"Normal" is a relative term and must be taken into context. We can not evaluate what is normal inside of a vacuum. For every basis point that interest rates rise, the US government must pay an extra $3.1 Billion in interest on its debt, or in other terms a 1% increase translates into $310 billion in annual interest. We can't base normalcy of interest rates based on data that is multiple decades old when the debt to GDP ratio was hovering around 40%, it is currently closer to 140%.
Suffice it to say I think that interest rates will drop dramatically from current levels.
A "crash" is only relevant if you need to sell or refinance. If you have no intention of either, then the price of your unit is fairly irrelevant.
If you bought a 300k home a year ago at 3.5% interest is $1347 per month in principle and interest. If rates rose to 6%, then for the same $1347 monthly payment the home would need to be priced at 225k which is a 25% reduction in home value which we can consider as our theoretical worst case scenario. However it's unlikely that prices will drop this low since nobody expects interest rates to remain this high for long. We will likely see rates begin to drop again within a year or two. As such the market is factoring in these anticipated interest rate reductions into what it deems to be the current fair market value of assets.
Schiller won a Nobel prize for his work on real estate prices, saying that prices tend to mirror inflation rates. If the inflation rate was roughly 10% last year, then that 300k home should be worth 330k today (assuming interest rates go back to what they were).
This represents a prime time for buyers to accumulate more properties as currently prices are falling, yet prices are anticipated to skyrocket again once interest rates start to subside because that's how inflation works, assets simply cost more because the dollar is worth less. If you were to buy that home for lets say 250k with a 20% down payment, and if interest rates return to normal in 2-3 years, then the anticipated value of that home would probably be in the neighborhood of 330-350k. That represents a 70-100k increase in 2-3 years, which equates to tripling your down payment money in only a couple of years.
Relatively high rates of inflation are of huge benefit to anyone that is using loans to leverage their position. This is because inflation helps the investor from both sides of the equation. The asset is increasing in value at a leveraged 5 to 1 ratio thanks to inflation (assuming a 20% down payment was used. Meaning a 6% inflation rate translates into a 30% ROI), and the value of the debt is simultaneously being eroded by inflation. A dramatically simplified example says that a 300k home would take 30k hours of labor to repay that debt if the average income was $10/hr. However if inflation causes the average wage to rise to $20/hr, then it only takes 15k hours to repay that same 300k mortgage. This makes it twice as easy to repay the debt.
If you had just bought a house with 20% down payment, then you can view it as you owning 20% of the house and the bank owns the other 80%. But if inflation causes all prices to magically double overnight, then your equity rises dramatically and now you own 60% of the house and the bank only owns 40% even though you haven't repaid a single cent towards the loan balance.
A truism: Businesses exist to make money.
This warranty company is making money, which by default means that the owners of these policies are paying in more money than they are getting out in repairs. Don't think even for a second that they will just replace your HVAC unit just because its old and stopped working and they are going to suddenly buy you a 6k new HVAC unit just because you bought an insurance policy for $495. They will nickel and dime you to death putting a bandaid over a gunshot wound, anything to avoid buying a new unit, and each time they send a repairman to put on a fresh bandaid you must pay another deposit fee.
They are also super slow to respond to anything, when an appliance breaks you don't have time to wait a week for them to send a technician to the home to verify that it's broke, then the technician goes home and 3 days later he submits his bid to the warranty company, then 3 days later the warranty company tells the technician the bid is no good and he needs to find a cheaper way to fix it. Another 3 days pass and the technician submits another bid which gets approved. Unfortunately by this time the technician is on vacation and can't do any work for a week. Then it takes 2 weeks for parts to be ordered and the next thing you know it's been a month or two with the tenant not having an HVAC unit and the tenant is threatening lawsuits for uninhabitable housing. Then when the repair man does come to fix the HVAC unit he tells you Freon isn't covered by your warranty company and therefor bills you directly for $400, along with your $99 deductible just for having a repair man come to your house.
I’ve learned all there is to investing into Roth IRAs, Index Funds and ETFs
I would first caution against your notion that you've learned all there is to know about these topics. You may be significantly more knowledgeable about these topics than your average 18yr old, (or 40yr old for that matter), but there is always something more to learn and the only way to learn this additional stuff is to stay humble and engage in active learning techniques. If you think you already know everything then you will stop seeking out new information.
Retirement accounts are designed for....retirement, but that doesn't mean there aren't some good exemptions. You can withdraw penalty free up to 10k to purchase your first home, it also allows a 5k withdrawal for each parent after the birth of a child (per child). Most people will eventually both buy a home and have a child, so with this strategy you can let your money grow tax free in a Roth IRA and still have money to pay for these types of expenses.
