Announcement

Collapse
No announcement yet.

15 vs 30 year fixed mortgage

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Zaphod
    replied







    I find it interesting how RE averse most MDs are.  Especially when it comes to residential RE.  In some parts of the world MDs are huge RE investors.  I wonder if it has something to do with tenant rights or perhaps just how complex medicine has become. I am certainly of the same mind and couldn’t even bring myself to purchase university rentals with the kids at university.  I can only think of two colleagues who were big RE investors.  One in Florida years ago and the other here in Toronto.
    Click to expand…


    A) It can be a lot of work.  Most doctors don’t have a lot of extra time.  And most can probably make more money working a little harder at what they are already trained to do (taking some extra call, shifts, cases, etc) than taking on a side job in RE investing.

    B) Most doctors, US doctors anyway, deal with enough risks and headaches–insurance companies, reimbursement negotiations, hospital politics, medico-legal risks, taxes, etc.  I think many shy away from the hassles and legal risks of being a landlord.

    C) As I’ve pointed out mathematically, residential real estate is not the pot of gold panacea some purport it to be in terms of financial gains.  And we have barely even discussed the liquidity issues and high transaction costs of RE ownership.

    I know it’s not precisely the same thing, but I can add real estate exposure to my portfolio easily, both domestic and foreign, by buying index REIT ETFs like SCHH, VNQ, VNQI, and such.  I get an asset class with stock-like returns that’s a good inflation hedge and is somewhat de-correlated to the S&P while paying great dividends (ideal for a Roth IRA).  SCHH costs me exactly $0.00 to buy and sell as often as I want at Schwab (0% transaction cost) and only 0.07%/yr to hold (tiny carrying costs).  It requires zero work from me and exposes me to zero additional legal liability.  In my mind, it’s a no-brainer.
    Click to expand...


    Well said. Amen.

    Trying to rid myself of excess hassle. Yes Im sure you can do famously well in RE, but it requires more work than I think its worth to me right now. Especially prominent is the headache and litigation aspect nicely remarked on in B above. We already have jobs that are chock full of this, no need for any more. Investing in market is just so much easier.

    Leave a comment:


  • AZdoc68
    replied




    I find it interesting how RE averse most MDs are.  Especially when it comes to residential RE.  In some parts of the world MDs are huge RE investors.  I wonder if it has something to do with tenant rights or perhaps just how complex medicine has become. I am certainly of the same mind and couldn’t even bring myself to purchase university rentals with the kids at university.  I can only think of two colleagues who were big RE investors.  One in Florida years ago and the other here in Toronto.
    Click to expand...


    A) It can be a lot of work.  Most doctors don't have a lot of extra time.  And most can probably make more money working a little harder at what they are already trained to do (taking some extra call, shifts, cases, etc) than taking on a side job in RE investing.

    B) Most doctors, US doctors anyway, deal with enough risks and headaches--insurance companies, reimbursement negotiations, hospital politics, medico-legal risks, taxes, etc.  I think many shy away from the hassles and legal risks of being a landlord.

    C) As I've pointed out mathematically, residential real estate is not the pot of gold panacea some purport it to be in terms of financial gains.  And we have barely even discussed the liquidity issues and high transaction costs of RE ownership.

    I know it's not precisely the same thing, but I can add real estate exposure to my portfolio easily, both domestic and foreign, by buying index REIT ETFs like SCHH, VNQ, VNQI, and such.  I get an asset class with stock-like returns that's a good inflation hedge and is somewhat de-correlated to the S&P while paying great dividends (ideal for a Roth IRA).  SCHH costs me exactly $0.00 to buy and sell as often as I want at Schwab (0% transaction cost) and only 0.07%/yr to hold (tiny carrying costs).  It requires zero work from me and exposes me to zero additional legal liability.  In my mind, it's a no-brainer.

    Leave a comment:


  • Zaphod
    replied
    I thought I would like it more, and it certainly has it benefits. You may be on to something with complexity of the rest of hour life making anmoying tenant or management calls just too much. Then you have a wide range of simpler even if less possible upside investments that will work for you just fine.

    There's definitely nothing wrong with it, but it's definitely a second job even if only in spurts. Id rather do most anything else. Tenants rights are also an issue, especially in California, and litigation isn't rare either. Currently leaning toward not worth it on an annoyance adjusted return basis.

    There are more interesting alternative investments with less friction and more liquidity available.

