Author Topic: Should I buy a house at this point?  (Read 5743 times)

Cwadda

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Should I buy a house at this point?
« on: July 18, 2014, 04:53:47 AM »
Dear Fellow Mustachians,

Yesterday I asked the local bank whether it would be possible for me to get a home loan with a cosigner and they said it would be possible. The interest rate was going for 30 year fixed @ 4.25%. I've always liked the idea of buying a place for a rental. Provided that a home I buy is a good deal (rent covers all taxes, fees, etc and more), would it be a good idea to take out a loan to build equity and have passive income? Or should I look for owner financing or something else...thoughts?

Distshore

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Re: Should I buy a house at this point?
« Reply #1 on: July 18, 2014, 07:48:20 AM »
I don't know if I can answer the question "should I", but we're looking to do a similar thing right now.  I've looked into it a lot and my previous experience with being an (involuntary...long story) long-distance landlord was reasonably positive.  We are looking at a positive cash flow property (needs some work) with 25-35% down (yet to decide) and an interest rate up to about 5.5%.  Strongly tenantable downtown area in small city with lots of investment going on and good rental returns, but a couple hours away from us.
Just remember that if it's an investment loan, they charge a bit higher % than for owner-occupier, and at least all the banks I've spoken to require a 25% down payment for a conforming investment loan.  Should you be doing this if you can't get the loan without a co-signor?
To me the question is - is there anything better I should do with the money right now, or in the foreseeable future?  If not, and you are emotionally prepared for the headaches that come with property ownership, and you have a sufficient cash cushion to cover the inevitable emergencies, why not?
If anyone can tell us why not, please speak up now before I also make a big mistake!!!

PloddingInsight

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Re: Should I buy a house at this point?
« Reply #2 on: July 18, 2014, 08:29:20 AM »
Dear Fellow Mustachians,

Yesterday I asked the local bank whether it would be possible for me to get a home loan with a cosigner and they said it would be possible. The interest rate was going for 30 year fixed @ 4.25%. I've always liked the idea of buying a place for a rental. Provided that a home I buy is a good deal (rent covers all taxes, fees, etc and more), would it be a good idea to take out a loan to build equity and have passive income? Or should I look for owner financing or something else...thoughts?

Am I misunderstanding this?  You need a cosigner?  Like, your parents are going to cosign the loan in order to get the bank to lend you the money?

iris lily

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Re: Should I buy a house at this point?
« Reply #3 on: July 18, 2014, 08:33:48 AM »
If you need a cosigner, you aren't financially ready to buy real estate. A cosigner is your business partner for investment property.

JoyBlogette

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Re: Should I buy a house at this point?
« Reply #4 on: July 18, 2014, 08:47:39 AM »
If you need a cosigner, you aren't financially ready to buy real estate. A cosigner is your business partner for investment property.

Maybe not.  OP is 20 years old so he may just not have enough credit history to satisfy the bank.  He should keep in mind that if he doesn't make payments or the value of the house drops so that he is underwater on the mortgage his parents would be on the hook for the entire mortgage amount.

SDREMNGR

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Re: Should I buy a house at this point?
« Reply #5 on: July 18, 2014, 09:09:12 AM »
Grasshoppa, much more learning before you buy home you need.  When you can answer your own question posted here, you may be ready.  Come back when you have some down payment money and don't listen to the no down payment late night infomercials.
« Last Edit: July 18, 2014, 09:13:57 AM by SDREMNGR »

frugaliknowit

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Re: Should I buy a house at this point?
« Reply #6 on: July 18, 2014, 09:46:55 AM »
The 4.25% indicative rate by the bank was likely for owner occupied (non-investment) property.  Of course, it's possible to buy for owner occupancy, then move out and re-classify as an investment property.

You have not given us enough information to answer your question.  What is your cash, credit, living and employment situation?  Why do you need a co-signer (red flag)?

Before buying an investment property you need to do a rent survey and a pro-forma (projected) income and cash flow statement to figure out whether your deal makes sense.

AssetGrinder

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Re: Should I buy a house at this point?
« Reply #7 on: July 18, 2014, 10:32:46 AM »
Doesnt sound like you are ready. At over 4.25% interest the rental will not provide u with much passive income and in fact could be costing you money. Maintenance and repairs on homes area real cost. Whats gonna happen in a few years time when u gotta spend 10k for a new roof?

