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Old 02-12-2008, 01:33 AM   #1
senorfartman
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Default Buying a second house

The back story:

I'm 24 and purchased my first home last August in Baltimore City in an 'urban revitalization' neighborhood for $165,000. It is a 3br, 2 ba on 2 lots and if the area turns over like Federal Hill and Canton, I should be sitting on a nice little payday in a couple years.

However living in Baltimore City isn't exactly where I'd want to raise a family. What the house currently has going for it right now though is the location. It is walking distance from UMD med school (new crop of renters each year), 2 minutes from 95 N/S and 10 minutes from BWI.

My current tenant offered to rent the entire house out with a few of his work friends who are flight attendants and basically need a place to crash. In doing so, they would pay my entire mortgage and allow me to leave the city.

Real Estate is something I just really enjoy. I like working on houses and fixing them up and such. With the market sucking worse than a saigon whore in Maryland currently, purchasing a 2nd house with the 1st rented out is becoming more and more of a viable option.

A few waterfront homes are opening up and have been on the market from 1/2 to a whole year with the pricing coming down below what they have paid. In this area, waterfront is very hard to come by and when the market rebounds, I'd be sitting on a cash cow. Of course these are fixer uppers but they'd be in nice neighborhoods outside of Annapolis where the chances of being picked off in a drive by decrease substantially.

The facts:

*I bought a house for 165,000 at 7.125% because at the time I was technically unemployed (laid off) but I was still receiving paychecks because I had a year long contract.

*At the time I was making $36,000

*I'm refinancing as soon as I get my first paycheck. I'm going back through the lender I used and should get me down into the low 6's making my payment decrease from $1450 to ~$1200

*I'm an hourly employee that travels 50% of the time for work. The only reason I requested hourly is because of the massive amount of overtime you make in the TV industry. This past week alone I have 35 hours of OT

*Currently, with the shows I'm scheduled for, I'm on pace to make between $50,000 and $60,000

*The neighborhood my current house is in is prime for renters due to the proximity to the inner harbor, Orioles/Raven's stadiums, medical school, airport and highways

*With 3 tenants, I could easily get $400 per head. Currently I get $425 the renter in my basement

*Even without the place rented out, I could still afford both properties.

*The places I'm looking at are near the Chesapeake Bay or tributaries and are under $250,000. Realistically with the market in the ****ter and some houses being on the market for over a year, it puts me in the driver's seat for negotiation

*I'm in no rush whatsoever so I can really take my time and start saving up again.

CN:

*thinking about buying a 2nd house

*am refinancing my current house in Baltimore City and then renting it out

*income is around the 50 - 60k mark

*houses on the water in and around Annapolis, MD are becoming attainable again

*dream of becoming a slum lord could finally become true

So what sayeth OT? I think I included all the vital information. If I left anything out let me know. I haven't slept much in the last 40 hours or so from traveling with work
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Old 02-12-2008, 03:14 AM   #2
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You're asking a bunch of drunk guys on your homebrew forum for financial advice?? LOL!!

Want my opinion? You've got a lot of cash tied up in real estate and probably not enough liquidity. What if... your bank isnt going to let you take cash out of your mortgage if you hit the rocks.

I would seriously to have a talk with some professional financial advisor's before deciding on ANYTHING.

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Old 02-12-2008, 08:23 AM   #3
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You make 60K and you are looking at purchasing a second house in the 250s?

wow.

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Old 02-12-2008, 12:33 PM   #4
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save what money you can... $36k a year with $1400 a month mort sounds steep... granted $50-60k is nice, but I'd wait until you start making that much and then give it a year to check your finances...

the best thing would be to talk to a Financial adviser.

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Old 02-12-2008, 01:42 PM   #5
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Quote:
Originally Posted by MikeFlynn74
You make 60K and you are looking at purchasing a second house in the 250s?

wow.
Thats what I was thinking.
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Old 02-12-2008, 01:49 PM   #6
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You can make some pretty good money leveraging into real estate.... but that's also how so many people have gotten into big trouble in the past year. The risk is that you are unable to keep good tenants. Remember, there are a LOT of rental properties available these days; everyone and their brother who bought a second house as an "investment" and is now worried about it being foreclosed on is trying to find renters. If you aren't in a position where you *could* cover both mortgages without having all the units rented, you're taking on a huge amount of risk.

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Old 02-12-2008, 01:55 PM   #7
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With a possible recession looming you may want to hold off for a while. At least I would.

Bird makes a very solid point about having the ability to cover both mortgages in the event that you can't find tenants. If you are unable to do so, then it should be an easy decision.

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Old 02-12-2008, 03:24 PM   #8
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If you have the cash flow, then now (well soon) is a good time to buy. Wait as long as you can for prices to fall more. Cycles are typically 5 to 7 years. And you need to secure a mortgage with low low interest. Renting a house is not for everyone either. If you really want to do it, there is no better long term investment as long as you take advatage of every single tax break.

Short term rigidity (in the form of static assets as mentioned before) can be a real ball buster if you have tight cash flow to begin with. The big thing in your favor is that you don't have to support a family. You can cut your losses at any time if things went sour and only impact yourself. If you wanted to live on the waterfront, here's what I'd do...buy the house, fix it, rent it. Then when the market turns again, sell your current home for plenty of cash, pay off the waterfront home and then wait for the market to dip again and then reinvest.

One other word of caution. Make sure you have a realistic idea of the cost and amount of work needed on the home. It is very easy to underestimate. Better to overestimate and have leftover cash. Plus look into any incentive for improvements, i.e. window replacement tax rebates, efficient heating rebates, etc.

It's a risk, yup. But you do have the potential for great gain if you approach the problem logically. And again, there are no garuantees that the market will shift again, but historically that is what happens.

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Old 02-12-2008, 04:00 PM   #9
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Listen to Bird and the others. You don't have to agree, but listen. Rental income is not guaranteed.


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Old 02-12-2008, 04:09 PM   #10
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Quote:
Originally Posted by TexLaw
Rental income is not guaranteed.
That's another point I forgot to emphasize. Make sure you have at least half a year's mortgage payements tucked away, and cash on hand for emergencies. Also make sure you do your homework on the current rental market in that area. Just because it is bad in areas around the nation (actually this is generally true, we just see it more now because of the people who got wrapped up in subprimes so it is coming into the media) doesn't mean it is bad everywhere. People always need a place to live, you just have to make sure that the numbers work and you can get what you need.
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Last edited by zoebisch01; 02-12-2008 at 04:12 PM.
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