    Leave a comment:


  • uptoolate
    replied
    I find it interesting how RE averse most MDs are.  Especially when it comes to residential RE.  In some parts of the world MDs are huge RE investors.  I wonder if it has something to do with tenant rights or perhaps just how complex medicine has become. I am certainly of the same mind and couldn't even bring myself to purchase university rentals with the kids at university.  I can only think of two colleagues who were big RE investors.  One in Florida years ago and the other here in Toronto.

    Leave a comment:


  • Zaphod
    replied
    Well, I wouldn't suggest you buy a property that couldn't reasonably be paid for even if 100% vacant with discretionary income.

    Some moderate amount of leverage gives good return, cash flow and margin of safety. A little bit more, can be ruinous.

    What's highly leveraged? A typical 20% down situation for personal or any mortgage whatsoever? One way gives you cash flow and the other a higher irr. Some kind of happy medium makes sense. If buying for rental they usually make you pit down 30% or so nowadays I hear.

    Leave a comment:


  • AZdoc68
    replied
















    Strongly consider selling.  Shouldn’t have bought in the first place, but here we are…

    Real estate investing with single-family units can be more trouble than it’s worth.  It should be looked at primarily as a cash flow instrument as opposed to a bought-and-held asset, meaning your return should be considerably higher than your expenses plus a set amount for contingencies ($200/month is minimal; all it takes is $2,400/yr of expenses and you’re at a loss).  You should also get umbrella insurance for whatever your homeowner’s doesn’t cover.

    I know that a lot of people are influenced by Rich Dad Poor Dad, but it was written with someone in mind who is purely entrepreneurial, has time to do the job, and is comfortable with a high amount of leverage.  You also have enough work to do as a fellow, plus more work to do if you’re moonlighting…do you want/need to add the work and time onto your already busy schedule which could be better spent on other things, like leisure and family?

    Why even refinance?  It is likely to cost you money to do so, which is usually added onto the principal, meaning more interest to accrue, meaning a higher rent than one might otherwise think.  Why put more money down to make a 15-yr fixed payment cheaper?  Should or could that instant cash not be better applied elsewhere?  What rate of return are you expecting on the appreciation of the property alone?  Your monthly payment after that refi would be maybe a couple hundred less per month, and based on the cost of the refi, it could take you years to make that up.

    As for paying it off sooner, for an investment house, owning free-and-clear vs still having the mortgage is just another asset in just another form.  You may as well just raise rent or put future extra money into the principal; the unpaid mortgage principal is just leverage on the equity, just like if you took a personal loan to buy stocks.  Whether you have that $500K in the home equity vs in a brokerage account is fungible.

    You’re using some concerning language reflective of incomplete reasoning: a lot of “I think I can afford,” “strapping myself pretty thin,” but mostly “resident going onto fellowship for three years” plus considering moonlighting.  This is a big undertaking with many uncertainties while you’re about to be going through another big undertaking with many uncertainties.

    Either don’t refinance and rent it for higher, or just sell it.  If you’re breaking even with renting it out, then you’re at least having some of your mortgage being paid off for you, but it *has* to be worth the time and effort you’re putting into it…which is tough to do when you’re in training or working two jobs already.
    Click to expand…


    Yeah, I got on that Rich Dad, Poor Dad kick years ago and soon learned better.  I’m not saying there aren’t people who love RE investing and do it well, there obviously are, but not me.  That book and others like it make it sound a lot easier than it is.  It requires a lot more time and attention than most doctors have available given their career and family.

    The carrying costs of residential real estate (basically everything except principal and interest) average about 3% of market value per value.  And that happens to be approx the average annual rate of price appreciation too–about 3%/yr.  So don’t kid yourself that you just buy something, rent it out, and voila you’re rich in 10-20 years.  Not true.

    You really only make money on rents and saving some tax cost thru depreciation (which is recaptured when you sell).  For me, the thought of having unoccupied rental time while I am paying a mortgage and carrying costs on a property I don’t even use would drive me crazy.  I hate debt and I despise paying interest to other people.
    Click to expand…


    You are building up value in an asset at a discounted price that can be rolled into other assets very tax advantaged using 1031.

    However, I kind of agree, I dislike being a landlord as my supposed property manager has not been a great or responsive intermediary.