You can also access your IRA funds before retirement age by taking substantially equal periodic payments (SEPP). Under this program you agree to withdraw a certain amount each year for at least 5 years or until you reach age 59.5. The rules to calculate the minimum required distributions is fairly complex, but there should be calculators out there to do it for you under rule 72T of the IRS. This can allow you to start withdrawing money slowly from your Roth accounts while you are still in your 30s or 40s.
Some people are interested in a 'lean' retirement, they aren't trying to get rich they are simply wanting to reach passive income of 40k, 50k, 60k whatever amount per year and then thats good enough and they quit their job as early in life as possible. If this is the case then a traditional IRA can be a fantastic option, and only you have quit your job start what is called a roth conversion ladder where you slowly convert your traditional holdings into a roth account.
While you can't withdraw the earnings from a Roth, you can always withdraw the contributions. So if you contribute 6k to a roth for 22 years until age 40, then you could likewise withdraw 6k per year for 22 years until age 62 to supplement any additional income (or simply withdraw all 132k all at once or any combination you want). 6k for 22 years at a 10% rate of return means a balance of 428k dollars at age 40. If you withdraw all 132k possible at age 40, you still have 296k in a retirement account earning tax free growth of roughly 30k per year.
Investing in index funds is great, but you can almost always get better returns by trading options. Options trading strategies such as the wheel strategy allow you to nearly universally beat the stock market average by a significant amount, (often 20-30% annual returns as opposed to 10% index returns).
As others have mentioned, the easiest and most surefire way to start getting ahead at age 18 is to buy a 3 or 4 bed property with something easy like a 3.5% down payment FHA loan, and then get roommates. The rent collected from these roommates will likely more than offset your entire mortgage payment allowing you to rapidly build up money to invest with. One of the biggest problems of wanting to invest at age 18 is that most 18yr olds don't have any money to invest with! So by focusing on income right now, either from your job, a side hustle, or getting roommates, it allows you to build up money so you can actually start investing.
I would highly suggest googling the FIRE movement, Financial Independence, Retire Early. There is an entire community devoted to this very topic and they can help you achieve your goals.
You're not going to find a 0 down investment loan option. Its much, much easier to keep buying homes for yourself and simply rent the house you previously lived in. If you live in Denton, then you are on the edge of a major metro area and can use something like the HUD rural development loan which is a 0 down option so long as you earn less than 115% of median income for the area and live in a 'somewhat' rural zone. The term rural is pretty generous and would involve pretty much any house on the outskirts of denton or any town that is close by that is smaller than denton.
Just a few miles from denton is Ponder which has some nice subdivisions and qualfies as 'rural'
I don't think a 2+ year tenant who is otherwise good and upset about the landlord not properly addressing a mold issue is a bad tenant. I wouldn't be looking to terminate them. It's fair to say they shouldn't withhold rent and maybe they don't know the law just like the OP. It is likely they see the rent as the only leverage they have since the landlord is not being responsive.
I couldn't agree more. If they have been good tenants for 2+ years then it's likely they feel the landlord is not responsive to urgent repairs that are required, and that withholding rent is their only way to get his attention. It may not be a legal tactic that they are using, but then again ignoring mold problems for a few months probably isn't legal either.
100% not trying to be mean or anything, just trying to foot stomp the importance of fixing health related items asap.... If you were notified in mid June of a mold problem, how do you not have this remedied 3 months later? Why are you sending a carpet guy to fix a mold problem? And instead of knowing the outcome of that visit, why are you simply assuming that the problem was fixed after sending someone to look at the situation? That also points to a larger problem when coupled with the fact that simple things like copies of leases can't be located and you aren't sure if one was ever actually signed. I HIGHLY suggest you get a property management company to handle these tasks for you.
By not fixing health related issues immediately you open yourself up to a wide range of lawsuits from damage to their personal property like their clothes or other belongings, to medical related expenses. While under normal circumstances it would be the tenants responsibility to have renters insurance to cover moldy clothes, since the problem wasn't immediately fixed they could easily counter argue that it was the landlords negligence in fixing a health related item in a timely manner that caused the damage and not just a standard case of a moldy apartment. But worse yet, the last thing you need is for them to take their kid to get diagnosed with asthma or something like that.
