Author Topic: Is it dumb to buy a 2nd house right now?  (Read 2137 times)

Healthie

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Is it dumb to buy a 2nd house right now?
« on: March 17, 2020, 05:18:49 PM »
I am in the process of buying my second house; I am just barely able to afford it. My current house is getting an appraisal and then Im refinancing. First house is worth around $250k, 2nd I bought for $320k. I plan to rent the 1st out for around $1600-1800, and with the refinance put a basement suite in the new house (rent = ~1000k). My salary will cover both mortgages with around $1000 to spare. I work in healthcare. Is right now a stupid time to buy this 2nd house?

Omy

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Re: Is it dumb to buy a 2nd house right now?
« Reply #1 on: March 17, 2020, 05:28:28 PM »
I have 2 rentals and am concerned that my tenants may not be able to pay their rent (or may choose not to pay their rent) in the next few months - especially if the government says they don't have to. My state has already declared that evictions will not be allowed during this time.

How is your emergency fund?
« Last Edit: March 17, 2020, 05:34:47 PM by Omy »

BikeFanatic

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Re: Is it dumb to buy a 2nd house right now?
« Reply #2 on: March 17, 2020, 05:33:20 PM »
I might consider waiting unless it is the perfect house in a high demand neighborhood. I can not see housing prices staying as high  as they have been with the economic fallout post Covid.

+1 on the emergency fund, because you just never know...

Healthie

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Re: Is it dumb to buy a 2nd house right now?
« Reply #3 on: March 17, 2020, 05:36:08 PM »
I will have $0 emergency fund until the refinance happens.

Freedomin5

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Re: Is it dumb to buy a 2nd house right now?
« Reply #4 on: March 17, 2020, 06:00:48 PM »
Yes. Not because of the timing, but because you are stretching yourself really thin. I am barely able to afford it and I have no emergency fund are not good statements to be making. Also, your first house that you plan to turn into a rental does not meet the 1% rule of thumb.

We recently walked away from purchasing a second house precisely because we were going to be stretching ourselves too thin. Our salaries would have easily covered the mortgage with a lot of money to spare, but if one of us were to lose our job, we would be in a pickle.

CowboyAndIndian

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Re: Is it dumb to buy a 2nd house right now?
« Reply #5 on: March 17, 2020, 06:17:19 PM »
Being in healthcare, your job will be safe in the next few months. One less thing to worry about.

House buying here in NJ has ground to a complete halt. I expect prices to drop in the next few months as we go through a (dep/rec)ession (Sorry I had to use the "D" word). If I had to buy, I would wait for lower prices.

A lot of service industry jobs are going to be lost as a lot of small businesses go under. So, this will impact you getting tenants. Tenants in place might not pay. Landlording is going to be a hard business for B/C type rentals :-(

I would not do it if I were you, especially with the zero emergency fund.

« Last Edit: March 17, 2020, 06:20:14 PM by CowboyAndIndian »

waltworks

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Re: Is it dumb to buy a 2nd house right now?
« Reply #6 on: March 17, 2020, 07:28:08 PM »
Absolutely do not buy anything.

Put up a CL ad for roommates.

-W

Chris Pascale

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Re: Is it dumb to buy a 2nd house right now?
« Reply #7 on: March 17, 2020, 10:33:14 PM »
I will have $0 emergency fund until the refinance happens.

This worries me.

What is your timeline? What are the chances you'd be willing to back out?

If necessary, how can you increase your earned income?

Paper Chaser

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Re: Is it dumb to buy a 2nd house right now?
« Reply #8 on: March 18, 2020, 04:14:24 AM »
This is a terrible idea.
Even if we ignore everything going on in the world right now, buying a second house that doesn't meet the 1% rule, before you have an emergency fund is just asking Murphy to drop the hammer on you.

Bettersafe

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Re: Is it dumb to buy a 2nd house right now?
« Reply #9 on: March 18, 2020, 04:15:20 AM »
You work in healthcare, so I expect you to be very very busy the next couple of months. Besides stretching yourself very thin I don't really see you putting in all the work necessary to make it a rental, finding tenants etc.

So my advice, walk away for now. Focus on what's important in these difficult times.