    Its also just so much easier from a time/effort standpoint to get return in the market. Point, click, and forget. Theres the correlated bit to it all but thats largely narrowed over time, and there are much clearer non correlated assets if you’re willing to do the mental work to understand them and implement it.
    Click to expand…


    I’m not sure what you mean there.

    The average rate of price appreciation for existing residential RE is about 3-4%/yr depending upon whose figures you read.  RRE is basically bond-like in that regard–inflation plus a small premium over time. And your carrying costs (insurance, HOA, prop taxes, maint/repair, furnishings, utilities) eats away most of that gain.  So to make any money it comes down to cranking out rental income which comes with its own set of challenges and problems as you mentioned.
    Click to expand…


    You are gaining principal value if you hold a mortgage, but someone else is paying it at least partially. If you’re not leveraged its just plain cash flow and wouldnt give much beyond cash flow.

    Still, usually just gains with inflation at best.
    Click to expand...


    Ok, gotcha.  Didn't realize you were referencing leveraging. I'm sure people who do that well can make big bucks.  I wouldn't have the stomach for it.  You run into a major housing coreection or lose some tenants and can't make the mortgage payments and suddenly you're in big big trouble being highly leveraged.

    Leave a comment:


  • Zaphod
    replied













    Strongly consider selling.  Shouldn’t have bought in the first place, but here we are…

    Real estate investing with single-family units can be more trouble than it’s worth.  It should be looked at primarily as a cash flow instrument as opposed to a bought-and-held asset, meaning your return should be considerably higher than your expenses plus a set amount for contingencies ($200/month is minimal; all it takes is $2,400/yr of expenses and you’re at a loss).  You should also get umbrella insurance for whatever your homeowner’s doesn’t cover.

    I know that a lot of people are influenced by Rich Dad Poor Dad, but it was written with someone in mind who is purely entrepreneurial, has time to do the job, and is comfortable with a high amount of leverage.  You also have enough work to do as a fellow, plus more work to do if you’re moonlighting…do you want/need to add the work and time onto your already busy schedule which could be better spent on other things, like leisure and family?

    Why even refinance?  It is likely to cost you money to do so, which is usually added onto the principal, meaning more interest to accrue, meaning a higher rent than one might otherwise think.  Why put more money down to make a 15-yr fixed payment cheaper?  Should or could that instant cash not be better applied elsewhere?  What rate of return are you expecting on the appreciation of the property alone?  Your monthly payment after that refi would be maybe a couple hundred less per month, and based on the cost of the refi, it could take you years to make that up.

    As for paying it off sooner, for an investment house, owning free-and-clear vs still having the mortgage is just another asset in just another form.  You may as well just raise rent or put future extra money into the principal; the unpaid mortgage principal is just leverage on the equity, just like if you took a personal loan to buy stocks.  Whether you have that $500K in the home equity vs in a brokerage account is fungible.

    You’re using some concerning language reflective of incomplete reasoning: a lot of “I think I can afford,” “strapping myself pretty thin,” but mostly “resident going onto fellowship for three years” plus considering moonlighting.  This is a big undertaking with many uncertainties while you’re about to be going through another big undertaking with many uncertainties.

    Either don’t refinance and rent it for higher, or just sell it.  If you’re breaking even with renting it out, then you’re at least having some of your mortgage being paid off for you, but it *has* to be worth the time and effort you’re putting into it…which is tough to do when you’re in training or working two jobs already.
    Click to expand…


    Yeah, I got on that Rich Dad, Poor Dad kick years ago and soon learned better.  I’m not saying there aren’t people who love RE investing and do it well, there obviously are, but not me.  That book and others like it make it sound a lot easier than it is.  It requires a lot more time and attention than most doctors have available given their career and family.

    The carrying costs of residential real estate (basically everything except principal and interest) average about 3% of market value per value.  And that happens to be approx the average annual rate of price appreciation too–about 3%/yr.  So don’t kid yourself that you just buy something, rent it out, and voila you’re rich in 10-20 years.  Not true.

    You really only make money on rents and saving some tax cost thru depreciation (which is recaptured when you sell).  For me, the thought of having unoccupied rental time while I am paying a mortgage and carrying costs on a property I don’t even use would drive me crazy.  I hate debt and I despise paying interest to other people.
    Click to expand…


    You are building up value in an asset at a discounted price that can be rolled into other assets very tax advantaged using 1031.

    However, I kind of agree, I dislike being a landlord as my supposed property manager has not been a great or responsive intermediary.

