I don’t know where you are. You must live in Millionaretown. If you rent a house for $2,000/month you have to have a tenant that makes $75,000/year. The average American household income is $48,000/year. I think $75,000/year is in the top 5th of all wage earners in the USA. Be prepared to hold on to that house looking for a tenant.
Both houses are in the same city, a 2nd or 3rd tier suburb of Mpls. Median personal income for the area is $75,000 per person, or $80,000 per household.
Some people are hesitant to buy right now, and it’s also a good candiate for divorced families.
To buy in the area, the payment for equal housing would be about $2000 to $2200.
Thanks. I’m not sure if I was aware of that but I’ll keep that in consideration depending on what I do.
I’m a little confused. In your original post, you said you paid 65% of the PREVIOUS TAX ASSESSED VALUE ( which you just said was $620,000). That puts you at $403,000. Add in your rehab of $35,000 and you’re at $438,000.
If you put 20% down and assume your mortgage is a 30yr 7% term, You’re new mortgage is $2331/mo. NOT including tax & ins. Your old mortgage was $1100/mo. You’re now paying $1231 more than you were before. Unless you’re renting out your old house for $1231 more than your mortgage, you’re losing money. Will your old house collect $2331/mo.? So far you’ve spent about $80,000 up front and you’re currently spending $1231/mo. Taxes & appreciation are the last reason to invest. You need positive cashflow to be a good investment. I think that money could’ve have been spent on an invetment that produces acutal cassflow.
Rate on the new house is 5.75%, however you are right, the new mortgage is about $900 higher than the old one. But at the same time my family is enjoying the extra square feet, nicer lot, nice neighborhood, etc. Also, each payment each month is gaining me $350 in equity on the new property. So between the two properties, I’m gaining $600 - $700 in equity (lower mortgages) per month no matter if the property appreciates or not.
The 80k that is down is spent, but it’s not gone, it added 80k to my equity. So say market value is exactly what I paid, I still have 80k in equity. I’d argue that it’s already gained value instead of lost value in the time I’ve owned it. The return depending on investment choice could have been anywhere from -20% to + 20% depending on investment choice, but guarranteed in a CD, you’d be looking at 4 or 5%.
Cashflow is good, but if you have an opportunity for $200k in equity an a break even on cashflow, isn’t that an okay deal?
Well, that’s a good rate. I tink it’s important not to think of your home as an investment. Unless your home gives you cashflow, it’s not an investment property. As good as equity is, actual cashflow is better. If you break even on cashflow and have to tap into the equity for any reason, the added debt that you incur will come from YOUR pocket. Not the property, like it’s supposed to. One other note, the equity in your home will fluctuate with the market value. If the market is in a downturn for a long time and you have to sell for whatever reason, your equity will be reduced. However, I don’t see your property losing 200K in equity. If you were to ever tap into the equity to purchase an income property, that new property would have to have enough income to cover the its own expenses,mortgage,cashflow AND the added debt of the tapped equity. This way, someone else is paying for you debt. If I tapped $10,000 of equity for a down payment on an income property, and the added debt of my tapped equity increased my mortgage by $200, the new property would have to give enough income to support itself and pay for the added $200 debt. BOY! DID I TAKE THE LONG WA OR WHAT?!! :biggrin
I’m not sure about that. Is land an investment? Does it provide cashflow?
Although a residence doesn’t provide cash flow, it does prevent people from needing to spend money on rent. Also, it provides you with a place to conduct your business so you don’t have to lease an office.
Any asset that pays you actual money is truly an asset. While you can certainly make money when you sell it for more than you paid over the time you had it, the fact remains that you have to sell it or take out a loan on it in order to get actual money from it. Actually, as long as you’re paying a mortgage on it, the house is an asset to only the bank because you’re paying the bank actual money each month. That was a hard concept for me to get my mind around at first. But if I buy an income property that pays for itself financially without money from my pocket, I can buy as many as I can get my hands on. If I have to take money from my pocket to purchase and keep the asset, I can only buy so many before my money runs out.
as·set /ˈæsɛt/ Pronunciation Key - Show Spelled Pronunciation[as-et] Pronunciation Key - Show IPA Pronunciation
–noun 1. a useful and desirable thing or quality: Organizational ability is an asset.
2. a single item of ownership having exchange value.
3. assets, a. items of ownership convertible into cash; total resources of a person or business, as cash, notes and accounts receivable, securities, inventories, goodwill, fixtures, machinery, or real estate (opposed to liabilities).
Real estate is an asset…even if you are paying a mortgage on it.
Keith
That definition of asset encompasses so many areas. I suppose I should’ve indicated that my definition is just that. We all have assets (items that can be exchanged for money). Also, I think the terms “investment” and “asset” are getting used interchangeably. I try to narrow the term asset to help me define what is a good asset and a bad asset. This helps to keep my spending focused on assets that are good assets. So I’ll just say this way. My definition of a TRUE asset is something that pays for itself, increases in value and pays me actual money while I own it.