Healthie

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Re: Is it dumb to buy a 2nd house right now?
« Reply #10 on: March 18, 2020, 08:02:24 AM »
I walked. It was easier than I thought. Where can I read about the 1% rule?

Freedomin5

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CowboyAndIndian

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Re: Is it dumb to buy a 2nd house right now?
« Reply #12 on: March 18, 2020, 08:42:51 AM »
I walked. It was easier than I thought. Where can I read about the 1% rule?

Good move @Healthie

But, first things first. Go ahead and build up a 3-month cash reserve. What is happening in today's world should convince you of the necessity of a cash reserve.

There will be many more opportunities to get started with your RE investments. Get a stash together and wait to pounce when RE and stocks are available at sale prices.

There are a lot of resources on the forums and outside. Go to the Real estate and landlording forum here and then read the first three stickied posts.

https://forum.mrmoneymustache.com/real-estate-and-landlording/real-estate-book-recommendations/
https://forum.mrmoneymustache.com/real-estate-and-landlording/evaluating-a-rental-property/
https://forum.mrmoneymustache.com/real-estate-and-landlording/how-to-real-estate-case-study-sell-or-rent/

When you are comfortable, I would suggest you go to biggerpockets.com.






Bettersafe

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Re: Is it dumb to buy a 2nd house right now?
« Reply #13 on: March 18, 2020, 09:43:54 AM »
I walked. It was easier than I thought.

"applause" :-)

Other opportunities will come your way, prepare yourself with the links given and research and you know when something comes up.


BicycleB

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Re: Is it dumb to buy a 2nd house right now?
« Reply #14 on: March 24, 2020, 01:21:17 PM »
Good decision, @Healthie!

Your financial strength from accumulating reserves - first emergency funds, then paying off any non-mortgage debt, then building up financial investments - is what will make you financially secure. Live Below Your Means, not taking financial risks, is the main way to become wealthy.

Being in health care should let you save money during this turbulent time. And not messing around with house purchases means you can work extra hours to get extra cash with no risk, exactly when the public is clamoring for your skills.

SwordGuy

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Re: Is it dumb to buy a 2nd house right now?
« Reply #15 on: March 24, 2020, 06:56:20 PM »
I'll be blunt.

If you don't even know what the 1% rule *is*, you have no business going into real estate investment.

You need to learn.

This forum has a sticky post in it with books and other resources.   Go to it and start reading.

Then, and only then, invest in real estate -- but preferably with an emergency fund too.

Plus, healthcare is THE LAST profession I would consider safe at this time.   If you are dealing with patients you've got a good chance of getting sick and being unable to work, plus being saddled with big healthcare bills.

Bettersafe

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Re: Is it dumb to buy a 2nd house right now?
« Reply #16 on: March 25, 2020, 02:39:00 AM »

Plus, healthcare is THE LAST profession I would consider safe at this time.   If you are dealing with patients you've got a good chance of getting sick and being unable to work, plus being saddled with big healthcare bills.

Oh sorry, since being in Europe I forgot how it's set-up in the USA. Overhere you get paid sick leave and we've a very nice healthcare insurance that covers situations like this. But getting sick is a risk, no matter where in the world you work.

Wrenchturner

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Re: Is it dumb to buy a 2nd house right now?
« Reply #17 on: March 25, 2020, 09:09:06 AM »
I'll be blunt.

If you don't even know what the 1% rule *is*, you have no business going into real estate investment.

You need to learn.

This forum has a sticky post in it with books and other resources.   Go to it and start reading.

Then, and only then, invest in real estate -- but preferably with an emergency fund too.

Plus, healthcare is THE LAST profession I would consider safe at this time.   If you are dealing with patients you've got a good chance of getting sick and being unable to work, plus being saddled with big healthcare bills.

As a tenant I'm glad to see landlords that don't know the 1% rule!

Healthie

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Re: Is it dumb to buy a 2nd house right now?
« Reply #18 on: March 25, 2020, 10:29:42 AM »
The 1% rule doesn't seem to work in my city- my current house's mortgage is $820/month, but would rent for at least $1600; possibly $1800. The house was purchased 2 years ago for 201.4k. If I follow the 1% rule, I should be getting 2,040$/month; but my mortgage is way under that. Is this an exception to the 1% rule?

waltworks

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Re: Is it dumb to buy a 2nd house right now?
« Reply #19 on: March 25, 2020, 11:18:20 AM »
Your expenses are not limited to your mortgage P&I, buddy.

