4 ms·

The idea is to just rent the house with the 2.75% interest rate or house hack it while you live there. Being below inflation, your mortgage payment will likely

The idea is to just rent the house with the 2.75% interest rate or house hack it while you live there. Being below inflation, your mortgage payment will likely be below the comparable rents for essentially forever. So unless you absolutely need the cash out of that second home, should have zero reason to sell ever.

toomuchtodo 4y ago
It works as long as you can service the debt. Low or no reserves and you lose your income or your tenant defaults and you can’t make it through to eviction and re-renting? Godspeed to you. I’ll give the same advice I gave in 2000 and 2008: don’t lose your job, everything else you can figure out on the fly.
- Ekaros 4y ago
  Who knows, maybe depression will be answered by eviction moratorium. Can't let the people on the streets, so let's allow them to not pay rents...
  - toomuchtodo 4y ago
    Maybe! I foreclosed on my last home during the 2008 crises because I was so far underwater, the credit derogatory was worth it. It’s still not worth what I paid for it 14 years and two owners later. Gotta plan for nobody coming to save you but you, but if there is stimulus, support, whatever, take the money. No extra credit for playing life on hard mode out of pride or fear of moral hazard.
buscoquadnary 4y ago
Sure as long as nothing ever goes wrong, like an accident leaving you with a disability, a change in employment, a chronically terminally ill family member, things like that never happen to anyone though, well they happen to other people, just not me.
- cinntaile 4y ago
  Things go wrong, sure. But at the same time you can't plan your life according to worst case scenario's, you won't get anywhere that way. Have some contingency plans, no need to overdo it.
- awinder 4y ago
  These are all pretty much problems on a short horizon and only if you compromise emergency savings to finance your rental property, which isn’t a great idea. Once you’ve established rental income and a few years of paying on loan this situation flips and your income stream becomes an asset in these situations. Also purchase disability insurance, there’s no reason to excessively worry about a tail risk that is very affordable to protect against. If you’ve got second house money you had disability insurance money a while ago.
dylan604 4y ago
If you purchased the house with a personal mortgage, is the terms for that note not written so that it is expected to be your primary domicile while also explicitly stating that it will not be a rental property? Of the mortgages that I've had in the past, this is how they were written. Or were we specifically talking about how to handle that 2nd home. I don't have experience on those contracts.
- anonAndOn 4y ago
  It's written as your primary domicile when you take the loan. There is no way to enforce that it remains as such for the life of the loan.
- dcole2929 4y ago
  No buying a house with a personal mortgage requires you to have that house as your primary residence only for 1 year. That's pretty much the core behind the concept of house hacking. Buy, live there for 1 year, move and rent it out, repeat.
LeanderK 4y ago
This sounds like it has an incredible tail-risk. A sound plan if everything goes to plan but if anything serious happens you might loose big time. Everything is essentially placed on one card. I am not sure how much you can reduce it with insurance (e.g. against renters unable to pay, renters damaging your home, damage from natural disasters or just random repair costs due to unforeseen failure of some equipment etc.) without making the whole calculation turn upside down. I wouldn't finance everything using debt with this reasoning. Also, is it that easy to rent if you move away? It's different if you live in it, but casually buying a house and renting it sounds like a huge risk.
- HeyLaughingBoy 4y ago
  It is a risk, but so are most money-making endeavors outside of just getting a job.
gruez 4y ago
>Being below inflation, your mortgage payment will likely be below the comparable rents for essentially forever. The price to rent ratio is above 20 in most major us cities[1]. In hot markets like Seattle or Oakland it's even above 30. With a price to rent ratio of 20, 2.75% interest, and $1 million house, your monthly mortgage payment would be $4613, but you'll only be bringing in $4167 in rent, which means a loss of $446/month. This is before expenses like maintenance or property taxes, which would make the loss even higher. With a price to rent ratio of 30, this is even worse, with $2778 in rent and a loss of $1835 before expenses. [1] https://smartasset.com/data-studies/price-to-rent-ratio-in-the-50-largest-us-cities-2022 https://smartasset.com/data-studies/price-to-rent-ratio-in-t...
- foobarian 4y ago
  True for cash flow, but don't forget that some of that mortgage payment will come back out when sold.
- HeyLaughingBoy 4y ago
  And I'd be paying $446/month to own a $1M house. Sounds like a good deal to me, and that's before taking the tax deductions on interest, property taxes and maintenance (which is deductible, because it's a rental property). Now you've got me thinking about getting back into the rental game...
  - Ancalagon 4y ago
    also need to factor in that rent in those markets continues to go up YoY

toomuchtodo 4y ago

It works as long as you can service the debt. Low or no reserves and you lose your income or your tenant defaults and you can’t make it through to eviction and re-renting? Godspeed to you. I’ll give the same advice I gave in 2000 and 2008: don’t lose your job, everything else you can figure out on the fly.

Ekaros 4y ago
Who knows, maybe depression will be answered by eviction moratorium. Can't let the people on the streets, so let's allow them to not pay rents...
- toomuchtodo 4y ago
  Maybe! I foreclosed on my last home during the 2008 crises because I was so far underwater, the credit derogatory was worth it. It’s still not worth what I paid for it 14 years and two owners later. Gotta plan for nobody coming to save you but you, but if there is stimulus, support, whatever, take the money. No extra credit for playing life on hard mode out of pride or fear of moral hazard.

buscoquadnary 4y ago

Sure as long as nothing ever goes wrong, like an accident leaving you with a disability, a change in employment, a chronically terminally ill family member, things like that never happen to anyone though, well they happen to other people, just not me.

cinntaile 4y ago
Things go wrong, sure. But at the same time you can't plan your life according to worst case scenario's, you won't get anywhere that way. Have some contingency plans, no need to overdo it.
awinder 4y ago
These are all pretty much problems on a short horizon and only if you compromise emergency savings to finance your rental property, which isn’t a great idea. Once you’ve established rental income and a few years of paying on loan this situation flips and your income stream becomes an asset in these situations. Also purchase disability insurance, there’s no reason to excessively worry about a tail risk that is very affordable to protect against. If you’ve got second house money you had disability insurance money a while ago.

dylan604 4y ago

If you purchased the house with a personal mortgage, is the terms for that note not written so that it is expected to be your primary domicile while also explicitly stating that it will not be a rental property? Of the mortgages that I've had in the past, this is how they were written. Or were we specifically talking about how to handle that 2nd home. I don't have experience on those contracts.

anonAndOn 4y ago
It's written as your primary domicile when you take the loan. There is no way to enforce that it remains as such for the life of the loan.
dcole2929 4y ago
No buying a house with a personal mortgage requires you to have that house as your primary residence only for 1 year. That's pretty much the core behind the concept of house hacking. Buy, live there for 1 year, move and rent it out, repeat.

LeanderK 4y ago

This sounds like it has an incredible tail-risk. A sound plan if everything goes to plan but if anything serious happens you might loose big time. Everything is essentially placed on one card. I am not sure how much you can reduce it with insurance (e.g. against renters unable to pay, renters damaging your home, damage from natural disasters or just random repair costs due to unforeseen failure of some equipment etc.) without making the whole calculation turn upside down. I wouldn't finance everything using debt with this reasoning. Also, is it that easy to rent if you move away? It's different if you live in it, but casually buying a house and renting it sounds like a huge risk.

HeyLaughingBoy 4y ago
It is a risk, but so are most money-making endeavors outside of just getting a job.

gruez 4y ago

>Being below inflation, your mortgage payment will likely be below the comparable rents for essentially forever. The price to rent ratio is above 20 in most major us cities[1]. In hot markets like Seattle or Oakland it's even above 30. With a price to rent ratio of 20, 2.75% interest, and $1 million house, your monthly mortgage payment would be $4613, but you'll only be bringing in $4167 in rent, which means a loss of $446/month. This is before expenses like maintenance or property taxes, which would make the loss even higher. With a price to rent ratio of 30, this is even worse, with $2778 in rent and a loss of $1835 before expenses. [1] https://smartasset.com/data-studies/price-to-rent-ratio-in-the-50-largest-us-cities-2022 https://smartasset.com/data-studies/price-to-rent-ratio-in-t...

foobarian 4y ago
True for cash flow, but don't forget that some of that mortgage payment will come back out when sold.
HeyLaughingBoy 4y ago
And I'd be paying $446/month to own a $1M house. Sounds like a good deal to me, and that's before taking the tax deductions on interest, property taxes and maintenance (which is deductible, because it's a rental property). Now you've got me thinking about getting back into the rental game...
- Ancalagon 4y ago
  also need to factor in that rent in those markets continues to go up YoY