No risk, no reward

Long term I am just afraid that renting is a scam. Am I wrong in assuming this? Plus with renting an apartment I'm looking at around 1000 a month anyways for somewhere decent in my area (after bills and such).

>(after bills and such)
That will happen no matter what.
I gave you my advice, Do as you will.

Yeah but I'm just asking, isn't the 1000 I'd save - 328.50 a month better than paying roughly a 1000 a month and then making something like 208 a month (assuming 5$ returns?)

That's the part i'm not understanding

>That's the part i'm not understanding
You've never said what the rents are in your area. You said it was a 1000 after bills and such. The bills and such are a factor in both the condo and an apartment. After that it comes down to basic math.

At $500/month rent it is a good idea to rent.

Looks like its haunted senpai i think id pull out

this is as good of a thread as any -

anyone recommend any books or resources for real estate investing - primarily as an income stream, i.e., renting

I've been running some numbers on this shit for a little while now and it seems like buying a home the traditional way is a fucking scam.

Meanwhile, renting is also bullshit because the money you put in just disappears forever. The average rent for a DECENT place (single guy here who doesn't want to live with a bunch of dudes) is about 800-1000. I'm rounding up to 1000 after utilities and shit like that.

Now I could either fork over 1000, or 1/4th of my take home pay every month every month indefinitely OR make a large down payment on a relatively inexpensive condo, basically trying to acquire a paid-for apartment.

My logic is that with a big down payment, like as much as 40,000, I could avoid paying a LOT of interest and try to pay off the remainder as quickly as possible.

Pic related is with a 60% down payment and a 5% Interest Rate. With extra payments i'd be paying around 1200-1300 a month for two years, and then be debt free. Aside from condo fees I'd be in the clear from that point forward.

At this point I feel like I'd have a lot of freedom. I could live rent free and my return on my investment would be the 1000-1300 dollars that I WOULDN'T be paying every month for housing minus the condo fees so roughly 1000 even. That's 12,000 a year off the bat. Assuming 10% returns on an investment portfolio that would be like having 120,000 in an investment account every year (without the potential for exponential growth obviously).

Additionally I feel like I could move on from that particular place and wind up having it as a full time rental if I decided to upgrade to a house down the line, then I could charge like 1000-1200 a month for it and use that to pay the mortgage of the second place.

Am I missing something here? Is it not smart to put that much into a place? Should I submit to the idea that I'll either be paying hella interest back on a mortgage or paying rent to the man for the rest of my fucking life? I'm genuinely stumped.

Why do you think buying a home the traditional way is a scam?

One issue with Condos is that the HOA can levy a special assessment on units should the fees not cover something because of fund mismanagement or ineptitude (e.g., 'we don't need to raise the HOA fee year after year but now oops 1/2 the units need new roofs'). So you could get hit with a huge assessment, so don't assume that the fee covers all your external costs - so don't blow your entire savings account here. If they levy a special assessment, they can put a lien on your property.

Anyway some general tips for condos:

1) Check that HOA minutes to see what they are discussing at the meetings. It can give insight into what the community is like (drama), and what type of financial situation they are in.

2) Check that there is no pending litigation against the HOA (e.g., some kid drowns in the pool - the HOA gets sued).

3) Check that the HOA is funded properly.

4) Check the restrictive covenants to ensure that you can rent out your condo if considering this as a future rental property.

Off the top of my head - that HOA fee looks low. It depends on your area and your benefits (e.g., is there a pool, a gym, etc.) but depending on the age of the units, and services rendered (e.g., snow clearing), that might be indicative of a mismanaged HOA. $94 sounds great until you find out they don't have the funds for new siding.

In your calculations consider the opportunity cost of 40K down payment.

I didn't consider that, I also don't really know how the whole lien thing works so I'll have to look into that and do some research.

I hate having to wonder if I'm going to be "blowing" my savings on a big down payment in what seems to be like a mature way to try to cut costs.

Am I better off renting? Making a smaller down payment on the same place? Renting and continuing to invest (CHMA meme and DWTI acting retarded both just hurt me badly but I'm still pulling in really good cash from this deployment so I'll recover... I am going to make much more stable investments from this point forward because now that my trading account is growing my potential to lose is too)

the whole building sold for $420k maybe

if you can get your morgage payments down to cheap as or cheaper than rent isnt it better to do that?
If you have to move for work, how can you garantee the rents there will still be cheap?

Im renting at a grand a month on the outskirts of London. Ive lived here for 4 years, do the maths. its dead money, gone forever.

I couldve put it against a house. Im fucking lucky, my dad bought me one.
I could move cities and still fuck abut renting and rent out the house here.

in short, get a property but try not owe anything.