    Its also just so much easier from a time/effort standpoint to get return in the market. Point, click, and forget. Theres the correlated bit to it all but thats largely narrowed over time, and there are much clearer non correlated assets if you’re willing to do the mental work to understand them and implement it.
    Click to expand…


    I’m not sure what you mean there.

    The average rate of price appreciation for existing residential RE is about 3-4%/yr depending upon whose figures you read.  RRE is basically bond-like in that regard–inflation plus a small premium over time. And your carrying costs (insurance, HOA, prop taxes, maint/repair, furnishings, utilities) eats away most of that gain.  So to make any money it comes down to cranking out rental income which comes with its own set of challenges and problems as you mentioned.
    Click to expand...


    You are gaining principal value if you hold a mortgage, but someone else is paying it at least partially. If you're not leveraged its just plain cash flow and wouldnt give much beyond cash flow.

    Still, usually just gains with inflation at best.

    Leave a comment:


  • AZdoc68
    replied










    Strongly consider selling.  Shouldn’t have bought in the first place, but here we are…

    Real estate investing with single-family units can be more trouble than it’s worth.  It should be looked at primarily as a cash flow instrument as opposed to a bought-and-held asset, meaning your return should be considerably higher than your expenses plus a set amount for contingencies ($200/month is minimal; all it takes is $2,400/yr of expenses and you’re at a loss).  You should also get umbrella insurance for whatever your homeowner’s doesn’t cover.

    I know that a lot of people are influenced by Rich Dad Poor Dad, but it was written with someone in mind who is purely entrepreneurial, has time to do the job, and is comfortable with a high amount of leverage.  You also have enough work to do as a fellow, plus more work to do if you’re moonlighting…do you want/need to add the work and time onto your already busy schedule which could be better spent on other things, like leisure and family?

    Why even refinance?  It is likely to cost you money to do so, which is usually added onto the principal, meaning more interest to accrue, meaning a higher rent than one might otherwise think.  Why put more money down to make a 15-yr fixed payment cheaper?  Should or could that instant cash not be better applied elsewhere?  What rate of return are you expecting on the appreciation of the property alone?  Your monthly payment after that refi would be maybe a couple hundred less per month, and based on the cost of the refi, it could take you years to make that up.

    As for paying it off sooner, for an investment house, owning free-and-clear vs still having the mortgage is just another asset in just another form.  You may as well just raise rent or put future extra money into the principal; the unpaid mortgage principal is just leverage on the equity, just like if you took a personal loan to buy stocks.  Whether you have that $500K in the home equity vs in a brokerage account is fungible.

    You’re using some concerning language reflective of incomplete reasoning: a lot of “I think I can afford,” “strapping myself pretty thin,” but mostly “resident going onto fellowship for three years” plus considering moonlighting.  This is a big undertaking with many uncertainties while you’re about to be going through another big undertaking with many uncertainties.

    Either don’t refinance and rent it for higher, or just sell it.  If you’re breaking even with renting it out, then you’re at least having some of your mortgage being paid off for you, but it *has* to be worth the time and effort you’re putting into it…which is tough to do when you’re in training or working two jobs already.
    Click to expand…


    Yeah, I got on that Rich Dad, Poor Dad kick years ago and soon learned better.  I’m not saying there aren’t people who love RE investing and do it well, there obviously are, but not me.  That book and others like it make it sound a lot easier than it is.  It requires a lot more time and attention than most doctors have available given their career and family.

    The carrying costs of residential real estate (basically everything except principal and interest) average about 3% of market value per value.  And that happens to be approx the average annual rate of price appreciation too–about 3%/yr.  So don’t kid yourself that you just buy something, rent it out, and voila you’re rich in 10-20 years.  Not true.

    You really only make money on rents and saving some tax cost thru depreciation (which is recaptured when you sell).  For me, the thought of having unoccupied rental time while I am paying a mortgage and carrying costs on a property I don’t even use would drive me crazy.  I hate debt and I despise paying interest to other people.
    Click to expand…


    You are building up value in an asset at a discounted price that can be rolled into other assets very tax advantaged using 1031.

    However, I kind of agree, I dislike being a landlord as my supposed property manager has not been a great or responsive intermediary.

    Its also just so much easier from a time/effort standpoint to get return in the market. Point, click, and forget. Theres the correlated bit to it all but thats largely narrowed over time, and there are much clearer non correlated assets if you’re willing to do the mental work to understand them and implement it.
    Click to expand...