I would offer them an option to immediately break their lease with no penalties. If they decline at least this limits their potential damages moving forward since they willfully chose to remain in the house and therefore did not see the mold as a significant threat. Either way, fix the mold problem immediately and hang on to the receipt showing full remediation. I would send them some form of written communication offering them some % decrease in their rent for the few months that the mold problem was ignored. If they accept this reduced rent rate not only do you start collecting some sort of income again which will help pay for the repairs, but it also severely limits any future lawsuits they might claim against you because they have already accepted compensation for the incident. When their lease is up I would non-renew the lease, not necessarily because they were horrible tenants, but because I wouldn't want to potentially piss them off again in the future and have them get upset enough to actually start pursuing legal actions.
As someone who churned credit cards aggressively for signup bonuses and owns 50+ cards I'll give a few thoughts.
Depending on your credit score and income, some big banks don't give very high credit limits on their cards. If the majority of your cards have a low limit and you need something higher then usually cards issued by smaller banks or especially credit unions are more likely to give you a higher initial limit. If your credit score is great and income is great, then most any card will give you a decent credit limit.
Credit scores are important to get a high credit limit, anything over 700 should be sufficient but after that your income is usually the deciding factor. Keep in mind that credit card applications ask only for your income, not your profits. So if you own 3 houses each charging 1500/mo rent, that's 4500*12 = 54,000 worth of income in addition to your primary job (if any) and it doesn't matter if the majority of that 54k rental income gets eaten up by mortgage payments or not. Additionally if you are married you can count your spouses income as part of your income so long as you have reasonable access to your spouses money such as a joint bank account.
Business credit cards can be pretty fantastic because they tend to have relatively high credit limits. You don't need a formal entity such as an llc or C corp in order to apply for a business credit card, you simply need to own a business (owning real estate). Most business credit cards involve a personal guarantee that you will repay the debt even if your business fails, so you will likely still get a hard inquiry on your personal credit score. In addition about half of the card issuers report business credit cards to your personal credit score, although most of them only report if you are delinquent and don't report anything if you are paying on time.
Maxing out personal credit cards will hurt your credit score. Your utilization rate is the second most important factor in calculating a credit score right behind whether or not you actually pay your bills on time. If you had several credit cards and their combined credit limit was 10k, and you purchased 10k worth of goods that would be a 100% utilization rate and would be terrible for your credit score. If instead you had 100k worth of available credit and purchased the same 10k worth of goods, that would only be a 10% utilization rate and would barely effect your credit score at all.
Some cards offer promo deals such as 18 months of interest free on any new purchases made within the first X months after opening the account. Other cards may offer 12-24 months of interest free on balance transfers, but most of the balance transfer cards still charge an immediate 3% balance transfer fee. Its rare to find a 0% promo APR balance transfer AND no transfer fee in the same card but a few exist such as the Union Bank Platinum Card. Unfortunately these 0/0 cards tend to have somewhat low credit limits to prevent people from mass abusing the cards.
If points/cashback is something you value, then depending on your spending habits something like a Lowes credit card can be decent as it offers 5% cash back on all Lowes purchases. If you are looking for an everyday credit card that is simple to use, the Wells Fargo Active Cash card is a flat 2% cashback on everything with no limits, and offers 15 months of no interest on new purchases immediately after account opening. Travel credit cards that earn airline or hotel points tend to have better redemption options, but that doesn't help if you are super budget conscious and never really get out and travel in which case cashback is usually a better option.
Regardless of what you do, just keep in mind that credit cards are a SHORT TERM solution. They can be fantastic if utilized correctly, but can be devastating if used incorrectly and you get stuck paying 26.99% interest rate on many thousands of dollars. Just because you think you have a plan to repay the card before the promo APR wears off doesn't mean life won't throw you a curveball and render you unable to repay it in time like you had planned.
I think there's some misinformation here.
Mortgages use simple interest, not compound interest and can be verified with a quick google search of "are mortgages simple or compound interest". You are paying off the previous months interest balance in full when you make your next mortgage payment, so there is no possible way for this interest to compound since the interest is paid in full each month. Compound interest means earning interest on your interest. If the full interest balance is paid each month, it can't grow and compound. The only way for interest to compound in a mortgage is if you fail to make your required monthly payments in which case foreclosure is in your near future. As long as you make your required monthly payments, the interest is simple interest.
The reason that a large portion of your money initially goes towards interest in the beginning years, is because its during those years that you owe the most money. Interest owed is based on the interest rate and the loan balance, so as the loan balance decreases over time as you repay the loan, the amount of money you owe in interest each month naturally begins to decrease and more and more of your fixed monthly payment begins applying towards the balance as opposed to interest. Amortized loans have absolutely nothing to do with lenders ensuring they get a return on their money even if you repay the loan early. Early in the loan you owe more money, and therefore pay more interest, there's nothing magical about it.
