The Case Against Home Ownership

[MikeCF]

If you own in a place with high rents and steady demand for rentals you can "walk away" just as easily by handing the keys over to a management company and let them deal with the hassle of tenants for 9% of the rent. Even if unforseen maintenance costs and an empty month here or there eat into your profit, you're still breaking even and building some equity every month.

How many investment properties do you own?

I am going to buy my first properties this year.

It is not nearly as simple as you claim.

Or maybe it is.

Drop a data sheet on cash flow, etc.

Also, what happens if you get a tenant you have to evict? That's six months without rent.

Then what?

Do you always assume the most rosy scenario possible?

 

[T and A Man]

Rent is 100% lost money,

The interest component of your repayments is also 100% lost money.

landlords want to make their profits too. Mortgage may be lost money if the house is not near a city and you have to sell it after some time for a loss, because no one wants to live at the countryside or suburbs far away anymore.

For a young mobile (global) (professional). It doesn't make much sense. A option to consider for medium time spans is buying a apartment in a city and treating the mortgage payments as rent and sell it later on.

So your strategy is reliant on capital gains? ... that's called speculation.

 

[Que enspastic]

DC, where the rents are really quite insane. It's not as bad as New York, but in New York the for sale prices are even higher.

I've heard the women are great there.

Haha just playin.

Just ran some matchups (four cities in which I will most likely spend the majority of my working life) vs DC.

London and Melbourne are +67.70% and +55.48% more expensive than DC outside of the centre. This is on the fringes, first home buyer territory. New York is slightly cheaper -3.23% to buy than DC on the fringes. Hong Kong enters scary territory +132.97% more expensive than DC outside of the centre.

All of these cities are significantly more expensive than DC for City Centre properties (+134.97%, +37.71%, +67.50%, +209.51%). DC residents are also helped in having a much greater disposable salary after tax than Londoners ($3,810 vs $2,785) yet cheaper property.

This means there will be many young professionals who can afford to own property in DC that wouldn't if they moved to any of these other cities I've mentioned.

My long term plan is to forget trying to pay off an unaffordable mortgage in any of London/Melbourne/New York/Hong Kong. I'll just rent instead, still saving though, and ultimately aim to buy something in Bangkok in the city centre if anything (condominium maybe, if Thai property law allows it) later on in life.

 

[j r]

If you own in a place with high rents and steady demand for rentals you can "walk away" just as easily by handing the keys over to a management company and let them deal with the hassle of tenants for 9% of the rent. Even if unforseen maintenance costs and an empty month here or there eat into your profit, you're still breaking even and building some equity every month.

How many investment properties do you own?

I am going to buy my first properties this year.

It is not nearly as simple as you claim.

Or maybe it is.

Drop a data sheet on cash flow, etc.

Also, what happens if you get a tenant you have to evict? That's six months without rent.

Then what?

Do you always assume the most rosy scenario possible?

It should be obvious that I'm not trying to pass myself off as a real estate mogul.

I'm just saying that there is no one answer to rent or own. It all depends on your specific market. That's it.

As for cash flow, it's pretty simple. You add up the net present value of all the expected future cash inflows and you minus the down payment and the net present value of all the expected future cash outflows. It's always a good idea to stress test by underestimating inflows and overestimating outflows. There's risks, but there's risk with any investment.

 

[el mechanico]

Mike there's even way more to it than that and it's all America specific so you really can't go by what foreigners have to say about this...

If you want to invest for long term profit light industrial warehousing is the way to go. You're not responsible for shit and own all the improvements also only business people are your tennants not struggling families.

I can go way deeper into this if anyone wants to know..

One more thing about property managers.. Your money sits in their escrow and they deduct when repairs are needed if you're absent they use their own people or whoever the tenant calls and deducts from the rent. Youre getting fucked hard at that point.

I can go way deeper into that as well

 

[j r]

DC, where the rents are really quite insane. It's not as bad as New York, but in New York the for sale prices are even higher.

My long term plan is to forget trying to pay off an unaffordable mortgage in any of London/Melbourne/New York/Hong Kong. I'll just rent instead, still saving though, and ultimately aim to buy something in Bangkok in the city centre if anything (condominium maybe, if Thai property law allows it) later on in life.