    I'm not sure what you mean there.

    The average rate of price appreciation for existing residential RE is about 3-4%/yr depending upon whose figures you read.  RRE is basically bond-like in that regard--inflation plus a small premium over time. And your carrying costs (insurance, HOA, prop taxes, maint/repair, furnishings, utilities) eats away most of that gain.  So to make any money it comes down to cranking out rental income which comes with its own set of challenges and problems as you mentioned.

    Leave a comment:


  • Zaphod
    replied







    Strongly consider selling.  Shouldn’t have bought in the first place, but here we are…

    Real estate investing with single-family units can be more trouble than it’s worth.  It should be looked at primarily as a cash flow instrument as opposed to a bought-and-held asset, meaning your return should be considerably higher than your expenses plus a set amount for contingencies ($200/month is minimal; all it takes is $2,400/yr of expenses and you’re at a loss).  You should also get umbrella insurance for whatever your homeowner’s doesn’t cover.

    I know that a lot of people are influenced by Rich Dad Poor Dad, but it was written with someone in mind who is purely entrepreneurial, has time to do the job, and is comfortable with a high amount of leverage.  You also have enough work to do as a fellow, plus more work to do if you’re moonlighting…do you want/need to add the work and time onto your already busy schedule which could be better spent on other things, like leisure and family?

    Why even refinance?  It is likely to cost you money to do so, which is usually added onto the principal, meaning more interest to accrue, meaning a higher rent than one might otherwise think.  Why put more money down to make a 15-yr fixed payment cheaper?  Should or could that instant cash not be better applied elsewhere?  What rate of return are you expecting on the appreciation of the property alone?  Your monthly payment after that refi would be maybe a couple hundred less per month, and based on the cost of the refi, it could take you years to make that up.

    As for paying it off sooner, for an investment house, owning free-and-clear vs still having the mortgage is just another asset in just another form.  You may as well just raise rent or put future extra money into the principal; the unpaid mortgage principal is just leverage on the equity, just like if you took a personal loan to buy stocks.  Whether you have that $500K in the home equity vs in a brokerage account is fungible.

    You’re using some concerning language reflective of incomplete reasoning: a lot of “I think I can afford,” “strapping myself pretty thin,” but mostly “resident going onto fellowship for three years” plus considering moonlighting.  This is a big undertaking with many uncertainties while you’re about to be going through another big undertaking with many uncertainties.

    Either don’t refinance and rent it for higher, or just sell it.  If you’re breaking even with renting it out, then you’re at least having some of your mortgage being paid off for you, but it *has* to be worth the time and effort you’re putting into it…which is tough to do when you’re in training or working two jobs already.
    Click to expand…


    Yeah, I got on that Rich Dad, Poor Dad kick years ago and soon learned better.  I’m not saying there aren’t people who love RE investing and do it well, there obviously are, but not me.  That book and others like it make it sound a lot easier than it is.  It requires a lot more time and attention than most doctors have available given their career and family.

    The carrying costs of residential real estate (basically everything except principal and interest) average about 3% of market value per value.  And that happens to be approx the average annual rate of price appreciation too–about 3%/yr.  So don’t kid yourself that you just buy something, rent it out, and voila you’re rich in 10-20 years.  Not true.

    You really only make money on rents and saving some tax cost thru depreciation (which is recaptured when you sell).  For me, the thought of having unoccupied rental time while I am paying a mortgage and carrying costs on a property I don’t even use would drive me crazy.  I hate debt and I despise paying interest to other people.
    Click to expand...


    You are building up value in an asset at a discounted price that can be rolled into other assets very tax advantaged using 1031.

    However, I kind of agree, I dislike being a landlord as my supposed property manager has not been a great or responsive intermediary.

    Its also just so much easier from a time/effort standpoint to get return in the market. Point, click, and forget. Theres the correlated bit to it all but thats largely narrowed over time, and there are much clearer non correlated assets if you're willing to do the mental work to understand them and implement it.

    Leave a comment:


  • AZdoc68
    replied




    Strongly consider selling.  Shouldn’t have bought in the first place, but here we are…

    Real estate investing with single-family units can be more trouble than it’s worth.  It should be looked at primarily as a cash flow instrument as opposed to a bought-and-held asset, meaning your return should be considerably higher than your expenses plus a set amount for contingencies ($200/month is minimal; all it takes is $2,400/yr of expenses and you’re at a loss).  You should also get umbrella insurance for whatever your homeowner’s doesn’t cover.

