4 minutes to read

Help A Blogger: To Buy or Not Buy a 2nd Home?

Help A Blogger.. I have for the last year been “forced” into owning  an investing property that I charge $1100 a month for, yet my monthly mortgage and taxes comes to about $1500 monthly–a $400 net loss.  I was “forced” into this “good deal” when unable to sell my home in Kingsbay, GA’s depressed market.

This mortgage was obtained when I unfortunately thought that a 30 year fixed mortgage was the way to go. That’s when I realized that after paying $46,000 in interest payments on this loan, only $6,000 was taken off the original principal.  But despite my realization, because of the depreciated value of what is now an “investment property”, I can’t refinance into a 15 year fixed mortgage right now unless I want to put about $48,000 down at closing (20% home equity required at closing + closing cost).  So for now, I’m simply adding the $1100 monthly that I receive from my renters onto the home until its paid off–which should be about eight years assuming that the home stays rented.

But that’s not the problem. The problem is that I’m moving again, and will be in Charlotte, NC for 36 months. Because of this, I want to purchase a home there (The depressed market is booming there!). I can literally purchase (and by purchase I mean mortgage) a home that is less than 5 years old at about $40 per square feet. In other words, 2500 sq. ft, 4 br, 3 bath home in a newly developed suburban area is only $100,000.  Doing a simple Yahoo! Real Estate search exposes at least 5000 bank-owned or foreclosure properties in the area. Getting a 15 year fixed mortgage here will be the equivalent of what I would pay if I simply rented a home.

With all things, there is a huge bad side–nothing can’t be all peaches and cream. I will without a doubt be forced, by the nature of my career, to move out of the area again after my 36 month tour. After which, assuming the house will not sale, I’d be now “forced” into two investment properties, and if there are no tenants simultaneously at any one time, I’ll be paying out out the Wazoo!

So? Should I rent in NC? Will I be preventing wealth if I buy? The craziness in me says, “go for it!”  The conservative side of me says, “no way!”

Am I not preparing for the unexpected? Not thinking about it? Setting an ineffective goal? I’ll leave this up through the weekend. I’m curious to hear from anyone else.

Comments

  1. Romeo,

    I’ve begin to see the value in renting everything for one simple reason: I get bored and want new stuff. Furthermore, in case of financial downturn, if you’re renting, it’s easy to simplify your life. In other words, say you rent your house, lease your car, and rent all the furniture and appliances in your house. All of your possessions can liquidated very quickly freeing up cash-flow for things that are more important to you. You obviously pay a premium for this, but not in all cases. For example, someone gets to live in a house that ordinarily runs $1500 for only $1100 and they don’t have any financial liability associated with that situation aside from a small security deposit.

    Long story short, look at the most probable outcome. In 36 months you will most likely be renting that house out and liable for another $100K. Do you want to live there eventually? Is the potential gain through appreciation worth your time and stress? Are there places you could put that money to better use?

    -Rich

    • Romeo Clayton says:

      Rich,

      You definitely bring up some great points. The best one being the question, “do you want to live there eventually?” The answer is yes, but even if I do move back there… eventually, it wouldn’t be for at least six years. And a lot can happen in six years. Maybe I’ll find some other city that I’d like to live in, and like you said, then I would have TWO liabilities. Even If could afford them both, obviously, I’d then have at least $2500 a month illiquid, which is anti-diversification.

      It sounds like if I really want to do this, I’d have to sell the home in GA first.

  2. I have to disagree. I say buy while the market is perfect for buyers.

    Rich stated

    “For example, someone gets to live in a house that ordinarily runs $1500 for only $1100 and they don’t have any financial liability associated with that situation aside from a small security deposit.”

    The market was completely different several years back and that why this situation is happening. You even stated you can buy for the same cost as renting. It’s better to have that investment then simply tossing the money out the window.

    I have a situation similar to yours. I pay an extra 350.00 a month on a house I bought 8 years ago in Ohio. But I also have 3other houses and a condo that I turn a nice profit from simply renting the properties $300 to $400 hundred more than my Monthly Mortgages. I was able to put down a larger payment on all these properties unlike my Ohio which of course lowered my monthly payments.

    I get bored easily also, that’s when it’s time to make some modifications to improve your home (which will increase value). (Do It yourself type of jobs, buy a book, go to home Depot,) and when you get bored with that, it’s time for a new home. And your once house of excitement which is now boring…. is now an excitement to someone else.

    Investing takes time, in the end it will pay off. I say Buy! Buy as much as you can.

    SSWI

    • Romeo Clayton says:

      SSWI,

      You also bring up some good points, but after thinking about it more, putting away $3500 a month in mortgage payments doesn’t leave much room for diversification. Furthermore, If I needed for whatever reason to use the $1500 a month (after I’ve move from my second property) for some other opportunity, it would be harder to do so.

      I guess if I were netting a positive income from the first house, it would be a no-brainer. But I’m not even clearing the mortgage payments with the rent right now.

      I think that I’ll look at this situation again in about a year once I’m able to refinance my home with a ten or twelve year mortgage.

      Thanks again, SSWI

  3. I say buy the home. Then sell it in 36 months once you’re ready to move. You will make at least 20k because the market will have appreciated by then. (Teeheehee 🙂 hindsight is 20/20 right?)

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Leave a Reply

%d bloggers like this: