[DoctorIrokezov]

There's something I'm not following here. Half of your PMs will buy you half of a house in a gated community. Yet, you do not have enough to pay off the mortgage on your current house. Perhaps you currently have too much house?

Having a paid off house in case of job loss seems to be important to you since you brought it up several times. I would recommend paying off the house you live in now and save the potential trouble of moving while unemployed. If that is not possible, maybe you should reconsider extending yourself even further on an investment property.

Good observation. My current house is modest. 1600 sq ft on 1/3 acre of property. It's the location that drives up the price. My concern is timing. Buying the investment house outright will give me a place to retreat to if needed.

I'm not in a position to pay off my current home within the next 5 years. Two reasons.

1. I'm not willing to be cash poor. Personally, I want twice the remaining balance of the house, in the bank, before I pay off the house.
2. In a down economy, I would let the bank take my current house and move into the investment house because it puts me closer to family I can rely on. I do not have that currently.

[Rategbee]

Assets are assets whether it's metal or land.

Based on what you've written, it seems like a sound strategy.

[Herimoisige]

Assets are assets whether it's metal or land.

Yes, to an extent. But you don't pay property tax on metal. And you are not dependant on the government to recognize your title and help you defend it like you are with land.

On the other hand, land can usually be productive and create wealth. Metal doesn't create wealth, it just maintains it.

I try to keep a balance of both, because you can't grow food on gold and you can't personally defend more than a few acres of land, if that.

And I agree that the OP has a sound strategy. If that strategy also included selling his current house and buying in an area that wasn't so inflated, I'd say it was perfect. The intrinsic value of any house is due to it's shelter and comfort. If you can buy a comfortable house in location B for 65% less than a comparable house in location A, then you know that location A is in a bubble.

[DoctorIrokezov]

Not selling the current house has nothing to do with logic. I'm a transplant where I live...my wife grew up here. She likes it...as do I.


I would say it's a bubble as much as an expensive NYC apartment. The area I live is fully developed. Without more land, the price is set by the market and whatever someone is willing to pay.




Thanks to all who replied. I needed some feedback. You're the most critical (in a good way) and honest lot I know!

[Nurba]

The percentage return will depend on the purchase price. Conservatively, we'd be looking at 10% a year, each.


The area is the same neighborhood my sister lives in. She's a 911 operator and I've got her looking up crime rates and growth patterns for the last 10 years for me.


I believe they have bottomed. My sister bought 3 years ago and prices have only dropped about 10% since then. Even if they haven't totally hit bottom, it's touch to call. I don't think they have much further to fall if at all.


Honestly, I'm having a hard time finding a downside. Worst case scenario, I've got a house my family can live in, in a gated community, mortgage free. My father wouldn't be asking for his half from me if that occurred.

I guess the worst downside could be the value dropping further and us needing to sell. The only way I can see us needing to sell is if the taxes jump to a level where it's not worth having it. It could happen...but that could happen anywhere.

Maybe the return isn't as high as predicted?

It seems like you have thought it through and done your due diligence. I'm sure if your family has rentals you know this, but roof age/condition, AC (depending on what part of the country) and general house age is also important.

I know real estate is kind of a taboo subject on PM forums, but to be honest there are always markets where money can be made from rentals. There is a 3%+ tax increase on rental incomes starting 2013 as well, which with a good accountant can be mitigated hopefully.

I am in this space and some broad trends I see down the road are an increase in property taxes specifically on landlords. To me the general shift in government policy is determined by the masses, seeing that the masses aren't landlords or entrepeuners these are the people who bear the brunt of the tax burdern, raising taxes on this group is politically the easiest and I think there will be a trend towards higher taxes on rental real estate at all levels and a increase in overrall regulation. Eventually this may make it not worth anyones while, but in the meantime money can be made. I am halfway kicking around the idea of purchasing more rental real estate myself, but not sure yet. As I see it in this enviroment no investment is safe (i don't consider PM's an investment), who knows how many enrons lurk behind the next corner. I think the amount of renters will continue to increase as well, a lot of people who bit off more than they could chew and got foreclosed on so their credit is ruined but they still may have stable jobs.

Another risk to consider is incomes of the tenants, most people depend on two incomes and if unemployment is 15% that is 1 in 7 people, so pretty decent odds that 1 of the 2 is out of/looking for work.

I wish you luck in your endeavor.

[CathBraunn]

Something else I would like to add, the location is everything, demographically as well as jobs. If gas goes to 8 bucks a gallon people will be forced to rent much closer to work, so are there big employers nearby? How stable are they? Industries will continue to be outsourced, save healthcare, and if a few big dogs leave the area it could be a ghost town in a decade.

I'm by no means trying to dissuade you but just throwing a few ideas in the air.

How are typical mortgage rates compared to rental rates? If house prices do fall 10%, will it be significantly cheaper for people to buy vs rent? Eventually when rates go up, a 1% increase in the loan is roughly 100 dollars on a typical mortgage, if they go to 6-8% that is an extra 500 bucks and 500 bucks is a lot to the typical person, on one hand this will increase renters but on the other it will drive down real estate prices.

Like I said none of these broad trends has scared me away from this sector but there is a lot to consume.

[fenter1]

what LS said. i know people here that are moving from farms out by the lake (where i am) 10 miles in to town because of gas + the commute. i know 2 families personally who have moved during the last 3 months. and, gas is going to $8 a gallon. only going to get worse. people will be more than willing to shell out an extra $200 per month and be close to work rather than shelling out an extra $250 and having to drive.

[amotoustict]

[QUOTE=LuckyStrike;537358]

I'm by no means trying to dissuade you but just throwing a few ideas in the air.

How are typical mortgage rates compared to rental rates? If house prices do fall 10%, will it be significantly cheaper for people to buy vs rent? Eventually when rates go up, a 1% increase in the loan is roughly 100 dollars on a typical mortgage, if they go to 6-8% that is an extra 500 bucks and 500 bucks is a lot to the typical person, on one hand this will increase renters but on the other it will drive down real estate prices.
( quote)


I don't think most folks can get a mortgage now with all the new requirements and 1 out of ? have already have their home foreclosed on.... late payments or walked away, no job security.

I had a chance last year to buy a little rental super cheap , cash.........and I kick myself in the head for not doing it, It would have paid for itself in 5 years.