Hey all,
I am a 24 year old person living in Charlotte, NC. I am just finishing up school and will start my career in Charlotte this upcoming October. While I dont know exactly where I want to spend the rest of my life, Charlotte is a good fit and I see myself living here for at least 5 years (could be much longer). I am currently looking for a place to rent, and when I inquired about a place, the realtor informed me that the house ($290,000 estimate) had 14 applications for rent and the rental price had been driven up to 1500 a month (3 person 2 bath). While still a fairly low rental price, it sparked the idea that now could be a great time to buy a place to live in/rent out in the future.
I am fortunate enough to have a couple hundred thousand in the bank, but obviously it makes more sense to use the banks money, less risky as well. I guess my questions are;
Now seems like a great time to buy a house, am I wrong?
Does it make as much sense as I think it does to spend my money on mortgage payments rather than renting.
I’m concerned that If I do move in 5 years, the house will still be undervalued, as I’ve heard anything you buy now you should plan on holding on to for at least 10 years (arbitrary number) to really see decent appreciation.
If i were to move, most likely back to Raleigh, 3 hours away, would it be too difficult to rent a property from that far away?
Those are the only question I can think of now, as I havent done too much research. I really just wanted to know what you experienced REI’s could throw my way advice wise. Thanks for the help!
Now is a wonderful time to buy. The rule is buy when others are selling and sell when others are buying. That being said find a DEAL being 24 you really don't need a ton of space just for yourself. (Now I sound like a father arghhhh) Look for something that you could simply pay off yourself. Yes it is a wonderful Idea to use the banks money for the purchase I would highly recommend that you use some of your money to buy down the points on the loan. Rule of thumb there is that 1 point is equal to .25 percent interest on the loan. Meaning that if you get a 6.25% rate for every 1% you can buy down the interest rate. So if you find a $200,000 house every $2,000 buys down the rate by .25% So you can buy down the rate to 4.25% for roughly $16,000.00 at 6.25 your payment would be roughly $1,231.43 and you would pay $243,316.38 in just interest over 30 years. Where as at 4.25% your payment would be roughly $983.88 and your total interest over 30 years would be $154,196.72 So that $16,000.00 would save you over 80k in interest over the life of the loan. And would make the property cash flow if you decided to rent the property. Let me also point out that was on a 200k loan and didn't include down payment. Your second mortgage is 99% of the time the one that will kill you in interest so if you can put down 20% you can avoid not only the higher interest rate on the second it will also save you from having MI.. (Mortgage Insurance) and you can buy down the rate on the first. (Wow that was a wild rambling).. Now for the concern of moving and making this property a rental. If that property is renting for $1,500 a month you would cash flow $500 per month minus repairs and Property Manager fee's. Yet if you bought like this you would also pay back the difference between what you put down and what you saved in rent within the 5 years you are talking about staying in the area. Look at R.E.O. Property (Bank Owned) Try and stay away from Short Sales unless the person doing the Negotiations knows exactly what they are doing simply because they might take way too long to close and it sounds like you are wanting to move A.S.A.P. Other then that have fun in Real Estate.
From what I can understand, that makes plenty of sense. The question is, if I have the ability to put a much larger down payment on the property, what is an acceptable %. Obviously somewhere in between say a 10% down payment and buying the house straight up. If I want to treat this purely as an investment, with the majority of the gains coming at the time of sale (as opposed to rental income), does it not make since to put a huge downpayment on it to avoid the interest expense over the life of the loan? Also, thanks for the post, “buying down the rate” is not something I had seen before, even though the principal makes sense.
Have you thought about finding something with a rental unit, like a house with a basement apartment or a duplex? If the rental market is hot where you are, then you would be able to start cashing in on it now, instead of 5 years from now. Plus when you move you would have 2 rental units, not just one.
Depending on how adventurous you are, you could find a fixer upper, and convert it to a 2 unit property. It might help to talk to a real estate agent with experience working with investors to get local advice.
Although I support Figureditout’s sentiment of early payoff of your primary residence I like a little more flexibility in my approach. When I got the 30 year mortgage on my primary residence we also got a amortization schedule that shows the principal vs interest breakdown of each payment for 360 payments. With each payment we paid the regular mortgage payment plus the principal portion ONLY of as many of the next payments as we had spare money for and crossed them off the schedule. Each extra principal payment reduces the length of the mortgage by 1 month. With this approach you can add as many principal payments as YOU want whenever YOU want and have money available. We paid off the mortgage in 7 years this way.
Quick background about myself. I’m 25 and bought my first property in Charlotte about 18 months ago. Great city. It was a foreclosed condo (now renting this to my sister) and then a multi-family house in Chicago where I currently reside.
Where in Charlotte are you looking? I’m guessing South End, Elizabeth, or Dilworth?
I’ve answered your questions below with my opinions, but feel free to PM me. I’m always happy to talk Charlotte and discuss real estate.
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Now seems like a great time to buy a house, am I wrong?[/b]
In my opinion, it’s a great time to buy.
2) Does it make as much sense as I think it does to spend my money on mortgage payments rather than renting.
Yes. This is exactly what drove me to purchase a home. Also, if you end up purchasing a 3 bedroom house, I’d rent to friends and let them pay your mortgage.
3) I’m concerned that If I do move in 5 years, the house will still be undervalued, as I’ve heard anything you buy now you should plan on holding on to for at least 10 years (arbitrary number) to really see decent appreciation.
If the house is cash flow positive, what’s the real worry here? Appreciation should be a secondary factor.
4) If i were to move, most likely back to Raleigh, 3 hours away, would it be too difficult to rent a property from that far away?
And if I die in Raleigh. At least I will die free. There are plenty of property management companies in Charlotte.
Paying extra on your principal for a property you don’t plan to keep more than five years is not the most effective use of your money. I would not pay anything extra against the loan if you are going to sell and pay the loan off anyway in a few years.
Money you put toward equity in your house is dead. You can’t use it in an emergency, you can’t use it to put food on the table, you can’t use it to buy and income producing property.
If you plan to keep the property as your primary residence forever, then pay down the mortgage as quick as necessary to sleep well at night. Biweekly mortgages are often expensive. They charge setup fees and a processing fee every month. Better to just add extra to your regular monthly mortgage payment every month. As a rule of thumb, the monthly principal and interest payment on a 15 year loan is about 140% of the monthly principal nad interest payment on a 30 year loan for the same loan amount.