My life took a turn I never thought it would - I am about to move in with a guy. I had been setting a personal timeline in my mind to move out by the time I am at the end of the 2nd year of my job. Housing prices are crazy here in California, so I figured I would be moving into an apartment for a short time.
I have been looking at houses recently on a website and eyeing a particular neighborhood, an older neighborhood, built post WWII and the houses in the area range from 1946-60. The houses range from 1,000 to 1,600 square feet. The houses are all well kept and almost all have redone kitchens and bathrooms. The costs range from $140-180k.
I don't plan to be moving into one of these as I'm about to move into a nice modern house with my BF, but I have been encouraged by our friends J&B to have a house as a rental. Mike says it should be local so I don't have the problems J&B do.
Being a teacher I can qualify for some special programs for low down payments etc. I have been playing around with some statistics and seeing what I can afford using online mortgage calculators.
Sample
$165,900 house
$15,000 down (9%)
Loan left is $150,900
Interest rate about 2.75-3%
Term - 30 years
Monthly payment would be about $616.04
Property tax rate about 1.25% to be about $2,100 a year
Insurance about $1,000 a year
Monthly payment about $872 including taxes/insurance
The house could be a good investment, a place to move into if things were to not work out... Would be nice to rent out because I am local and can keep an eye on it - not like J&B who have investment properties all over.
I know that no more than 1/4 to 1/3 at most should be dedicated to your house payment, and that would be a little less than 1/3 of my income.
Should I save for a larger down payment and more expensive house?
Thoughts? I'm sure this won't be in the next couple months, but something I think about over the next several months. There is one house though, that I REALLY like at the moment and has a Palm Springs look and feel to it with modern updates and this funky Victorian bathroom. The bathroom would need help.
5 comments:
Mike: You left out an important factor -- what would a house like you are looking at rent for? Use www.zillow.com and it will give an estimated rent amount. Ideally you want the rent to cover your mortgage payments, property taxes, and insurance. Have the tenant pay the utilities and you are covering your main costs.
The downside is you need to be careful in selecting your tenant, you don't want them ruining your house. Also there's the issue of them not paying. Evicting someone can also get messy.
It seems to me that you already have so much going on, perhaps you should wait another year until things get settled at work. Interest rates still will be low a year from now and though prices are stabilizing somewhat, they are not expected to increase rapidly, so you can wait a little while longer.
Hey Mike. A few things that you didn't take into account.
1. Private Mortgage Insurance (PMI) - Will be required because of the lower down payment. I think it has to be a down payment of 20% in order to get out of PMI but it might be 10%.
2. Interest rate will be a little higher because it is not owner occupied so it will be considered rental property until you occupy it for a certain time period. Banks usually charge a higher interest rate for income properties and second homes.
Anyway, I think real estate is always a good thing and current interest rates are the lowest they have ever been so it is a good time to buy.
What is your motivation to do this? Is it to make a little money on the side or is it more for long term income?
Either way make sure you know what commitment you're getting yourself into. While we all assume the market is going up from here you never know what its going to be like in 5-10 years for resale. The little income you make a month (of which you'll have to report on taxes) might not be worth the headache of being a landlord. Remember you're still responsible for maintenance and periods when the property is unoccupied while you're looking for a new renter.
@ fan of casey: Part of the reason for buying a house to rent in this area is that most houses go for $1200-1500 a month.
@ Bruce: Glad to see you are still around! It has been a while! Thanks for those 2 things I wasn't even aware of!
@ anonymous: Great points!
@ fan of casey: Part of the reason for buying a house to rent in this area is that most houses go for $1200-1500 a month.
@ Bruce: Glad to see you are still around! It has been a while! Thanks for those 2 things I wasn't even aware of!
@ anonymous: Great points!
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