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> Do they have a mortgage on the rental property? That makes things much harder to break even. You have it backwards. Borrowing money at 4.5% is way cheaper t
by darkarmani 13y ago
> Do they have a mortgage on the rental property? That makes things much harder to break even.
You have it backwards. Borrowing money at 4.5% is way cheaper than using your own money. There is opportunity cost to tying up your own money in the real estate. Real estate loans allow you to leverage your 15-20% down. It was really bad when they let you leverage using 3.5% down.
- smackfu 13y agoOTOH, those 4.5% mortgage rates are for property you live in, not for rental properties. You can play games by moving around constantly, but that starts to not be just a passive investment. Also, I wasn't really thinking that people used their cash to buy a second property. (Unless you are buying very low cost houses in low-income areas.) More like an inherited house or such.
- darkarmani 13y agoYou might be right as I have an owner-occupied 2-Family house, but i was told that i was only dinged 0.5% on the rate for the rental unit. > Also, I wasn't really thinking that people used their cash to buy a second property...More like an inherited house or such. But in that case you have to think of your return as based on the opportunity cost of not selling the house and investing the cash in something else. If you aren't making money beyond what a loan would be, then it probably isn't a worthwhile investment to hold onto. (I'm over simplifying because there are tax benefits and you might gamble on appreciation).