    I know that a lot of people are influenced by Rich Dad Poor Dad, but it was written with someone in mind who is purely entrepreneurial, has time to do the job, and is comfortable with a high amount of leverage.  You also have enough work to do as a fellow, plus more work to do if you’re moonlighting…do you want/need to add the work and time onto your already busy schedule which could be better spent on other things, like leisure and family?

    Why even refinance?  It is likely to cost you money to do so, which is usually added onto the principal, meaning more interest to accrue, meaning a higher rent than one might otherwise think.  Why put more money down to make a 15-yr fixed payment cheaper?  Should or could that instant cash not be better applied elsewhere?  What rate of return are you expecting on the appreciation of the property alone?  Your monthly payment after that refi would be maybe a couple hundred less per month, and based on the cost of the refi, it could take you years to make that up.

    As for paying it off sooner, for an investment house, owning free-and-clear vs still having the mortgage is just another asset in just another form.  You may as well just raise rent or put future extra money into the principal; the unpaid mortgage principal is just leverage on the equity, just like if you took a personal loan to buy stocks.  Whether you have that $500K in the home equity vs in a brokerage account is fungible.

    You’re using some concerning language reflective of incomplete reasoning: a lot of “I think I can afford,” “strapping myself pretty thin,” but mostly “resident going onto fellowship for three years” plus considering moonlighting.  This is a big undertaking with many uncertainties while you’re about to be going through another big undertaking with many uncertainties.

    Either don’t refinance and rent it for higher, or just sell it.  If you’re breaking even with renting it out, then you’re at least having some of your mortgage being paid off for you, but it *has* to be worth the time and effort you’re putting into it…which is tough to do when you’re in training or working two jobs already.
    Click to expand...


    Yeah, I got on that Rich Dad, Poor Dad kick years ago and soon learned better.  I'm not saying there aren't people who love RE investing and do it well, there obviously are, but not me.  That book and others like it make it sound a lot easier than it is.  It requires a lot more time and attention than most doctors have available given their career and family.

    The carrying costs of residential real estate (basically everything except principal and interest) average about 3% of market value per value.  And that happens to be approx the average annual rate of price appreciation too--about 3%/yr.  So don't kid yourself that you just buy something, rent it out, and voila you're rich in 10-20 years.  Not true.

    You really only make money on rents and saving some tax cost thru depreciation (which is recaptured when you sell).  For me, the thought of having unoccupied rental time while I am paying a mortgage and carrying costs on a property I don't even use would drive me crazy.  I hate debt and I despise paying interest to other people.

    Leave a comment:


  • Marko-ER
    replied
    One more thing:  what you would do with that money after you cash out?  Easy -- ROTH every year, max out your 401k/403b to 18K also on ROTH.  A number of training institutions also include fellows as eligible for profit-sharing After-tax plan (up to 54K/year), max those puppies out too.  Take advantage of your lower tax rates as a fellow for 3 years, while you can.  AMT is a biatch!

    Leave a comment:


  • Marko-ER
    replied
    Agree with all of the above.  Sell.  I have been in your shoes not that long ago, bought a house in year 2 of 4 in residency, preparing to stay for another 2-3 years for fellowship.  Wound up taking a different (shorter, less intense yet better) fellowship nearby and cashed out.  Yeah, those %ages for commission, loosing out on lower interest rates may sound painful, but nowhere near as painful as all the "what ifs":  what if the RE market in your area tanks and looses money, what if you wound up with a vacancy, what if you wind up with a "nightmare" tenant, what if your tenants do not get along (sounds like you have a roommate situation going), what if your tenants wind up using the property as airbnb sublease rental and what if you wind up getting sued... the list goes on & on.  There is a HUGE difference between being a tenant (live-in landlord) and being 2 hours away.  You have been there for 2+ years as your primary residence, you won't pay any taxes on appreciation; thank your lucky stars the place appreciated in value and cash out.  To add to the uncertainty -- you do not know where you are going to be (geographically) after the fellowship.  If you want to & you do your research, you can get a discount realtor like redfin (charging 1.5% instead of 3%) or if the market is particularly hot and you are willing to do research and legwork, you can also sell it yourself (that's what I did).

    Leave a comment:


  • DMFA
    replied
    Strongly consider selling.  Shouldn't have bought in the first place, but here we are...