In those cities I agree; although I really only know New York well. There are parts of Brooklyn, however, where I would buy a house for the right price.

 

[gfly]

Screw the math renters talk about the last book they read or the next vacation they are taking, owners talk about the last thing they painted or the next that needs painting. One other thing if you own and have kids you are owned by the local school district. Land ownership no longer means freedom, if you need a permit to put in a garden shed you don't have anything. I rent a small house in a nice suburb the swpl masters decided an old factory would be a great place for 200 low income apartments. Might be moving soon, the fix might be in and it will be old people, but who knows it could screw the town and schools up. If it does lots of people will not be able to afford to sell and move to the next, smarter town over. That said owning many houses seems to pay off for lots of people, if you have the inclination to make it work. Of course then you end being the guy trashing the town making section 8 money....

 

[void]

Rent is 100% lost money,

The interest component of your repayments is also 100% lost money.

landlords want to make their profits too. Mortgage may be lost money if the house is not near a city and you have to sell it after some time for a loss, because no one wants to live at the countryside or suburbs far away anymore.

For a young mobile (global) (professional). It doesn't make much sense. A option to consider for medium time spans is buying a apartment in a city and treating the mortgage payments as rent and sell it later on.

So your strategy is reliant on capital gains? ... that's called speculation.

No, but as you said. The money you lose is the interest of the mortgage. In the long run, a landlord will always try to make profit. A house is useful in retirement, because you only need to maintain it. If you have to pay rent with a low pension, you are fucked.

 

[Que enspastic]

Screw the math renters talk about the last book they read or the next vacation they are taking, owners talk about the last thing they painted or the next that needs painting. One other thing if you own and have kids you are owned by the local school district. Land ownership no longer means freedom, if you need a permit to put in a garden shed you don't have anything. I rent a small house in a nice suburb the swpl masters decided an old factory would be a great place for 200 low income apartments. Might be moving soon, the fix might be in and it will be old people, but who knows it could screw the town and schools up. If it does lots of people will not be able to afford to sell and move to the next, smarter town over. That said owning many houses seems to pay off for lots of people, if you have the inclination to make it work. Of course then you end being the guy trashing the town making section 8 money....

How are govts supposed to increase social housing if any housing complex will lower house prices in the area. Lower house prices leading to massive resistance among whichever community is nearest?

Or put up powerlines?

Or windpower?

Or anything that affects the value of houses in one area yet is immensely valuable to society as a whole?

I seriously don't know the answer to the NIMBY question.

 

[worldwidetraveler]

No, but as you said. The money you lose is the interest of the mortgage. In the long run, a landlord will always try to make profit. A house is useful in retirement, because you only need to maintain it. If you have to pay rent with a low pension, you are fucked.

If you have to maintain a house on a low pension you are fucked. The older you get, the less things you can do and need to hire out.

I just replaced a furnace in my aunt's house that cost just over 3k. I also need to fix her garage roof which will be thousands as well.

You would be better off renting on a low pension. You wouldn't be able to absorb those kind of costs.

 

[worldwidetraveler]

Mike there's even way more to it than that and it's all America specific so you really can't go by what foreigners have to say about this...

If you want to invest for long term profit light industrial warehousing is the way to go. You're not responsible for shit and own all the improvements also only business people are your tennants not struggling families.

I can go way deeper into this if anyone wants to know..

One more thing about property managers.. Your money sits in their escrow and they deduct when repairs are needed if you're absent they use their own people or whoever the tenant calls and deducts from the rent. Youre getting fucked hard at that point.

I can go way deeper into that as well

I was always interested in those triple net leases. I like real estate, I just find better ways of making money without being tied down to it.

I got a buddy here who has been buying up commercial properties. The financing on those typically only last for 5 years before they need to refinance. With property valuations being down, he has been scooping them up since many of those can't get a big enough loan.

