standards for Tennant's who then moved in and within months, were not paying the rent on time.Maintenance,upkeep,taxes and poorly selected Tennant's drove him into bankruptcy.Don't be that guy.

[kchri]

It is not how much you put down on a house that matters. More down will generally gain you more favorable loans, but in the end you must have a reserve (money or liquid assets) to cover the unexpected. Just because someone puts zero down on a property does not mean doom and gloom should the market 'bust". If you still have the ability to pay your expenses you are OK. This is generally what separates the winners and losers.

You never buy a rental property. You always are buying a second home for yourself. Do not tell the lender anything else. They personally do not care, but are required to treat you differently (not a good thing) if you are purchasing rental property. After the second property this becomes more difficult. Find a lender first and begin a dialog and create a friendship. Independent loan brokers who want to keep working with you are worth their weight in gold. Find one who doing what you want to do in the real estate market. They will know all of the ins and outs so to speak.

Spread your risk over different types of property if possible. ie resort rental, house rental, apt rental, etc and in different areas of town or state. But as usual this depends and is variable throughout the country.

Everyone is always saying the bubble is going to burst.

Don't forget that you will pay PMI on any loans with loan to value ratio of 80% or greater so placing 20% will save cash in the long run.

Buy properties over time (unless you are already wealthy, but you probably wouldn't be asking these questions). One property this year, another in one or two years. Lenders ususally will want to see that your investments are sustainable and working for you before lending more. This also reduces the burden and risk.

Invest because you are 'in business' to make money for yourself. Take the jerk-off yuppie approach as described above if you want to succeed. Being nice to people with your money will only screw you...

Have at it...

[InspectorGadget]

M. - You may not have my business card anymore, but I'd be happy to discuss your options on numbers 2 & 3.

[Core Shot]

1) what markets are still undervalued? Or, what markets are such that you can still rent them out and cover your mortgage?

that is the question.
Now is not necessarily the best time to buy real estate, except maybe for a few very unique markets. those markets are not so much under-valued as they are less over-valued and have more long term growth potential to avoid a big drop and/or to recover more quickly.
Finding properties that will cash flow from day one is almost impossible.

You are a bit late to the party.
I know its tough to hear when all your pals are raving about how much they have made in real estate in the last three years.
I still believe in real estate (have for years) but now is a time to wait it out, see whether the market tanks, and possibly look for bargains as prices fall.

Here's a little pessimism to temper your enthusiasm:
http://housingpanic.blogspot.com/
http://www.investorsinsight.com/otb_...?EditionID=256

Remember how jealous you were when your friends were making a killing in tech stocks?
Remember how happy you were not to be in tech stocks when your friends were bitching about all the money they lost?

[mrryde]

1.5 words

pre-forclosures

This is what you utards should be thinking(or anyone else). In 05 SLC had the highest foreclosure rate in the country. PF is where you make some great money if you are looking to hold long term or flip. These houses are easy just to get Subject-To or Short Sale if you know what you are doing.


The PF market will only get better if interest rates go higher and people with ARM's can afford the payments.

Oh and you don't need a boat load of money or even good credit to do this

[Viva]

As far as hot and afordable markets go Portland still appears to be a great place to buy and that's where I'd put my money- in fact, I'm seriously considering this. If PDX interests you, I can direct you to a number of agents.

I've also heard recently that San Antonio is both affordable as well as becoming a desirable place to live.

Good luck!

[meatdrink9]

WSD, I'm very much doing the same thing. I'm running 15-year mortgages on all the homes (homes paid for free and clear by around age 40) and between the 4 separate rentals I get a positive cahsflow of around $1200 per month. I've never had an empty month in a property. The trick to Yeti's concern is to bring some value to the area. I've generally taken homes that were in need of some love and I feel made the neighborhood a better place through my efforts.

I'm a huge fan of 15 year mortgages over 30's. With 30 year mortgages you almost elminate one of your best money making avenues (equity). And you don't need the area values to go up to get this equity. I've got some renters leaving my house in Utah at the end of this month. They've been there for over 3 years. The cashflow I made on the property was only a couple of hundred a month. If the home were on a 30 I would've only made a couple hundred a month on that as well, but the house was on a 15 year mortgage so instead of getting $150 a month in equity I was getting closer to $600 a month. After 3 years I made ~20K on the equity they put in. With a 30 it be more like ~5K. And you get to retire earlier.