-W

Papa bear

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Re: Is it dumb to buy a 2nd house right now?
« Reply #20 on: March 25, 2020, 11:26:23 AM »
The 1% rule doesn't seem to work in my city- my current house's mortgage is $820/month, but would rent for at least $1600; possibly $1800. The house was purchased 2 years ago for 201.4k. If I follow the 1% rule, I should be getting 2,040$/month; but my mortgage is way under that. Is this an exception to the 1% rule?
You still have a LOT of reading to do. I have an entire post somewhere (cant find what thread) about the back of napkin math for the 1% rule and the 50% rule.  These are guidelines on the value of a house as a rental, or in determining your cash flows. 




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BicycleB

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Re: Is it dumb to buy a 2nd house right now?
« Reply #21 on: March 25, 2020, 01:14:05 PM »
The 1% rule doesn't seem to work in my city- my current house's mortgage is $820/month, but would rent for at least $1600; possibly $1800. The house was purchased 2 years ago for 201.4k. If I follow the 1% rule, I should be getting 2,040$/month; but my mortgage is way under that. Is this an exception to the 1% rule?

No.

If the house's market value is 204,000 then the 1% rule suggests that when all is said and done, you probably won't have positive cash flow unless it rents for at least $2040 per month. If it rents for $1600 or $1800 then the rent is less than 1%, implying that negative cash flow is likely over time after considering all expenses.

Try Googling terms like "capital expenditures for residential real estate", "landlord expenses", "expenses rental real estate". Start making expense lists. Google articles about each expense. You'll start seeing what Papa Bear means.

Dicey

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Re: Is it dumb to buy a 2nd house right now?
« Reply #22 on: March 25, 2020, 04:07:55 PM »
I walked. It was easier than I thought.

"applause" :-)

Other opportunities will come your way, prepare yourself with the links given and research and you know when something comes up.

***More Applause***

Paper Chaser

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Re: Is it dumb to buy a 2nd house right now?
« Reply #23 on: March 26, 2020, 09:40:44 AM »
The 1% rule doesn't seem to work in my city- my current house's mortgage is $820/month, but would rent for at least $1600; possibly $1800. The house was purchased 2 years ago for 201.4k. If I follow the 1% rule, I should be getting 2,040$/month; but my mortgage is way under that. Is this an exception to the 1% rule?

Like any asset class, there are good investments and bad investments in real estate. And like any asset class, the market price will change over time. For some reason, many people think that it's always a good idea to invest in real estate, and that's foolish.

There are many, many places where home values have climbed faster than rents in recent years, and it's very very difficult to find homes that meet the 1% rule. That means that real estate likely isn't the best investment option in those places at this time. If this is to be an investment, it makes sense to try and maximize your return, and the 1% rule and 50% rules are quick and easy ways to test if an investment in RE might outperform the stock market historical averages. If it's not going to beat the market by a comfortable amount, then you need to look in other locations, or other asset classes. This is precisely why low fee index funds are the 'easy button'. They're very diversified, they require no work from the investor, they can be bought/sold more easily than RE, and transaction costs are far lower.

Frugalbeach

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Re: Is it dumb to buy a 2nd house right now?
« Reply #24 on: May 28, 2020, 12:52:04 PM »
Your first sentence should be your guide.  If you feel you can "barely afford it", no way in hell should you proceed.  Better to wait for the price drop which should start showing up in the 4th quarter of this year. (3 months after June 30th expect a big spike in foreclosures, we are in our area)

With it being so close to the edge financially, everything would have to go almost perfect to work out.  What if your rental house winds up being vacant for 6 months?  Or you have to give a hefty discount to get it rented at all?

Better to sleep well at night and wait fornit to be more financially doable.

Body Surfer

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Re: Is it dumb to buy a 2nd house right now?
« Reply #25 on: May 30, 2020, 03:17:13 PM »
Many believe RE prices will drop some next 12-18 months. Who knows?