All Forum Posts by: Account Closed

It really depends on who will rent it. I have 2 bedroom places and they rent to retired couples. There will also be young couples or young single people looking to rent 2 bedroom homes.

As for appreciation, it really depends on the market and the place itself. I've had a townhouse appreciate over 7 years. not quite as much as a 2 bedroom home, but still significant increases. I bought another house last year (newer starter home) and was looking at townhomes as well. Both have increased in price, one of the higher end townhomes more than the single family home that I bought.

What made me buy a single family instead of a townhome last year was the fact that the cash flow when we were analyzing it was similar, the house was a bit more ($40K more), but I more of the money was going to the mortgage instead of the HOA.

If you really love the home, buy it but buy it because you want to live in it. Buying a home to live in is different than buying a rental. Yes you will rent it out, but you are talking 10 years down the road.

Thanks for your reply. My worry is that retired couples will NOT want stairs? This townhouse has 3 fights of stairs. I just REALLY need to make sure I am not making a BIG mistake by buying a 2BR 3BA townhouse rather than a 3BR 2BA house... because it is more important to me that this will eventually become a semi decent asset in the future and to me it seems the 3BR house would be that rather than a 2BR townhouse. This makes me sad because I really do love this townhouse :(

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I just noticed something.... I searched for "apartments to rent" in a certain location in Arizona and if I were to rent out a townhouse I was thinking of buying at the same "low" prices this apartment complex is then I would be in serious trouble. Is my thinking correct in that large apartment complexes are generally able to provide cheaper rent than a small landlord trying to rent out one townhouse?

If I were to rent out the townhouse at the same prices the large apartment complexes are... I would be in even more trouble.

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Quote from @Randall Alan:

You sort of answer your own question, you just aren’t realizing it. In short , not every property makes a good rental. As you pointed out, the $100,000 property is probably a sweet spot. What you fail to connect is: that is what you need to be buying if available… because the $500,000 property wont function as well. I graphed this out years ago. My question was simply: How do I maximize the use of my investment money… what property do I buy? I took a $75k House, a $125k house, and a $200,000 house. What the math showed was the cheapest house that could be rented for the most money is the best purchase. The $200,000 house returned the most income, but it was eaten up with higher mortgage and insurance and repair reserves. It was much better to spend $80,000 down on 4 - $100,000 houses than 2 - $200,000 houses; or in your case one $500,000 house. The $75k houses performed even better. The $75k house from 4 years ago is probably the $125k house today.

Your challenge seems to be only looking at $500,000 houses, I presume because that is the caliber of house you want to live in. And that is fine. The fault in your approach is forcing your house to be a future rental as your only option.

A better possible play is that you buy cheap rentals and don’t try to make your $500,000 house a rental later. Instead, you hold it if real estate is appreciating and sell it when you want and pocket the profits. At least that would have worked until recently.. but now the negative pressure in the form of very high interest rates is going to slow appreciation. How much is yet to be determined… will house prices decline? Probably… economics says yes. But then you have to factor in inventory… if supply is still constrained prices may just plateau if buyers can still afford the higher prices / interest rates. A lot will depend on how well the Feds balance their tightrope act of slowing down the economy.

The other thing you have to factor in is that you are now buying at a very bad time. Prices are high, the cost of money is way up, the home owners insurance market is crazy with increases. Insurance prices have doubled in two years… oddly enough driven by the high value of the real estate. If the house is worth double, you now have to insure it for double as well. Each of those factors act to diminish your profitability on your rental investment.

One option is to wait for a better purchase environment. Never fun to hear, but the urgency to buy something soon is probably sabotaging the best use of your money - which may be to sit idle while you wait for the market to reset

So determine if buying your $500,000 home as a rental is a valid plan - and if not - consider other options. it makes no sense to get a 3% return with an inflation rate of 8-10%… you are losing buying power.

hope it helps a little
Randy

Thanks for your advice! I guess on upside to this is that if I hold the property for 25+ years that it will hopefully have appreciated a LOT and THEN I could sell it. Only problem with that is... lets say that 500K house only appreciates 475K after those 25 years.... then it will have taken 25 looooong years to appreciate 475K. That is TERRIBLE considering it took 25+ looooong years! :( 475K is great but not if it takes 25 years... I could be dead by then!

From what I understand is that houses NORMALLY appreciate at a rate of 3.8% per year... let's pretend the CRAZY situation happening right now with inflation and housing prices is not happening. So that means the property will have ONLY appreciated 475K in 25 loooong years.

I was going to say, for this one property, that I will be "ok" getting 3% or 4% ROI and that I would simply hold it for long-term appreciation INSTEAD instead of decent rental cash flow ROI...

