getting into real estate?

**sweeps** · 03-21-2009, 09:42 AM

Originally posted by KTP View Post

Maybe the suggestion was for other areas...chicago, where I hear you can buy a house for $40k or less.

Uh, do you mean Detroit? You're not buying a house in Chicago for $40k.

**supercheap** · 03-21-2009, 10:04 AM

Originally posted by KTP View Post

It was suggested in another thread that I look into some real estate investments as a means of generating some income during our early retirement. I am very handy (electrical engineer, but lots of hobbies including woodworking, metalworking, cnc, etc.) and might find it fun to renovate a renter house, but I am scared of purchasing anything in our area (west coast) even with the market down. Home prices here are still crazy high (I searched for houses near two of the major universities and found 3bd 1 bath going for ~250k to 400k for oldish 1940s houses built on tiny lots). How can you generate enough income from a rental if you are paying that kind of mortgage? Even at 5% your P&I would be $1400 a month. Add in the extremely high real estate taxes and homeowners ins. and we are talking $2k just to service the loan.

Maybe the suggestion was for other areas...chicago, where I hear you can buy a house for $40k or less. I can't see myself flying to chicago every couple weeks to work on renovation...

Try taking a step back and look at all the basics. Housing prices historically are 120 times rent or 2.5 to 3 time income of the local area. Every time they bubble up beyond that they fall back. Housing prices move in relationship to income and wages. What's happening today to income and wages? They are on the way down with no end in sight. You also have to look at inventory. How many houses are there for sale? What happens to all the coats and sweaters that are left over at your retailers at the end of winter? They keep getting discounted till they are gone. With all the houses for sale and the tight credit market what do you think will happen to prices? They are coming down and will keep coming down until the inventory drops. With jobs going away and pensions getting cut were going to see a lot more homes coming on to the market. Even getting a great deal today may be underwater by the end of the year. Then there are the taxes. Property taxes are the only taxes that you cannot avoid. You can chose not to work and pay income taxes or not to drive and pay gas taxes. Or even buy stuff and pay sales taxes. But with a house They got you! With tax revenue falling what do you think will happen to property taxes.
Don't get fooled by the NRA (It's a great time to buy) BS

**KTP** · 03-21-2009, 10:14 AM

sweeps: yes, i meant detroit, sorry.

Real estate was suggested by Jim_Ohio in another thread. As just an initial inquiry into this I looked at sold prices for all the homes near colleges in my area and did not find anything under $250k. Real estate taxes on a 250k house in this area are upwards of 5k. Those poor college students are going to have to pay a ton of rent to make buying a home and renting to them viable. I actually wonder how anyone does it in this area.

(Quote)
Renting- you can always hire someone to do the work and just deal with the passive income, and in addition you get
a) tax shelter
b) tax writeoffs
c) passive income
d) asset which is appreciating

You sound like you are good at fixing things, so I think you could do a combination of
a) buy a property or two
b) rehab them
c) rent or resell them

I would look for properties close to colleges (where renters are plenty) or other places where renting might be popular (condos close to public transportation...).

If you profit $20k for 3 months worth of work that is a better value (for your time) than looking for coins on a beach or recycling scrap metal.
(/Quote)

**Phatphoeater** · 03-21-2009, 10:28 AM

hyperinflated property costs in northern california (where I live) is not where you want to purchase a rental property as it would require a large down payment to reduce your monthly P&I, prop taxes, insurance to a reasonable monthly rent. I'd think the only way to do this successfully in high cost areas is to have a humongous down payment.

**simpleyme** · 03-21-2009, 10:34 AM

you need to talk to someone who owns rentals

most passive income is not so passive in the beginning

**jIM_Ohio** · 03-21-2009, 01:45 PM

Originally posted by KTP View Post

sweeps: yes, i meant detroit, sorry.

Real estate was suggested by Jim_Ohio in another thread. As just an initial inquiry into this I looked at sold prices for all the homes near colleges in my area and did not find anything under $250k. Real estate taxes on a 250k house in this area are upwards of 5k. Those poor college students are going to have to pay a ton of rent to make buying a home and renting to them viable. I actually wonder how anyone does it in this area.

(Quote)
Renting- you can always hire someone to do the work and just deal with the passive income, and in addition you get
a) tax shelter
b) tax writeoffs
c) passive income
d) asset which is appreciating

You sound like you are good at fixing things, so I think you could do a combination of
a) buy a property or two
b) rehab them
c) rent or resell them

I would look for properties close to colleges (where renters are plenty) or other places where renting might be popular (condos close to public transportation...).

If you profit $20k for 3 months worth of work that is a better value (for your time) than looking for coins on a beach or recycling scrap metal.
(/Quote)

Think outside the box- the house lists 3 BR, but are there more rooms with doors? If the mortgage is $2000, you would need to charge 3 people $700/mo. Have another room with a door- rent is down to $500/mo. Fifth room- create one if you can (maybe in basement)- $400/mo. If your already doing the basement, why not a 3rd BR? 6 BR, $2000/mo is rent in $300/mo range.

College students would not need an office or formal dining room, probably not a formal living room either... meaning that what is a 3 BR house for a family could easily become a 6-7-8 BR house for a college student.

This assumes you can add some walls or doors to creatively create the bedroom look and feel for the students.

**disneysteve** · 03-21-2009, 02:55 PM

Originally posted by jIM_Ohio View Post

what is a 3 BR house for a family could easily become a 6-7-8 BR house for a college student.

This assumes you can add some walls or doors to creatively create the bedroom look and feel for the students.

Before doing this, be sure to research local housing laws and fire codes. Many towns (especially college towns) have rules governing how many individuals are allowed to live in one property.

**momof1in150** · 03-21-2009, 03:00 PM

You have to make sure you can cover the mortgage under the worse case scenario - having someone living in the house & not paying rent. I have a worksheet that I use with investors to determine the break even point for rent. Most banks/mortgage brokers are requiring a lot for investment properties. The last time i checked you had to have 25-30% down, 20% equity in all other properties & 6 months of expenses (PITI) in the bank for all properties.

DO YOUR HOMEWORK!!! Every state is different. In RI you have to take a Lead Class to be a landlord. You also can't be out of state unless you have someone designated to take care of the property for you. This can be expensive because it usually means property management.

getting into real estate?