The 3 ways you make money:
1. Positive monthly cashflow
2. Equity paid by your renters (go 15)
3. Housing values going up

If you have any specific question feel free to give me a call. Make sure you're careful with this stuff and don't be afraid to get your hands dirty. I was in a place where I thought there was no way to go wrong on Real Estate until about half the people that wanted to rent my Denver house were telling me how they had tried to "flip" houses in the area with a contractor and they had all lost big. One caused a bankruptcy, the other a divorce.

I think it's possible to make a rental work in just about any area. The key is to know the area inside and out. I was thinking about grabbing another Denver house last spring. By that time I had our neighborhood so dialed in. For a couple of years I'd always hit realtor.com in the mornings and do a quick MLS search of my area. It was easy to see the good deals and the bad. If I saw something that got me excited (it's usually really obvious when something is a good deal) it would usually already be pulled by the very next day. You've got to be quick. There's a lot of people out there doing the cery same thing. Get a good realtor in the areas your looking at, but I'd primarily depend on yourself for finding the good deals. You need the realtor to be very quick in getting you into the house for a look and very quick at making offers and making them on paper. If the offer is just verbal they'll know you're willing to go higher and you're just testing the waters. You'll end up paying more.

The same way you'd hit realtor.com...be sure to hit rental classifieds in your area as well to see what types of properties are going for what rents. There's a ton of numbers to look at (mortgages included) but it's a pretty cool feeling when you've added everything up from each side and you see the numbers work in your favor.

[Artie Fufkin]

I saw an infomercial with these two guys:



They said you could generate a substantial cash flow through real estate investment with minimal time invested, though I think you need to pay them some money to get their program.


Sadly, I believe that one of the Rice brothers passed away recently.

[hev]

my roomate just showed me this site: http://zillow.com

[L7]

I bought into investment property before I bought my own home. Be prepared for the first couple of years to be tight and perhaps time consuming. I believe your bank system is far more competitive than ares. Don't take shit from the bankers and shop around for the best deal. Get them to jump hoops for you instead of you jumping the hoops. We bought a property in default on mortgage/tax and utilities, the bank got pretty interested in getting a deal done with new owners and equity.

Look for a strong ongoing rental market and pay attention to seasonal aspects. Resorts and university towns can be good. Pick property with the rental potetial that will make it easy not the features you find appealing.

Pay attention to bylaw compliance (second kitchens and such) and make sure you have a sharp lawyer that can spot the pratfalls like hidden transfer costs and such.

AVOID CONDO OR STRATA SITUATIONS especially older ones as they eventually all get run by the most insane owners in the group and the rental properties take the heat first when things are going wrong.

Advice I like is never own rental property in a place you don't want to be which goes back to being able to check up on things frequently.

[eldereldo]

1. Save your money
2. Wait for Bubble to burst
3. Buy forclosures
4. Rent to people who lost houses because they didn't put any money down
5. Wait for Recovery
6. Sell Houses

Now if you believe the bubble is never bursting then go ahead and buy now.

[Snow Dog]

So.... my latest hairbrain idea is that I need to become a real estate mogul(ette). I'm thinking pretty seriously about trying to buy real estate that I can rent out and 25 - 30 years down the road cash out and have that be the bulk of my retirement fund. So, I have lots of questions and I figure there are some people here with good ideas/experience. I've already talked to AG a bit and she's been a huge help. Some of these questions go beyond SLC specific stuff, too.

1) what markets are still undervalued? Or, what markets are such that you can still rent them out and cover your mortgage?

I would ideally love to have two places - one that I rent out as a vacation rental and thus get to use it myself, and one that's strictly a full time rental. I'm thinking SLC for the first one and maybe a place like Raleigh, NC (just a totally random thought) for the second type of place.

2) What are ways you can avoid putting 20% down?

3) how smart of dumb is it to put a down payment down on a non-primary home using a home equity line of credit?

4) is this a viable investment plan?

etc, etc, etc.

Thanks all. Any advice, guidance, non-sequitorial responses, and mockery welcome.

The problem with vacation property is when you're using it you're not generating revenue. So it costs you money to use it. What matters is cash flow (so your income covers your mortgage) and return on investment. Every time I've looked around here (Whistler & SW BC) the ROI doesn't look very good and I'm better off putting the money in the bank and using the interest to rent a place to ski. The ROI (after expenses, taxes, maintenance, etc) should be around 5%. That doesn't include appreciation which is unknown and I consider to be a bonus.

What some people do is have a house with a suite so they rent out one and keep the other for themselves. That works pretty well.

Up here banks don't allow you to use the rental income when determining mortgage eligability because if it's vacant then there's no income but there's still a mortgage.