Better to invest in other more liquidable areas until you have have enough capital to throw into a very fixed long term investment over leveraged home mortgage. Dont rush into real estate until you are really ready with more capital, more knowledge and more financial stabilty ( aka good long term job outlook)

waltworks

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Re: Should I buy a house at this point?
« Reply #8 on: July 18, 2014, 10:54:45 AM »
You need a cosigner and your post suggests you don't know much about real estate investing (ie, no mention of 1% or 50% rules or detailed analysis of how you expect to profit off this)... you should definitely not buy a house. Go read some of the threads in the RE forum here and you'll at least have some idea of how RE investing generally works. Then you can save up money, build your credit, and decide if you want to pursue this in a few years.

-W

Cwadda

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Re: Should I buy a house at this point?
« Reply #9 on: July 18, 2014, 11:09:13 AM »
Thanks for the responses. I knew I should have posted more info but the forums have been acting up lately and running slowly.

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Am I misunderstanding this?  You need a cosigner?  Like, your parents are going to cosign the loan in order to get the bank to lend you the money?
Yes, if possible.

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If you need a cosigner, you aren't financially ready to buy real estate. A cosigner is your business partner for investment property.
What if my parents bought a house and then sold it to me? Would that make them business partners?

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Maybe not.  OP is 20 years old so he may just not have enough credit history to satisfy the bank.  He should keep in mind that if he doesn't make payments or the value of the house drops so that he is underwater on the mortgage his parents would be on the hook for the entire mortgage amount.
Exactly. I have perfect credit but not enough credit history. What you're saying is right - I would need to have it occupied at all times to make sure there is enough to cover all payments.

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Grasshoppa, much more learning before you buy home you need.  When you can answer your own question posted here, you may be ready.  Come back when you have some down payment money and don't listen to the no down payment late night infomercials.
I can get down payment money. I'm thinking I can have $15k by next year. That's enough for a 20% down payment on a 75k house.

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The 4.25% indicative rate by the bank was likely for owner occupied (non-investment) property.  Of course, it's possible to buy for owner occupancy, then move out and re-classify as an investment property.
Good point; what do you think the rate would be if it was classified as an investment property?

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You have not given us enough information to answer your question.  What is your cash, credit, living and employment situation?  Why do you need a co-signer (red flag)?
I am currently making about $20k/yr. I do have pristine credit, but only 7 month's worth :/
Once I kill my federal student loan debt this summer, I will have cash to invest. I plan to max out my Roth IRA immediately next year and then have leftover money to invest more. I live at home when I'm not in college.

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Doesnt sound like you are ready. At over 4.25% interest the rental will not provide u with much passive income and in fact could be costing you money.
Right now I'm not interested in passive income as much as I am building home equity. I'd want to have all of the additional money after all payments to be put down on the mortgage to reduce it faster. Once the home has been paid off then it can become passive income.

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Maintenance and repairs on homes area real cost. Whats gonna happen in a few years time when u gotta spend 10k for a new roof?
:(

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Better to invest in other more liquidable areas until you have have enough capital to throw into a very fixed long term investment over leveraged home mortgage. Dont rush into real estate until you are really ready with more capital, more knowledge and more financial stabilty ( aka good long term job outlook)
It seems like the real estate market is very good right now which is why I want to jump on it. I am reading real estate books now (ones this forum suggests!).

Everyone I've talked to in person say I'm not ready but I'm getting more opinions on here. From the looks of it so far I should bite the bullet, give up, and sit in the corner sulking. But seriously, I'm just trying to get a benchmark where I am so I can set myself up for later.

SDREMNGR

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Re: Should I buy a house at this point?
« Reply #10 on: July 18, 2014, 11:58:13 PM »
Don't sulk but do sit in the corner...With a real estate book.  And learn, learn, learn, before acting.  But after reading about it, you then need to get into it and start looking at properties and analyzing ones that seem like possible good deals and even get to point of making offers. 

When you actually get started, it sort of feels like you are playing make believe and it doesn't seem real that you just bought a building.  I've purchased and sold hundreds of homes and condos as owner and agent and eventually it doesn't seem so scary and they are just a bunch of numbers on paper.

Don't let your young age and inexperience be reasons not to get started.  Asking here isn't the worst way to get started but an even better way would be to look through the recommended reading lists on here and read through enough of them that the advice starts to seem repetitive.  Then go out there and start looking at and analyzing deals.  Most of them will be obvious duds. Some will seem ok.  Then you will eventually find one that seems like a really good deal if you could -blank-.  That blank is what you personally bring into the deal as a real estate investor.  I have done some sweet deals, I have done some duds.  You learn as you go and you get better (if you are going to be successful).  Avoid the easy mistakes and stay vigilant and humble.  And keep doing deals that make you money.  Before you know it, you'll be at your 1st of many millions.

Good luck.

surfhb

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Re: Should I buy a house at this point?
« Reply #11 on: July 19, 2014, 12:05:15 AM »
No, youre not ready to buy a house.     

Just live at home, save, invest and pay cash for one in 10 years.   Why the rush?

AssetGrinder

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Re: Should I buy a house at this point?
« Reply #12 on: July 19, 2014, 01:06:56 AM »
Ypou are so young to take on such a long term fixed mortgage is all I am saying. Priorities change very quickly at your age. Also outlooks change as well. Good on you reading into a real estate book, next try an equity book, then try other investment books.

There is a saying Fools rush in! and it couldnt be so perfectly put in investing. Seems like you want to rush in not to miss an opportunity. There is opportunity in any market so take your time and make the best decision possible.

In your situation you have no debt but have no savings with an undetermined income. Yet you think its wise to invest into real estate with money you dont have? Is that smart? NO its not. You first have to work and learn how to save. Then when u got a healthy down payment and know how to manage your own money then you should give it a good look. Test the waters in the kiddie pool of debt before u jump into the deep pool of a 30 year mortgage.

Yes buying real estate at young age is a good move only if you have high income, a good down payment and a healthy emergency fund.
Save for a year, get better financial knowledge and if you got a good amount then and still want to buy real estate then by all means jump in.

Cwadda

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Re: Should I buy a house at this point?
« Reply #13 on: July 19, 2014, 05:05:36 AM »
Don't sulk but do sit in the corner...With a real estate book.  And learn, learn, learn, before acting.  But after reading about it, you then need to get into it and start looking at properties and analyzing ones that seem like possible good deals and even get to point of making offers. 

When you actually get started, it sort of feels like you are playing make believe and it doesn't seem real that you just bought a building.  I've purchased and sold hundreds of homes and condos as owner and agent and eventually it doesn't seem so scary and they are just a bunch of numbers on paper.

Don't let your young age and inexperience be reasons not to get started.  Asking here isn't the worst way to get started but an even better way would be to look through the recommended reading lists on here and read through enough of them that the advice starts to seem repetitive.  Then go out there and start looking at and analyzing deals.  Most of them will be obvious duds. Some will seem ok.  Then you will eventually find one that seems like a really good deal if you could -blank-.  That blank is what you personally bring into the deal as a real estate investor.  I have done some sweet deals, I have done some duds.  You learn as you go and you get better (if you are going to be successful).  Avoid the easy mistakes and stay vigilant and humble.  And keep doing deals that make you money.  Before you know it, you'll be at your 1st of many millions.

Good luck.

Thanks for the advice! Right now I'm reading "Building Wealth One House at a Time". Then I'm going to read a book on landlording that's on the recommends list.


Thegoblinchief

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Re: Should I buy a house at this point?
« Reply #14 on: July 19, 2014, 11:34:25 AM »
Equity is not a terribly great investment strategy in real estate. The money is far better off in stocks.

While people have timed the market well, timing it poorly is an anchor that's really hard to cut yourself free of. Far better to invest based on cashflow/passive income.

samburger

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Re: Should I buy a house at this point?
« Reply #15 on: July 19, 2014, 12:28:41 PM »
It seems like the real estate market is very good right now which is why I want to jump on it. I am reading real estate books now (ones this forum suggests!).

Nope, dude.  You're way, way too late.

A rule of thumb: If you think a market looks "good," it's already too late to invest. The best time to invest is when a market looks terrible and horrifying.

There's no need to rush into this market. Take your time and get your ducks in a row.

Distshore

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Re: Should I buy a house at this point?
« Reply #16 on: August 17, 2014, 02:25:54 PM »
I ended up getting a rate of 4.75 % for a 25 % down investment loan as I did find a property I regarded as worthwhile; hits ~ 1.5% cash return, mortgage is about 40% of the monthly rental returns; few urgent repairs needed.  It took a year of active searching to find this place.

There's no hurry!