 

[scotian]

I bought a condo two years ago and am happy with the decision, in that time I've also spent almost a year traveling all over the world so its not really tying me down. I decided to buy a condo because I was sick of living with roommates and wanted a nice place of my own in a good part of town. I also literally had more money than I knew what to do with and after sitting down with a financial adviser blab on about mutual funds and stock markets, I decided I'd just put my money into real estate.

I was stoked to be moving into my new place but three days after buying it I quit my job and took another one in a different city where the employer put me up in a company condo, I've been living in company accommodation ever since. At first I was worried about it not renting easily or not covering my expenses, to be honest, I didn't do much home work but I found a great property manager who found an excellent tenant within a week. My condo has been rented out by the same guy ever since and just this month he signed another year lease. Here's some details about my place:

-Built in 2011, the unit was brand new when I bought it.
-950 square feet, two bedrooms, two full bathrooms.
-Located in one of the most desirable parts of the city, drive downtown in about five minutes, walk to entertainment district in 15 minutes, five minute drive to a huge university, five minute walk to a college, two minute walk to a shopping plaza with a big grocery store. Basically I wouldn't need a car if I lived there.
-Rent is $1500/month
-Mortgage is $1050/month, condo fees are $230/month and I pay the property manager 10% of the monthly rent, $150/month. ($1050+$230+$150= $1430)
-Property taxes are $2300/year, I pay it each June in one lump sum.

I haven't been in the condo since I handed the keys over and have only spent a couple of weeks in the city in the past couple of years, I've been working out of town and traveling. I've had no problems whatsoever and my property manager assures me that I'll never have a problem renting it out. I agree that some ownership isn't for everyone, especially if you're really stretching your budget just to buy, there's definitely nothing wrong with renting. In my situation, it makes sense because my career isn't location independent, I work in the oil biz and the city of Edmonton is basically the epicentre of oil activity in Canada.

Since I"m technically homeless, I'm actually thinking of buying another condo in Edmonton but not so sure that I want to carry such a high debt load, we'll see.

 

[WanderingSoul]

Scotian, has your property value raised much since you've bought it?

 

[scotian]

Scotian, has your property value raised much since you've bought it?

I haven't had it assessed or anything but I found a listing for a unit in the same building that's going for $9K more than I bought it for, my place is about 50 square feet bigger, you can see the condo here. My unit is exactly the same except the interior colours are different, I like the place but the spare bedroom is a bit small as are both bathrooms, I don't think I'd have a roommate if I live there but the unit is comfortable for a single person.

 

[WanderingSoul]

Place looks sweet bro. Kitchen makes me jealous. I'd kill to have that here in Bangkok.

 

[King Solomon]

Hey Guys

I've been a Realtor for 17 years, and I want to offer my 2 cents.

First off, I'm not big on homeownership right now, for me. I had the house on the hill, exotic cars, everything... and lost it all. I'm not reaching for the brass ring, or the American dream. For that matter, my ex-wife wiped me out and I'm just now getting back on my feet. Shit economy didnt help.

I don't like having so much to lose, so much to worry about.

I did like the suggestion in this thread about buying a place in the Phillippines, for instance, sitting tight here whilst paying it off, and then moving for good or use it as a second home, whatever. Problem with that is, what if you get sick of the Phillippines?

So, I offer another approach, which I may well execute myself over the next few years:

Why not get a shitty/basic little condo around 40 to 50K? Preferably a 2 bedroom, and at least 1.5 baths. You also want washer/dryer hookups and maybe some kind of balcony/landing. It doesnt matter if its in a lower-end area. Live in it, with a mortgage (assuming you couldn't pay cash) and focus your efforts on paying it off. Make 40k a year? Focus half of that on paying off your condo. In 2 years or so, its paid off.

Forever.

Now, go buy another condo just like it. Maybe even in the same complex. Get good at snatching a good deal (I can offer more on this) and repeat. Another 2 years, another paid-off condo (use the cash-flow from the first rented-out paid-off condo to accelerate the payoff on the 2nd one)

Now you own 2 condos, free and clear. Why not do this once more? Get a 3rd condo. Focus on getting it paid off, and focus all your cash-flow from the other condos to pay it off.

5 to 6 years, 3 condos owned free and clear.