[smitchell333]

1) what markets are still undervalued? Or, what markets are such that you can still rent them out and cover your mortgage?

I would ideally love to have two places - one that I rent out as a vacation rental and thus get to use it myself, and one that's strictly a full time rental. I'm thinking SLC for the first one and maybe a place like Raleigh, NC (just a totally random thought) for the second type of place.

2) What are ways you can avoid putting 20% down?

3) how smart of dumb is it to put a down payment down on a non-primary home using a home equity line of credit?

4) is this a viable investment plan?

1) - I'm in Colorado, but my take is Wasatch Front is still undervalued - A key calculation to your feasibility is Rent to Debt Service if you can cover your debt service and make money with the rent you can get - thats a good investment. This is a challenge with the 0% down or even 5-10% down - often you cannot cover the mortgage payments and expenses. Here in Boulder it is typical to have to put down 40-50% down to positive cash flow - but we are on the overvalued end of things relatively with 2 BR in less desirable areas going upwards of 300K.

2) Buy as your personal residence - either primary or vacation. As long as you can qualify on your own and plan to live there it doesnt matter if you try to rent out some to cover expenses or convert to outright income property

3) Increasing your risk, but as long as you can cover the addnl mortgage payments indefinitely you're OK.

4) At a high level - like any it needs the details filled in.

[Stone-Free]

Everyone here brings up some real good points to ponder. As a real estate appraiser, the things I see in some of the areas I work in are high vacancy rates of investment properties. There are small market areas/neighborhoods where the are many homes for rent and no renters. This is primarily due to first time homebuyers programs that most people can qualify for. Why rent when you can buy for almost the same money?

Do tons of research on the market area/price range you intend to buy an income property. Make sure the market area is not in the decline stage of its life cycle. And I dont care what anyone says, get a home inspection on your final candidate. That $400 or so inspection fee alone can save you huge in the long run on the unseen structural and mechanical systems. Good luck.

[powder11]

if history repeats itself, every market over time is undervalued. demographics show an increasing population with only a fixed amount of real estate. unless something really bad happens[anti-jinx], real estate will always increase over time. finding the right property in the best markets is where you will make your money. its better to buy a fixer upper in a blue chip market than try to gamble on pioneering the next big thing. analyzing market trends will also help you know if your at the top or the bottom of the market. obviously buying low and selling high is what your looking for. My wife and I bought a multi-family in Whistler using equity from a condo in Boston. the whistler market seems expensive, but its actually at the bottom of a five year trend. eventually we sold the Boston condo because that market was topping out. we live in one of the units here, so its easy to know whats going on all the time. Its not something I would do if you cant walk by the property every day. you need enough liquid to ride out the major repairs and vancancies that will come up. finding good tenants is the key. do reference/credit checks and make sure they have a job. have each tenant sign a long term lease. another good idea is to get a stack of post dated checks for the term of the lease. keep in mind its not easy money and is quite time consuming, but it pays off on the back end.

[Benny Profane]

Remember how jealous you were when your friends were making a killing in tech stocks?
Remember how happy you were not to be in tech stocks when your friends were bitching about all the money they lost?

.....werd.......

[Snow Dog]

I think it's possible to make a rental work in just about any area. The key is to know the area inside and out. I was thinking about grabbing another Denver house last spring. By that time I had our neighborhood so dialed in. For a couple of years I'd always hit realtor.com in the mornings and do a quick MLS search of my area. It was easy to see the good deals and the bad. If I saw something that got me excited (it's usually really obvious when something is a good deal) it would usually already be pulled by the very next day. You've got to be quick. There's a lot of people out there doing the cery same thing. Get a good realtor in the areas your looking at, but I'd primarily depend on yourself for finding the good deals. You need the realtor to be very quick in getting you into the house for a look and very quick at making offers and making them on paper. If the offer is just verbal they'll know you're willing to go higher and you're just testing the waters. You'll end up paying more.

Up here the MLS holds back listing for 3-4 days to give agents an edge. So in this hot market by the time the public sees the listing it's gone. I had an agent e-mail new listings every day and by the time I went to see them in the afternoon there'd be 3-6 other groups there too.

[powder11]

Up here the MLS holds back listing for 3-4 days to give agents an edge. So in this hot market by the time the public sees the listing it's gone. I had an agent e-mail new listings every day and by the time I went to see them in the afternoon there'd be 3-6 other groups there too.

west van?

[Clack]

Buy low, sell high. Ponch says Lake Shastina is going off!