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Still having trouble figuring out of being a landlord of a second home is good or bad in this environment. You owe a fixed-rate mortgage, and you're charging re

Still having trouble figuring out of being a landlord of a second home is good or bad in this environment. You owe a fixed-rate mortgage, and you're charging rent.

msegal 9y ago
Rents will increase, your mortgage will not if you're locked in. The resale value of your house will be pushed down by reduced affordability, but pushed up by higher rents and cost of goods. Ultimately owning a hard asset in an inflationary period is a good idea.
- debacle 9y ago
  The value of most residential property is tied to demand, and demand is tied to interest rates and ability to borrow. If most people can't borrow 300k+, most houses are going to see a drop in value.
harry8 9y ago
If the real value of the residential property in future sale price and rent received goes absolutely nowhere. Having it mortgaged will cause you to win big. Stupid example, say inflation goes to 7% year on year. Your house is say $100,000 totally financed by debt. You pay interest only on your loan. 10 years time, your loan is $100,000 and is worth $50,000 in 2018 dollars due to the inflation. If you have a 0% real return on the value of your house you can sell it for $200,000 in 2028. A nominal return of 100% over 10 years even with zero increase in real value of the house. So if you have a good investment property it will go really well. But if you have something that becomes a future slum, you can still lose.
- djrogers 9y ago
  That completely ignores the downward pressure on home prices that a high interest rate has. Inflation at 7% would be tied to significantly higher interest rates, which would reduce the buying power of potential buyers, which reduces home prices. Leaving aside all the mechanics of timing the market such that you have a huge, low interest, fixed rate mortgage in hand when inflation magically jumps to 7%.
  - harry8 9y ago
    The first line says precisely this is the assumption. The second declares the example about to be relayed to demonstrate the effect of unanticipated inflation as a "stupid example." Sorry that wasn't clear enough for you. Yes anytime you invest in an asset that is a total loser financing working for you or against you is a case of "how bad you lose."

Still having trouble figuring out of being a landlord of a second home is good or bad in this environment. You owe a fixed-rate mortgage, and you're charging rent.

msegal 9y ago

Rents will increase, your mortgage will not if you're locked in. The resale value of your house will be pushed down by reduced affordability, but pushed up by higher rents and cost of goods. Ultimately owning a hard asset in an inflationary period is a good idea.

debacle 9y ago
The value of most residential property is tied to demand, and demand is tied to interest rates and ability to borrow. If most people can't borrow 300k+, most houses are going to see a drop in value.

harry8 9y ago

If the real value of the residential property in future sale price and rent received goes absolutely nowhere. Having it mortgaged will cause you to win big. Stupid example, say inflation goes to 7% year on year. Your house is say $100,000 totally financed by debt. You pay interest only on your loan. 10 years time, your loan is $100,000 and is worth $50,000 in 2018 dollars due to the inflation. If you have a 0% real return on the value of your house you can sell it for $200,000 in 2028. A nominal return of 100% over 10 years even with zero increase in real value of the house. So if you have a good investment property it will go really well. But if you have something that becomes a future slum, you can still lose.

djrogers 9y ago
That completely ignores the downward pressure on home prices that a high interest rate has. Inflation at 7% would be tied to significantly higher interest rates, which would reduce the buying power of potential buyers, which reduces home prices. Leaving aside all the mechanics of timing the market such that you have a huge, low interest, fixed rate mortgage in hand when inflation magically jumps to 7%.
- harry8 9y ago
  The first line says precisely this is the assumption. The second declares the example about to be relayed to demonstrate the effect of unanticipated inflation as a "stupid example." Sorry that wasn't clear enough for you. Yes anytime you invest in an asset that is a total loser financing working for you or against you is a case of "how bad you lose."