Author Topic: I think it's better for me to rent?  (Read 3762 times)

money_bunny

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I think it's better for me to rent?
« on: January 18, 2014, 09:14:26 PM »
Hi everybody. I'm thinking of buying a duplex to live in one side, rent the other. I've read a lot of the old posts here, and a large number at BiggerPockets about this topic but I need to put the FIRE/MMM factors in the equation.

As I said in an earlier post, we seem to have 300K duplexes with 6-7k taxes that fly off the market for about full price in the neighbourhoods I want to live in. Most of them only get 2000-2500/month or 0.6-0.7% if both sides were rented.

I'm right now renting for 900/mo plus heat and electricity. It's a 10 mile drive to where I work down a highway (not an interstate, but a 60mph road). Because of the patients I treat I would rather not live in the town where my Hospital is located since most of them live there. Also duplexes in town go for 400K and still rent for the same so it's an even worse deal.

I'm 34 and if I don't get married and have a kid thinking of FIRE at 45, using a PM company and maybe doing MSF or similar for a year or two, and then maybe teach part time and see patients 1-2 days a week, or some sort of charitable outreach. I make full time 92K plus I have a co-op apartment which is rented which cash flows 375/mo (4,400/yr) worth about 60K and the mortgage will be paid off in about 2 years. I bought it when I was 23, and prepaid since I thought I was going to have to sell it when I moved out.

Been maxing out the Roth since 2007 when I started my first job as an RN. Right now have 66.5K in a Roth (did a rollover when I was in the 15% bracket), 30.7K in a Traditional IRA, and 48.6K in a brokerage account. All at Vanguard. I also have 20K in my credit union. Right now I am projected to save 44% of my income this year.  Plus I have another 8k so far at my current job's 401k and another 5K from the last place I rolled over to Vanguard for 2013 (I started in August and now knowing about the Roth Pipeline plan to max out every year). I'm also thinking of doing the numbers and seeing if I can shelter some money directly into the traditional IRA before April 15th. (I was part time at the last job so I only made 74K gross for 2013).

I just read the NOLO "Every Landlords Tax Deduction Guide."  One of the chapters talks about passive losses "The 25K exemption" and how landlords or RE professionals can take passive losses and use them to offset income. Someone on here basically stated it's a way to move income from high earning years to lower ones post FIRE.

First off I could refi my rental property back out to 80% since all the posts here about how mortgages around 4% or 5% are giving money away and I should lock in. Would give me another 40K or so to do something with. Arebelspy's reply to one of my former posts state that maybe NJ is not the best place to invest, and I could do much better elsewhere. However I need a place to live here.

1. Do nothing? I'm paying about 900 a month to rent right now. I could do nothing stay here. Rent goes up 3% per year. Building has a mold problem. I can install a dehumidifier, neighbours are nice. Commute is good. Town is good. I'm not being consumerist so the money is still being saved. Maybe invest down south or in a REIT instead.

2. Buy a duplex with 2 2-bedroom apartments if I can find one. Might just cash flow for the tenant's side. Use one of the bedrooms for my office for my small real estate business if it goes anywhere and take the deduction. I have found a few places who will do 3.5 (though on BP they said PMI is permanent now) 10% and 15%. I can handle that. I don't have any specific property in mind. I come close to breaking even, and I plan on doing my own property management.

Even though I lose money as long as I stay under 150K I get to take that off my taxes, and make a bet on appreciation and rent increases? This goes against everything that you all talk about with 100/unit minimum cash flow, 1%/2% rule.

3. Try and buy a quad by going all-in putting all of my savings and re-fi money from the first apartment for like 380K. I would have to put down almost 100k (That's a lot of money for me) I don't think I like this idea much since I want lot's of reserves for problems.

4. Wait and buy a condo. The HOA's for the two complexes around here are 350 and 500 a month for one bedrooms. Plus they still have 3.5k in taxes. Plus they can't be rented without special permission from the HOA.

I'm thinking I should not buy right now, unless something perfect shows up?





offroad

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Re: I think it's better for me to rent?
« Reply #1 on: February 06, 2014, 12:06:24 PM »
am of the opinion that not buying a house can work out for some.  Found a link to a online calculator that once I put in the numbers says I will break even at five to ten years, if I get real estate to increase in value at 5% to 10% a year. 

My 401K makes more money interest than that.  And the math is showing I save more by not buying

TAXES + INTEREST PAID + REPAIRS + UTILITIES + COMMUTING costs end up equaling or costing more than my rent in an actractive community close to work. 

SunshineGirl

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Re: I think it's better for me to rent?
« Reply #2 on: February 07, 2014, 08:19:09 AM »
In your shoes, I would keep renting.

Milspecstache

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Re: I think it's better for me to rent?
« Reply #3 on: February 07, 2014, 08:25:12 AM »
If you can rent for much less than the interest you will be paying by owning a home, you are better off staying where you are.  Home ownership isn't always the best financial move.

clarkfan1979

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Re: I think it's better for me to rent?
« Reply #4 on: February 16, 2014, 11:00:00 AM »
Don't refi the rental. Yes you will get a lower rate on paper, but you will go back to zero on the amortization and it will end up being higher interest. I think it's cool that you are close to paying off the rental. What are you going to do with the cash once you have even more positive cash flow? Sounds like a fun problem to solve. 

money_bunny

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Re: I think it's better for me to rent?
« Reply #5 on: June 28, 2015, 09:33:02 AM »
Don't refi the rental. Yes you will get a lower rate on paper, but you will go back to zero on the amortization and it will end up being higher interest. I think it's cool that you are close to paying off the rental. What are you going to do with the cash once you have even more positive cash flow? Sounds like a fun problem to solve.

Sorry for never getting back to you.

I did look into refinancing to increase my money to re-invest in stocks and bonds and reduce my current taxable income. Mostly because I am solidly in the 25% bracket and 6.5% for NJ. The cashflow difference was not that much for such a small place. I could not get a note for the apartment at what it is worth. I also could not find a loan for more that 60% LTV because it is a co-op.

In the long run I decided recently after running the 2014 numbers to sell. The apartment is under contract. I'll take the money, invest it post tax in index funds and wait to see what happens with potential properties.