I had a condo back a while back. It cost about $100k as I recall, and about 2 years after buying it, the HOA levied every condo owner with a $15k assessment for a new roof, which they had apparently been putting off for many years due to poor management. It sucked mega balls and it took most of my savings but luckily was able to sell the condo later and still make a handy profit due to the current market at the time.

I've been pretty wary of condo HOA's since then.

>pretty wary of condo HOA's
I don't understand this at all. I've worked in one that did jack shit and the place was a total mess. If you have an HOA that actually takes care of the place and enforces rules it is awesome. After all what would you do on your own home? Not put in a roof that is bad?

I've read stories about deployed soldiers renting out properties. The tenants refused to pay and the owners couldn't evict them because they weren't there to physically make them leave. Something about the deadbeat tenants having established domain.

I don't know how true this story was but might be worth talking to someone that knows their shit about.

I work with/around a lot of Navy dudes. I wouldn't be looking at finding some random person to rent from me but rather a friend that I knew and that I knew could do a 6 month lease.

So if the HOA decides it wants to make an improvement the condo owners all foot the bill?

I think the HOA usually has a slush fund to cover unexpected expenses, up to a point. And the monthly dues fund that and the regular maintenance, etc. However, when the HOA gets an unexpected large expense, e.g new roof required, lawsuit due to negligence, etc. then those kinds of expenses get passed on to the homeowners. If your HOA is well managed, then you are probably okay.

in this case, the HOA spent large sums of money doing shitty useless work using dodgy contractors who were allegedly giving kickbacks to HOA board members. Much of the money that was already reserved for replacing the roof disappeared this way, so when the roof actually became an emergency, then the assessment was required. There were many lawsuits that resulted out of it, the situation was a mess due to HOA board corruption and incompetence. That may be a rare situation, but it was my only experience with an HOA and that is why I am wary of them.

A lot of financially irresponsible military guys. Got it.

Look, everyone thinks they're hot shit and can pick out the right tenants, get 100% of rents, etc. You're deluding yourself. You need a property manager if you won't be physically in the city and able to handle any issues that come up.

And you shouldn't pay cash. It's fucking stupid. Buy $250k worth of property with that $50,000 cash and get much more in terms of returns, equity built, etc. When you build up $100k off those, you can turn them and go into $500k of property. And it keeps building. Don't settle with being middle class when you can stack up.

1/2

So what happens is the HOA will not raise fees because who wants to vote to pay more each month in fees? That $100 fee is mighty attractive for people wanting to sell their property too... people considering renting apartments vs buying a condo love the low cost beyond the mortgage. Lets keep the fee low so our units are more marketable, etc. Great.

So then you dig into the finances and find that fees have not been keeping up with inflation and/or the demand for repairs. e.g., newly built units don't require much maintenance, but a 15 year old unit may need a new roof, etc. So the HOA is underfunded. Just think about how most people think and behave financially in their personal lives here and then consider how democracy functions.

Basically you can have moderate fees over time, or you can live in a complex where you get hit with a special assessment when big things need doing. And that happens sometimes with moderate fees too - see below.

Another issue is fraud and mismanagement in the sense that they hire a contractor who is overpriced to do work because its a friend of someone on the board, or someone literally embezzles money. You can look up lawsuits surrounding HOA fees to get a better idea as to what can go wrong.

In terms of mismanagement, you can have people that say "we should repave the parking lot because of the pot holes" or "we want a new hot tub for the pool area", and spend the money that should go towards that new siding we really know needs to be bought next year. Oops now we need a special assessment.

2/2

Thus one of the fundamental issues with condos is that your financial well being in this area (re assessments) is totally dependent on the quality of people you live with. You can live with Trumpers who plan for the future, people who weigh the cost and benefit of different projects, who forecast what expenses will be and try to minimize the pain by planning reasonable fee increases and expenditures... or you can live with Bernie-ites who eat their seed corn and bang on your door with pitch forks and torches as they begin to starve (i.e., they want mo money for dem programs (projects)).

The lien discussed above is just that if you do not pay the assessment then you have a 'cloud on the title' which basically means someone says "the title holder owes me ____ if they ever sell" (like tax liens) - usually you can't sell w/ an unclean/unclear title, certainly not without headaches. Also you can be sued. Its just bad.

Bit off topic but FYI - you can get these from contractors too if you fail to get a lien waiver for materials - so always demand one when you hire someone to do work on your real estate. I am sure some HOA has managed to get a lien put on units for contractor work for not paying for materials. Often times people do pay for the materials but contractors can just go to city hall and say he didn't pay and boom your title is fucked til you get a lawyer - scumbag contractors will try to scam you. Just search for contractor lien scam.

Addendum: you can challenge HOA assessments but good luck unless there is some kind of fraud going on.

