What can you tell me about home ownership?

Dan in Real Life: What can you tell me about home ownership?
I recently started looking into buying a house and renting it out to tenants so that they can pay for my mortgage. I’m still a college student and am 20 years old right now. I know real estate is a good investment, but I don’t know if this is the right time. I will have a job that pays me about $ 300 per month, but the monthly rates of the condos I was looking at are between $ 900-$ 1100 per month. They were really nice, but I couldn’t help bu get the feeling that the salesman was trying to pull the wool over my eyes.

Here’s what I’d like to know: Why would he tell me I could put zero down? Do you think buying a house and then renting it out is a good strategy? What should I know about home ownership? What are the risks?

Answers and Views:

Answer by beachlover
if you qualify i would say yes there are alot of tax writoffs with ownership! although 300 a month is not going to qualify you for much
as far as 0 down you must have great credit and that is why he suggested it. he could be wanting to place you in a lease to own or rent to own. many sellers are going this route they will rent to someone and give them the option to buy after a term of 12 to 24 months of more

Answer by CJKatl
It is a fantastic strategy. No matter what you read in the news about millions of people doing exactly what you want to do and winding up ruining their financial lives. And just because all the lenders that made these loans are either out of business now or hurting financially, don’t look at that as a warning sign that the business plan doesn’t work.

Seriously. You’re not really considering this. What you want to do is exactly what thousands of people tried over the past few years and has lead to the downfall of the landlords, the lenders (American Home, First Mangus, and Thornburg just this week), hedge funds (Bears Stearns), Wall Street (until the Fed stepped in on Friday), and, some are predicting, the US Economy. (I don’t think it will get that bad.)

Can you afford to make a payment on both where you live and the rental home? If the answer is no, then do not purchase the rental home. (And thinking you will get rent-to-own tenants is a joke. The reason those people will pay the upped payment for rent-to-own is because the bank won’t lend them money. The bank won’t lend them money because the bank knows they won’t pay it back. And they’re not going to pay you back, either. Only deadbeats need to go the rent-to-own route. So basically, you’ll be carrying the mortgage yourself and having to pay, out of pocket, legal fees for their eviction.)

Answer by Califrich
First, there is no way to get a zero-down loan currently. Those have all dried up as a result of the sub-prime credit implosion. You will need very good credit and a 20% down payment to get a mortgage loan. I’m afraid that no lender would loan a college student money for a home when that individual is earning only $ 300 a month. You would need an income of at least three times the mortgage payment (after you have made the down payment) to qualify for most mortgages.
Owning income property has some big drawbacks. You have to manage it, repair it, insure it, pay property taxes, maintain the landscaping, collect rent, etc., and it is not a liquid investment — you may not be able to easily sell it when you need the money. Given your limited income and long investment horizon, you would be much better off putting as much as you can into stocks each month.

Answer by SpankyTClown
Right now the housing bubble is popping. SO if you hold off on buying that property for the moment and wait. The same property will be a little cheaper in a year unless the housing bubble bursts.

I own and rent three places and to tell you it’s a real pain in the a$ $ . Tenants are at least annoying with silly requests like waiting new appliances every year, to the problem of bounced checks. The bounced checks can just kill a bank account so you have to have at least three months of mortgage saved up plus property taxes and owners insurance. Then there are repairs, you will get the odd d1ckh3ad that likes putting holes in the walls or breaking things like toilets.

It’s not an easy way to make money. For my places I gave up being a landlord years ago and just have a property management company take care of the specifics. Way easier, they do the background checks, credit checks, build structure around property maintenance too.

If you want to do it, then do it. But at 20 I would be saving money for a rainy day instead and getting a career up and running first.

Answer by Matt L
One thing to keep in mind are the added unexpected expenses associated with equipment malfunction. For example, if the washer or dryer in the house you are renting out happen to go bad , in most lease contracts, they are your responsibility. Also, you need to be prepared to have enough banked money to cover any gaps in monthly or yearly rentals. In most cases you will have to spend money ‘fixing’ up the place in between renters as well. There are a lot of hidden costs that seem to pop up all the time.

Answer by Rick B
What happens if you can’t find a renter?

What happens when one moves out? Can you cover the rent (and insurance and utilities) until you find a new renter?

Do you have really really good credit?

Putting zero down? Are you positive these will go up in value? When you go to sell them, will they have gone up enough to cover the realtor fees that you had to pay when you bought and sold?

What will you do if a renter is a deadbeat? Are you prepared to go through the long hard (and expensive) precess of eviction?

Doing this is a great idea, but not for a college student with no finaincial resources, experience, or knowledge. Buy your own home and experience all the joys of home ownership for at least a year, save up a very good emergency fund, learn a lot about renting, then think about doing this. Make sure you can carry the costs for about 6 months without a renter.

Answer by Ken
This is a great strategy. Others assume that you would not have the ability to borrow, but there are ways to do it. You could partner with your parents or a relative if you have to. Where do you live when you are in college? Why not purchase a condo near your college, live there and get roommates (which most college students have anyway) that actually pay your mortgage? This would save you money and build equity for you.