Is this a horrible idea? I know it is said to NEVER focus on APPRECIATION and to focus on CASH FLOW... but that is not my current situation with properties in this price point (I cannot meet the 1% rule) and I need to buy a house to live in ASAP for numerous and very valid reasons. I cannot be a tenant any longer and the area I want to live for the next several years does NOT have housing for anything cheaper than 500s.

So I need to figure out how to make what I am working with WORK with the least damage possible.

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Quote from @Justin Pearson:

@Juliet Palfi Have you considered using seller financing of your hypothetical $500k house as an exit strategy once you decide to move on? If you are willing to live in a less expensive home then the cash flow from that long term note should be enough to pay down the mortgage on your next property and maybe some left over on top. Say you seller finance the 500k note and gets 3k a month in payments. Use that payment to pay down the mortgage on 2 cash flowing rentals and/or live in one. In this case you're using your property as the bank.

Thanks for the advice! It appears that "seller financing" is the exact same thing as being the PML (private mortgage lender) on my property I sold? Isn't it difficult to find buyers who even want seller financing? How would I even go about advertising that I am offering "seller financing" for a property? I can imagine many people out there do not even know what that is? Sorry for so many questions... but why would someone want me to be the "bank" when they can easily get a unconventional loan if they can't get conventional?

I just got a unconventional loan and it was super easy (has 7% interest until I can hopefully refi to get lower %).... and if I am going to to be the PML I would NOT charge less interest rate than other unconventional lenders... plus I have NO idea how to get the paperwork done etc in order to be a PML....

I know someone who had LOTS of rentals... then became the PML. It was less headache because then you don't have to worry about tenant headaches (if they don't pay you take your house back)... but what happens to all the tax advantages that rental properties have if you are the PML? They are gone! Not good!!!

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The more I think about this the more I think it is a very STUPID thing for me to buy this 2BR townhouse rather than wait several months to find a 3BR house to buy instead. I would be holding onto this property for 20+ years (with a tenant in the property) and hope that it appreciates a LOT during those 20 years and then sell it. I am aiming for APPRECIATION rather than BIG cash flow since I am not going to get good ROI with this rental (since it is a 495K property) and I am 100% FINE with low ROI just on this one property. This townhouse is 495K.

BIG PROBLEM though is that I keep reading online that townhouses do NOT appreciate in value like houses and sometimes they do not even appreciate at all.... I mean in NORMAL life... not in today's CRAZY situation (insane MESS) going in the world where even your shoebox artificially appreciated. I can imagine if I buy a 550K 3BR house instead of this 2BR townhouse that the 3BR house will be worth a LOT (MUCH MUCH) more than the 2BR townhouse in 20 years!!?? I will not be able to forgive myself then for buying the townhouse.

This makes me VERY SAD because I do LOVE this townhouse (it has AMAZING views on both floors!) but I am very scared now to buy it because of the reasons mentioned in this thread! =( Or am I overthinking this too much?

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I am about to buy a 2BR/2.5BA townhouse (has $216/month HOA). It has AMAZING views because the 1st floor is above the garage so this means the 1st floor is technically on the "2nd floor"... and the master bedroom on the top floor has AMAZING views as well. I will be living in this house for least least a few years... I will be there for quite some time... LESS than 10 years though.

I have searched and searched for other properties and in my price range it is NOT realistic for me to find another property like this and its amazing views.

PROBLEM is that I am worried I will REGRET buying this townhouse because I plan to rent it out (after the mortgage is fully paid off) when I move. I am very worried because it is a 2BR townhouse rather than a 3BR house AND since this townhouse has 3 flights of stairs I am worried that I will have great difficulty renting it out. Because families want 3BR.. and retires do NOT want to deal with stairs.

So I am not sure what to do now! I have to make up my mind by tomorrow because the sellers has changed her mind TWICE about selling this property and I need to get back to them asap before she changes her mind again. I REALLY like this townhouse a LOT but worried I am being stupid getting it rather than a 3BR house.... it will take me a very long time to even find a 3BR house to buy since I want to buy it in a very specific area... I COULD buy a 3BR house instead of this townhouse but the house will NOT have the amazing views etc... but I am worried I am being STUPID here getting 2BR townhouse instead of 3BR house!

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Would be EXTREMELY appreciative of advice.

I am currently looking to buy a SFH as my personal residence (to be made a future rental property once I move out). This is a 3BR/2BA house selling for for 550k. Even if I were to pay ALL CASH and immediately rent out this property I would only get about 3% ROI (less than 4%). This is TERRIBLE!!! Even when I inflate the rent price the ROI is HORRIFIC. It is NOWHERE near the 8% I could have gotten for my condo which I paid only 152K for which is now worth over 420+K.

1. I simply do NOT understand how the "1% rule in real estate" can even works on these more expensive properties!? I can easily meet the 1% rule with my condo but NOT the more expensive properties because the rent doesn't INCREASE enough to match the more expensive properties.