I realize that I might sound arrogant or like a know-it-all. But the ONE thing that I feel like I do know for certain is that I could easily find trustworthy tenants. We typically work off a 18 off 6 on deployment cycle, and you would always know guys who are going to be going on a push just as you are getting back home. It would be profitable for them to have a way to have a guaranteed 6 month lease right up until the day they leave for deployment and not have to pay rent for the six months that they are gone. That all being said, I've never rented anything out before so I don't want to sound like a dumbass, I'm sure there's a lot more to think about than just the 'feeling' that I get about the guys I know,

In regards to paying cash maybe you're right. I don't get the equity building part at all though the more and more I look at these mortgage calculators. When we say 'equity' we're talking about the portion of the house you OWN at any given time right? In relation to what's left on the loan? Because the interest on these 30 year loans is fucking disgusting to me. Maybe I'm just being naive and idealistic by thinking that a 65,000 dollar condo can be bought and paid for with 65,000 dollars.

I think I understand what you mean. I also don't think that a lot of these units are finished yet from what the realtor said. It's a six unit building and as far as I know only one of the other units is owned. If that's the case then being part of this HOA thing sounds even worse. I'd foot the bill if the LLC that owns the place fucked up?

1/2

Yes - equity is your unencumbered interest - i.e., what you own. Over the life of your mortgage, early on most of your payments are going to the interest, and over time you will pay down the principle. Look up a amortization schedule - punch in your numbers and you'll get a neat graph that shows the relationship of your payment %'s going to interest vs principle. For most Americans, early on it is pure interest (i.e., they are not building equity at all) due to low down payments meaning higher interest balance, shit credit meaning higher rate, etc.

When you say disgusting rates - what is your credit rating? What % are you looking at putting down?

Conceptually I empathize with you in that many of us do not like the concept of debt and the 'waste' of interest - owning something real feels good, but consider opportunity costs. You can purchase your real estate with cash but with a low enough interest rate many people feel that they can get by with paying less and earn a better ROI on the difference between a simple down payment and a cash purchase - e.g., a 7% ROI in the stock market vs a 4% mortgage (consider tax deductions).

Alternatively, you could own multiple properties with 20k downpayment on several units (maybe, depending on your income and revenue streams over time) versus 1 unit with the full 60k. In the former case ,each could net you a decent cash flow WHILE the mortgages are being paid off. In the latter, less of the single unit rent goes to expenses (mortgage) ... but are you then house poor? Now you need to tap into your home equity to pay for future properties as you have no additional investment money.

2/2

Regardless, some people go too far to the opposite end of the spectrum and have interest only mortgages, while other people get by with the minimum down payment for an FHA loan (2.5% IIRC?) but then you end up having to carry Private Mortgage Insurance. That adds to your monthly payment.

You also need to consider the cost of property management if you are in the military and get deployed/cannot do it yourself - sometimes it is straight GROSS % of rents.

What you do depends on what you want from the property. Some people buy real estate because they believe the value will rise - 'traditional' thinking about home value due to boomer-logic... basically speculation. Other people primarily focus on cash flow - invest money, get tenants, collect rent. Over time you're buying the property (paying off the mortgage) but that is really more of a fringe for most investors in terms of the calculus, since you're looking at a 15 or 30 year time line. It is a real factor though - your exit strategy.

Sometimes you get a nice mix of the above, but with the market the way it is, I wouldn't buy property on the assumption that you can earn rents and also sell it for 2x in 5 years.

You are interested mostly in the revenue stream I gather - so:
What are your alternative investment ideas?
What kind of $ do you have to invest with?
Are you sure you won't need to tap the funds you're investing?
These are the questions you need to answer for yourself.

Calculating your cash on cash return should be a high priority here, and juxtaposing it with your other investment ideas should help clarify if this is a good path.

BiggerPockets is a decent resource for real estate information btw.

RE: HOA
I am not sure how small unit condos work - i.e., *plexes. I imagine you will have a CC&R or bylaws for the building which outlines who pays for what (rather what is split (exterior stuff, stairs, etc)). For smaller units, I've read about people that own duplexes getting half of a roof redone because the guy next door doesn't want to chip in, but for a building like this I imagine it is a split cost.

I would ask the listing agent for 'governing documents'. You're only buying a single unit, so by some mechanism, the cost of the general property will be shared between unit owners probably.

Re: you footing the bill - I am not sure what you mean. Say if someone owns a bunch of the other units, they cannot assess just you (e.g., the dumb goy in 1A is going to buy us a new roof), but they can cherry pick projects which they want done (e.g., I want the lot outside my unit fixed, fuck the roofs for now as mine is fine). People sue over shit like that.

If you mean, if the LLC is not renovating the property right, could the new tenants turn around and say "shit we need a new roof because the old one was crap or the work was poorly done?" and now all of a sudden you're chipping in for a new roof? Yes. You need a home inspector to inspect the property and they will be able to say hey the property is over valued because it needs X Y and Z repairs. Since the value of your unit is in some way related to the building's value, that would indeed be a factor for purchase.