This is low-risk because anyone can afford the payment on these, even with a shit job, so you can't lose your ass if your job tanks. Further, because they are condos, there are no roofs to fix, nothing. No maintenance outside an occasional toilet tweak.

Now, you'll always have somewhere to live for the rest of your life, and don't have to answer to any landlord or mortgage company.

Ready to ex-pat or travel extensively? Great!

Get a prop mgmt co to rent out the three units and wire the proceeds into your account every month. Since there are no mortgages, the monthly proceeds from 3 condos will be respectable.

Move to anywhere you want in the world, and enjoy your retirement.

cheers.

 

[Samseau]

Why not get a shitty/basic little condo around 40 to 50K? Preferably a 2 bedroom, and at least 1.5 baths.

What shithole city has such places to buy?

 

[Samseau]

If you own in a place with high rents and steady demand for rentals you can "walk away" just as easily by handing the keys over to a management company and let them deal with the hassle of tenants for 9% of the rent. Even if unforseen maintenance costs and an empty month here or there eat into your profit, you're still breaking even and building some equity every month.

How many investment properties do you own?

I am going to buy my first properties this year.

It is not nearly as simple as you claim.

Or maybe it is.

Drop a data sheet on cash flow, etc.

Also, what happens if you get a tenant you have to evict? That's six months without rent.

Then what?

Do you always assume the most rosy scenario possible?

Actually Mike it is a lot simpler than you think;

When you sign your property over to a real estate agent (or renter agent, or whatever they call themselves) you ask them:

- How do you make sure the tenets are trustworthy?
- How do you know they will pay on time?
- What if they do not pay?

You can make sure that the company assumes some of the risk in the event of such happenings. For example:

- They make the tenets sign a lease which says if they fail to pay for two months they get an automatic eviction
- They have insurance of certain emergencies (fires, etc)
- They may pay out of their own pocket for tenets who do not pay on time (for a month out of two months or something like that)

Shop around and find the best property manager for you and see what they offer. All in all, this is a landlord's market... rents are rising through the roof in most urban areas and it's easy as fuck to cash in on it. I know a bunch of older guys all making bank on their property investments right now.

 

[scotian]

Why not get a shitty/basic little condo around 40 to 50K? Preferably a 2 bedroom, and at least 1.5 baths.

What shithole city has such places to buy?

Exactly, in the city I bought in, the cheapest condos were in the $80-100K range, located in ghetto areas and the tenants tend to be drug addicts, welfare bums and refugees from third world shit holes. Who wants to live in a place where your car is going to get broke into all the time or you risk getting jumped by hood rats every time you walk out your door? Myself, I want to live in a place where I can have girls over or friends and they think I have a nice place, something I can take pride in I guess and live comfortably. I'm glad that I bought a rather expensive condo, the rent is fairly high so I don't have to deal with riff raff tenants simply because they can't afford the high rent.

King Solomon, what are your thoughts on income to debt ratios? I was told by several people that you want to keep your mortgage under 3 times what your annual income is, mine came in at around 2.5 but now I'm thinking of buying another condo and that would put up to around 5 times my annual income. Also, why the big rush to get the condos paid off ASAP? My mortgage is for 25 years and if I keep it rented out the entire time, the tenant pays it off for me, I can use my money to buy another property, invest elsewhere or blow it on things like travel.

Ideally I'd like to have 2-3 properties paid off by the time I'm 55, that gives me 25 years to do so, I'm thinking 2 condos (which tenants will pay off) and one small house which I'd likely pay off myself, all of these properties would be in the same city and likely cost $250-325K.

Is anyone on here currently doing something similar?

 

[bacon]

I own a condo with no mortgage. Rent it out for little under 10% what other similar condos in my area go for that way the tenant is more inclinded to stay(I think time to advertise, clean the place up and move another tenant is lost money). I still have to pay property taxes, HOA, home insurance and the management company, that said in the 3 years I have done this it has so far been a very easy passive investment which I make on average maybe 450 profit a month(75k 1 bedroom condo).

MIKECF if you are curious about my involvment on this it is basically nothing outside mailing a few checks over the couse of the year (hoa, property taxes etc). The management company takes care of everything else related to the tenant.