As for if you should repay the loan faster that's up to you, your goals, and your risk tolerance levels. However from a strictly mathematical standpoint it rarely makes sense to do so. Lets assume your mortgage interest rate is 5%. Since mortgage interest is tax deductible, you aren't really paying the full 5%. If you're in a hypothetical 20% tax bracket, you would effectively be paying only 4% interest on the mortgage (pay 5%, but get 20% of that back in tax refunds). If instead you simply invested that money in something generic like index funds, the long term historical rate of return is 10% annually, less any taxes which at worst will be 20% for long term gains means you effectively earned 8%.
So would you rather save 4% interest, or earn 8% interest?
While the short term stock market can be volatile meaning you aren't guaranteed those rates of returns, over the course of a few decades (the time to repay a mortgage), the law of averages tend to work themselves out and you can be relatively confident that you will have earned something close to 10% annually pre tax over that timeframe. As this money grows for multiple decades while you repay your mortgage, there is a massive difference in the amount of money you have by effectively earning 8% after tax, versus save 4% after tax by repaying your loan faster.
Play with a mortgage calculator that allows you to put in extra payments into the calculation such as the one linked above. On a hypothetical 300k loan at 5% interest, if you put an extra $500 per month towards the payment, you will repay the loan in 216 months, which is 18 years. However if you had instead taken that $500 and invested it at 10% annually, after 18 years you would still owe $174,125 on your mortgage, however your investment portfolio would have grown in value to $288,199 which means you made an extra $114,000 by NOT repaying your loan and simply investing the profits instead. If we reinvest that money into something more lucrative like investing back into more real estate projects as opposed to simply buying index funds, the numbers start to become astronomical.
Sorry man, but in this case you're wrong.
While non-qualified use is a rarely cited item and therefor misunderstood by many people, in this particular case it does not apply. The non-qualified use only applies if you move into a property that was purchased as an investment property, it does NOT apply to primary homes that were later converted to rentals. The article you cited is talking about properties that were bought as rentals, and then converted into a primary, so your article does not apply to this instance.
121(b)(5)(C)(ii)(I) The term ‘period of nonqualified use’ does not include any portion of the five-year period described in subsection (a) which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer’s spouse.
https://www.exeterco.com/artic...
https://www.cpajournal.com/202...
ARTICLE QUOTE:
Exceptions to Non-Qualified Use
The Housing and Economic Recovery Act of 2008 has provided three (3) exceptions to homeowners where the sale of their primary residence may not otherwise qualify for the tax free exclusion under the new requirements now included in Section 121.
The key is that homeowners must still qualify for the other requirements under Section 121 at the time they close on the sale of their primary residence. They must have (1) owned and (2) lived in the real property as their primary residence for at least a combined total of 24 months out of the last 60 months (two out of the last five years) in order to qualify for 121 exclusion treatment.
I think we are on the same page now. The original verbiage seemed to imply that "an actual sub2, there are no foreclosure possibilities", when a more accurate description is there are foreclosure options, they just take longer to process through the courts because you would first need to obtain a judgement lien against the property and then try to collect on that lien unsuccessfully for several months before filing foreclosure. You understood what you were trying to say, but some others may have taken your words more literally and assumed that foreclosure was simply not an option at all.
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Personally if I was the OP I would immediately begin the process of using my sales contract to obtain a judgement lien on the house from the courts. Ideally the lien amount would be for the full remaining balance plus any applicable interest/fees that have been charged, additionally depending on the particular laws for the state it might be worth trying to get lawyer fees added to the lien, as well as any possible damages imposed on the OP based on things like credit scores dropping due to the buyers missed payments. This last one is super longshot both in general, as well as in this particular case since the OP didn't file a claim for 4 years which makes it very difficult to convince a judge that you were harmed in any significant way and still decided not to file a claim until years later. Even though it's a longshot, its still worth at least asking your lawyer about.
Once you have the judgement lien, I would begin sending certified notices to the buyer, as well as the current owner of the property if it has in fact been resold. After unsuccessfully collecting on the lien for XX amount of time based on state law, I would then begin filing foreclosure and obtain funds by forcing the sale. Personally I would think that trying to unwind the sale would be more difficult than it's probably worth given that the home has since been resold again, and simply forcing the sale through foreclosure is a clean break that closes this chapter for the OP.