Because I can easily understand a 100K house which rents for 1k/month (there's your "1% rule met!"). But I simply do NOT understand how I see all these more expensive houses in the 500+K range being rented out to tenants... how on earth is the landlord is even able to make a single cent almost! Because that 500K property would have to rent out for $5,000/rent. RIDICULOUS. Not happening and I am in very expensive areas in very nice communities where housing is NOT cheap.

2. I was thinking of buying a 500K house (with a big down payment) and then in 2 years I would rent out this property when it's free and clear... but NOT if I am only going to get 3% ROI.

3. Another HUGE problem... I am going to end up in a situation where I have over 500+K equity TIED DOWN in this house and will not even be able to leverage it!!! Because I would be getting only 3% or 4% ROI with this property rented out... so how on EARTH could I ever leverage this property because I am not going to find any lender to lend me a loan for under 3%!

I could REALLY use some advice here.... I do not know what to do! It is urgent I buy a house to live in ASAP because, for the first time in my entire life, I am a tenant. Nothing against being a tenant but it is NOT for me and I am done paying rent watching it go up more and more and noisy neighbors driving me insane. However it it crucial that the house I buy now will be a GOOD rental property in the future... but I do not see how this is possible with a property at this price-point! :(

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Quote from @James Hamling:

How about HOA vs no HOA, I'd say that's probably the WAY bigger factor on stand-alone vs townhome!

@Account Closed there is so much missing in this, just the way things are presented, I don't know where to start or how to reply in a way that doesn't involve considerable forehead and eye rubbing. I think you'd find much value in connecting with a local Realtor, ask him buy him lunch to discuss a few things on properties (because your gonna need them in a captive setting, lol) and then just get it all out, be ready for eye rolls or frustration, I am just being brutally honest here, but you will learn. Then rinse & repeat this process until have fair comprehension of these things in that market.

For myself, for a SFR, I will take the HOA property every time. It's my style and experience that it's just a best setting for getting things too "cash-cow" status. This is assuming it's one I want to keep, if have a 3-5-7 plan then I will go where equity will best accrue.

Thanks for your reply... you mentioned "For myself, for a SFR, I will take the HOA property every time". Are you referring to SFH as an investment rental or your primary residence? I personally want to avoid HOA at all costs!

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Scottsdale, Arizona

Let's say there is a 3BR/2BA house in the exact same neighborhood just a few streets down from a 2BR/2.5BA townhouse.

The 3BR house is a single floor house with NO views.

The townhouse has stairs (obviously since it is a townhouse) and this particular one has 3 flights of stairs but this townhouse has REALLY nice views on both the first floor and the master bedroom. Let's say both the properties are freshly renovated.

In general... is it safe to say the 3BR house will rent for 1+k/month MORE than the townhouse even though the townhouse has nice views and is a smaller in size?

I wonder because I hear most people do not like stairs (I love stairs guess I'm weird!) but perhaps for this reason (and liability reasons) it seems this townhouse would get significantly LESS rent profit per month than a 3br house and the fact that the townhouse is only 2BR?

I know this is difficult to access because I can't leave the property addresses here... but I am wondering just in general... to me it seems it would be a huge MISTAKE to choose a 2BR townhouse over a 2BR HOUSE when investing in rental properties?

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Scottsdale, Arizona

@Aaron Schrader

I feel silly for being confused about this... but let's say I converted a house into a duplex. This house would already have a central AC in place of course... so if I wanted to use "mini splits" in order to allow landlord and tenant to control their preferred temperatures... how would that work? What I mean is, if I occupy 2nd floor unit and tenant occupies 1st floor unit how would I "deactivate the already in place central AC system? It would be a shame to un-install a perfectly working already in place central AC with "mini split". Or I guess I would simply have to ONLY deactivate the central AC on the 1st floor somehow so that the "mini split" affects ONLY the 1st floor... and the already in place central AC only affects the 2nd floor?

Hope I'm making sense! :)

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All Forum Posts by: Account Closed

Account Closed has started 9 posts and replied 36 times.

Post: Am I CRAZY to buy 2br townhouse when I could buy a 3br house?

Post: Large apartment complexes VS small landlords.....

Post: How on EARTH to get good ROI with expensive properties?

Post: How on EARTH to get good ROI with expensive properties?

Post: Am I CRAZY to buy 2br townhouse when I could buy a 3br house?

Post: Am I CRAZY to buy 2br townhouse when I could buy a 3br house?

Post: How on EARTH to get good ROI with expensive properties?

Post: Comparing 3br house rent profit to 2 br townhouse................

Post: Comparing 3br house rent profit to 2 br townhouse................

Post: How is this handled when single family is converted into duplex?