I get what you're saying about the money being able to do more for me n the market than sitting as part of a paid off property. What I mean by disgusting is the amount of interest people pay by the end of a 30 year loan can be almost the amount of the loan itself, sometimes more. If that's the case my mind is just blown. I don't know my credit rating off the top of my head but if I had to guess based on my last one it would be 700, maybe more since I'm no longer holding any debt.

My strategy was going to be to buy and pay off multliple properties as time goes on paying them off one by one to maximize profit. I would also consider flipping a house if I got myself educated enough in how to do that and found the right property to do it in. I'm not banking on the price of the condo to go up at all really, I'm simply just idealistic about debt and thinking that having a place paid off would feel nice, I don't even know what I don't know at this point.

Go to CreditKarma and make an account and you can review your credit report and see your current FICO score. It will track your credit score for you over time too.

Once you know your credit score, you can better calculate your interest rate and then run different scenarios - what if you put 20% down, what if you put 50%, etc. Then you can see what ROI you can get on other investments and go from there.

And yeah, the amount of money that goes to interest can be shocking. Go look up what people are paying if they buy with 2.5% down, or as I said, some people carry interest only mortgages.

Why on earth would blow your entire wad on one property? Actually crunch the numbers, the whole point of real estate is leverage. Assuming you have ~40k and downpayment is ~10% you could buy 5 such properties. Now lets also assume that each of these properties gives you positive cash flow (after mortgage+insurance+other costs), which is what you should be looking for to begin with, then you should stand to make as much or even more than just dumping it in one property - with the tremendous benefit of some diversification, so that there is a greater likelihood of selling in an upswing.

Otherwise, if you're afraid of risk, do as another user said and just put it in a safe index fund or something.

If it's on zillow, it's not a good buy. The reason being is that it would be snatched up literally within the very first day. The fact that it's still on the market says something about it.

Thanks, I'll have to check that out.

If I'm being told managing one property is hard enough why would I want to buy five? I'm not 'afraid of risk'. I just fail to see the difference in the profit of 5 places - the mortgages and other expenses vs the profit of one place withOUT a mortgage (or a negligible one because of how much I'd put down, like 300 bucks a month or something).

After another deployment of saving my paychecks and collecting rent on the first place, I could go ahead and have a down payment for a real house and KEEP the first completely paid off rental property and use the income to pay for my mortgage. From there I could only expand right? Maybe I'm not seeing something here.

Does Zillow have a bad reputation or something? I haven't ever heard anything like that before.

Norfolk fag here. Don't do it. Buy va beach or Suffolk as all the white folks live I. Those areas

Zillow isn't for investors. It's for people looking for a new home to live in.

Like I said, if there's a deal, it will get snatched up by the very first person capable of doing so. So, there are no deals.

Most of the time, deals only come through in private transactions with the house never being put on the market. Learn what a deal is. Learn how to get them. (deals are how you make your money, especially when flipping)

I helped a guy flip for a while. He got all his deals from a real estate agent that took a cut.

Suffolk is a little far for me, I work on Little Creek and I'm not trying to drive 45 minutes to get to work. What parts of VA Beach do you recommend? I've lived there for a few years now minus deployments.

I don't really know what that makes me. I am both looking for a place to live and a place to turn into a rental property while I'm on deployments and when I'm ready to upgrade if that makes any sense.

Maybe I'm just not ready for such a big decision. I like the idea of buying my own place but I don't know for sure what's coming next for me. There's an opportunity for me to go work at Damneck and there's also a chance I get orders to go work in DC. Either way I'll be finding out in two years. In the meantime I hate to think that I'll continue to spend 1000 a month for rent for the next two years and throw away 24 grand....

Read through this

jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/

Renting may feel like you're throwing away money, but that's not always the case. The key is that when you own, you have a bunch of equity tied up in your property. When you rent, that equity could instead be invested in something that makes you more money than what you're spending on rent.

It really comes down to your individual situation. Run the numbers and see what you come up with.

You still sound like a pussy. Put it all on a $250k house then, whatever. If you're not using leverage in RE you're fucking up big time. Stick to Vanguard, something a little more your pace.

If you face risk in being relocated, put your money elsewhere for now, if you're looking to put your equity somewhere you can live at. I didn't read much of the thread so idk.

If not, I'd suggest not living with your tenants. Get a property manager.

I'm pretty sure you're able to borrow against the equity in your home.

Thanks, this article shed a lot of light on shit for me. I didn't even consider how much taxes and utilities wound up being on a yearly basis.

The more and more I look at the numbers the more it makes sense to just wait for now and let my money make money on itself. Thanks for the help thread

Y u hating on vanguard bro?