    Real estate investing with single-family units can be more trouble than it's worth.  It should be looked at primarily as a cash flow instrument as opposed to a bought-and-held asset, meaning your return should be considerably higher than your expenses plus a set amount for contingencies ($200/month is minimal; all it takes is $2,400/yr of expenses and you're at a loss).  You should also get umbrella insurance for whatever your homeowner's doesn't cover.

    I know that a lot of people are influenced by Rich Dad Poor Dad, but it was written with someone in mind who is purely entrepreneurial, has time to do the job, and is comfortable with a high amount of leverage.  You also have enough work to do as a fellow, plus more work to do if you're moonlighting...do you want/need to add the work and time onto your already busy schedule which could be better spent on other things, like leisure and family?

    Why even refinance?  It is likely to cost you money to do so, which is usually added onto the principal, meaning more interest to accrue, meaning a higher rent than one might otherwise think.  Why put more money down to make a 15-yr fixed payment cheaper?  Should or could that instant cash not be better applied elsewhere?  What rate of return are you expecting on the appreciation of the property alone?  Your monthly payment after that refi would be maybe a couple hundred less per month, and based on the cost of the refi, it could take you years to make that up.

    As for paying it off sooner, for an investment house, owning free-and-clear vs still having the mortgage is just another asset in just another form.  You may as well just raise rent or put future extra money into the principal; the unpaid mortgage principal is just leverage on the equity, just like if you took a personal loan to buy stocks.  Whether you have that $500K in the home equity vs in a brokerage account is fungible.

    You're using some concerning language reflective of incomplete reasoning: a lot of "I think I can afford," "strapping myself pretty thin," but mostly "resident going onto fellowship for three years" plus considering moonlighting.  This is a big undertaking with many uncertainties while you're about to be going through another big undertaking with many uncertainties.

    Either don't refinance and rent it for higher, or just sell it.  If you're breaking even with renting it out, then you're at least having some of your mortgage being paid off for you, but it *has* to be worth the time and effort you're putting into it...which is tough to do when you're in training or working two jobs already.

    Leave a comment:


  • Craigy
    replied
    To the original question of 15 vs 30, if the interest rate is the same, why would you choose 15.  Just choose 30 and make extra payments if you want.

    Leave a comment:


  • adventure
    replied
     




    I think this is a perfect opportunity to ask: if you didn’t own this house, would you take out a $500k loan for a rental property? For this particular house—a $2700 rental income on a $500k house is a really really bad return on equity.  It’s much more likely that you could get double that rate of return on a cheaper property.  I know it’s not one of your two options, but i really think you should pull out the $200k in equity.  If you want to look for a more suitable rental property, that’s great—but these numbers don’t work well for RE investing
    Click to expand...


    Don't forget, OP is leveraging money to get a return, so it might not be such a bad deal.

    Al3x - you need to consider a few things.

    1. Cashflow to make it work. (that likely means 30yr, or sell). You can also pay more than the 30yr monthly payments, but you can't pay less than the 15. Also, keeping that emergency fund, and general extra for when you don't have full occupancy for a month, etc.

    2. You have to depreciate it, if you aren't living in it. This technically improves your tax situation at the end of the year -aka you "lost"  money (it's older, it depreciated) on the home, so (ideally) you earned less, or even "lost" money on the property (from a tax perspective), but you are actually gaining cashflow, and equity. However, when it stops being a rental property - when you sell (or move back in), you have to pay 25% of the depreciation back to Uncle Sam. (unless you do a 1031 rollover into the next rental).

    3. Do you really need to refinance this one? Also, if you refinance while living in in, great, you can likely do that.. However trying to refinance as a "rental" means an entirely different set of lending terms, because it isn't a house, it's an investment. Depending on your timeline, you could refinance and/or get a home equity loan (or line of credit) to use as a down payment on the next house? Those can be often be accomplished even if you aren't living in the place.

    4. If you know the guys who will rent it now, fine, that might work great. Perhaps after they rent it for a year, it'd be time to sell. You'd have a bit more equity, you can sell on a better timeline, and you don't have to start being a landlord with folks you don't know at all.

    5. Will you have time to deal w/ a rental?

    6. What are you investment goals? You should have an IPS, and make sure this fits in accordingly. If it does, great. If not, use the equity for something else. And enjoy the better debt to income ratio, when you need it.

     

    Leave a comment:

Working...
X