All Forum Posts by: Matt Blutowski

I'm starting to parse through the discrepancy in the different rules of thumbs I've been introduced to by others, thanks for you comments and clarity, Jon.

I've seen numbers that a home MIGHT make financial sense after @ 15 years, before that, renting is often better. And if you splurge on a McMansion, or pay high rates, it might never make sense. I view a home as a lifestyle decision, more than an investment (for the avg. person - and eventually for me).

But this means that my friend is actually coming out ahead when she has someone paying most of the expenses of her property, even though she doesn't make it to the 50% rule. Through appreciation, keeping up the property and inflation pushing up rents, she'll have an income stream, and an asset worth more than what she put into it.

So, she is likely going to make money, but we could question the return on equity (down payment, other expenses along the way). Maybe the return isn't great - but probably annuity-like. If she gets a lot of appreciation, then the numbers might look quite nice.

So is the 50% rule a business rule, rather than an investing rule? If someone is running a RE business, they need positive cash flow, whereas an investor needs a place to put their cash, and a real return, hopefully something better than T bills?

Does this make any sense?

"My general impression is that she is NOT making money on this deal. Mom and pop "investors" often convince themselves that they are making money when in fact they are not."

"No, she's losing money. Just not during the months when its filled and there are no problems."

Thanks Jon & Mike. She would say that she is still building equity in her home, can continue to raise rent (she'll raise this summer with a tenant change), and in x years will have no mortgage.
Isn't this [i] a little [i] like buying an annuity (although an annuity may be more reliable... if you choose the right insurer).

If she is wrong, then can I draw the conclusion that home ownership is financial suicide because the home owner pays PITI and the extra costs?

"The 50% rule seems to be a hard and fast rule that applies everywhere. Assume 50% of the rent will go toward all your expenses. Yes, it will seem like expenses are much less, but they're not. Buy at a price where the P&I part of the payment is under half the rent and at least you won't be losing money."

My colleague gave me her numbers. This is a SFR in SoCal.

She pays 1,350 in PITI (recently refied), and rents at 1650, and is very happy. Her costs are probably lower because her mother manages for her while she is working abroad.

According to the 50% rule, she can't be making money? Or she is making money, but not as much as she should be making??

"The 50% rule seems to be a hard and fast rule that applies everywhere. Assume 50% of the rent will go toward all your expenses. Yes, it will seem like expenses are much less, but they're not. Buy at a price where the P&I part of the payment is under half the rent and at least you won't be losing money."

Thanks Jon,
This is what I'm looking for. I've never bought the "real estate is always a bad investment" as espoused by my stock loving buddies, but am a skeptic of another friend who claims I can buy a stream of income in the future by letting someone else pay the mortgage. With time, rents will rise, mortgage will amortize. This can be a good long term investment, even if I have to pay some of the costs out of pocket.

Won't this person still be able to make some money over the LR (albeit less than if they used that money for stocks/bonds)? If they cannot, how can anyone possibly justify home ownership as anything but moronic (which I don't believe).

Thanks guys.

"how do you plan on getting a 4.7% 30 year fixed rate on a NOO property without committing mortgage fraud?"

I'll use this as my primary residence for a year, but even then, I could rent during the winter when I'm not around. Plus, I won't be borrowing much from the bank.

"This makes no sense because you say you don't know what rents are in the area. You best figure that out, because that determines what you can pay."

Understood. I'm doing my research now. I have been educated that real estate is rarely a good investment, but know that it was a good education - but one sided. I have a colleague who owns rental property and believe the numbers make sense in the long run if you can get anything above the mortgage.

Yes, a little speculation on my part, I'm speculating that rates and inflation will be quite a bit higher in the future.

Thanks for the advice! Please, give your opinions!

I'm thinking about a SFH or condo in the central west florida area (e.g. sarasota et al.). I don't live in the area so will use property management to rent it.

This will not be a business, more of a longer term investment and a way to diversify my savings (all in stocks). I don't own a home, pay no rent, have no debt and have access to a 50K loan at 1% (borrowing yen - so changes in the exchange rate could make the real rate negative, or up to 5% - I would guess that real rates will be 1% or less). I can make up for the rest of the mortgage by borrowing $ at 4.7% 30y fixed.

Property is selling at less than $100/sq. foot in some areas, and although it may take time, I think there will be appreciation in the area. I don't know what rents are like in Sarasota.

How do I know when a deal makes sense for me - if I'm interested more in a buy and hold investment than a cash-flow business? Any rules of thumb?

I have read about a 2% rule, and 50% rule, but am not sure if they both are rules of thumb for a SFH/condo?

Any thoughts would be much appreciated!

I am contemplating buying my 1st property in Florida this summer. I spend most of my time working overseas, and do don't own a home/apartment in the USA.

If I plan to rent the home during the winter months, and live in it during the summer months, AND I have no other home in the USA, can I seek financing for a primary residence, or is this a rental property?

If we buy as a primary, then decide to rent it all year, is this doable?

Swine flu might fizzle into nothing, but the caution is warranted. Pandemics occur, and they kill thousands to millions when they do, and although that was before our modern medicines, the world was much less globalized.

On the other hand, the reaction to pigs and pork has been ridiculous. But hey, markets are rational, right...

I was considering Florida's Southwestern coast, targeting snow-birds. I am looking for property, but don't know how to narrow my search to find appropriate SFH/Condos??

I would be able to rent it full time, but could live with seasonal rentals.

Wifey and I live overseas, but spend between 2 and 3 months of the year in the USA. We usually crash with parents/friends, but are tired of this!! We want to find our own place. I have considered renting, but am considering buying a place that could be rented while we are not there. We would keep the home for at least 4 years, possibly more.

I would consider any part of the US, with a preference for the East coast. If you were me, where would you look (or should I just rent??).

My criteria: Under 220k, with ability to rent during the winter months to defer part/all of the mortgage.

Any guidance would be appreciated.