As far as the market now vs. other times, there are several considerations. The market is not bad in all areas of the country. In fact, the real estate market is stable or growing in most areas of the country. The crashes are in areas that had explosive growth (Las Vegas, southern CA) or some other financial crisis (cleveland, detroit, etc.). If the market is stable in your area, it is a great time to buy. If the market is weak in your area, it is a great time to buy provided you are making a long term investment and the home is priced right.

Are you ready to be a landlord? The risks are that you could go a period without tenants. With a $ 300/mo. income, it would be impossible to make the mortgage payment of $ 900-$ 1100. What about other maintenance costs. Purchasing a condo definitely cuts down on maintenance because much of it is taken care of through your association. However, you can still have special assessments in the event of a large repair by the association and you can have repairs inside the home for which you are responsible.

Again, I would suggest talking to a friend or family member about a possible partnership. It would be a good long term investment for both of you.

Good luck.

Answer by DrIG
The risks of house ownership is that you can loose the house. Tenants could move out and even worse they can remain and not pay rent. Items could need repair or replacement. This could come about by destruction on the part of the tenant or just wear and tea. It is expensive to replace a roof, install plumbing or repair and upgrade electrical problems.
Termites are another potential problem.

You must get am inspection by an independent inspector. I do mean INDEPENDENT. Do not use one recommended by your real estate agent mortgage person or the seller for obvious reasons.

If you buy a house with no money down or with less than 10% there will be extra insurance that you will be required to purchase. People who bought with little or no down payment are now frequently facing the loss of their homes.

Do not use a mortgage that has a variable rate. You will get into trouble when the interest rate goes up.

All of that said, now is a good time to buy a house. Most areas in the US have a poor housing market which means that people are having trouble selling their homes and therefore reducing their prices. No one is sure when the market will turn around, but it will at some time in the future.

Be careful in buying a house but not if you have insufficient funds.

Good luck!

PS A real estate agent might tell you to buy a house since that is how he earns money. He does not earn money telling you not to buy or to wait. Money now is the game.

Answer by Jon Hunt, Realtor
I believe that is a great strategy. Even better if you are close to a college or university.

I work with several college students and their parents who are doing pretty much the same thing. The loan program they use is not no money down but just 3% down.

For example, a student finds a 3 bedroom place (house, condo, or townhome) for $ 150,000 and puts down $ 145,500. Mortgage payments would be around $ 950 a month (not including taxes and insurance). Find two other people to rent the rooms for $ 500 each room. Now they are paying your mortgage and you are building equity and wealth.

After you graduate, you can keep the property for yourself, sell it or keep on renting it out.

The only downside to this is that you would have to learn how be a landlord and how to work with renters.

I believe that the benefits out weigh the risk here.

Answer by CEDRICK O
There are many financial and personal reasons why you should own your own home rather than rent. The obvious reasons include pride of ownership, building your own equity instead of someone else’s, no more landlords, and of course the tax benefits you reap. There are a multitude of other reasons why owning your own home can make your life better.

One of the most overlooked reasons for owning a home is the freedom you get once you have achieved this major goal in life. Many first-time homebuyers find that once they have bought a house, many other aspects of their personal life seem to fall in place. The security and piece of mind that come with home ownership is a great accomplishment in many people’s lives, and once they have overcome the obstacles, they find that other goals they had set out to achieve become much easier to attain.

There is a great sense of belonging to the community once you own a home. You begin to feel more attached to the city and its people. You will find yourself more involved with community events – what is happening with the schools, roads and shopping centers in your area. Some new homeowners find themselves getting into local politics in order to create better surroundings, which is something renters seldom do.

Home ownership is a strong anchor for your life. You have something that represents a strong commitment and a sense of stability. Again, the aspect of freedom comes up – you won’t have to worry about a landlord telling you it is time for you to move, your children won’t have to worry about whether they will have to change schools, and you are blessed with the ability to plan for the future.

By owning a home, you will find yourself in more control of your immediate surroundings. You can change things and decorate to your tastes, and not be limited by the standards of a landlord. You do not have to seek someone else’s approval if you decide to remodel or alter the landscaping. Your home truly is your castle.

If you have children, you will find that they feel more secure when coming home to a house that is not owned by someone else. There are no worries that they will be suddenly forced to change schools and reestablish their lives at the decision of someone else. You can also get to know your neighbors, and if they have children, lifelong friendships can be formed because everyone knows that they will be around each other for years and years.

One final aspect that cannot be overlooked is the pride that you feel when you own your own home. You have proven to yourself that you can achieve monumental goals and can give your family the security it needs to move forward in life. Once you have built up equity in your first home, you can leverage your equity to purchase a nicer home later.

Choose your agent wisely. Working with a full-time professional real estate agent is a must. Ask questions of your agent. Find out how knowledgeable he or she is about houses currently for sale in your price range and also of houses that have recently sold. Can your agent recommend a good lender that has the reputation of excellent customer service and low rates? Does your agent ask questions of you to have a full understanding of what you are looking for to help you get the most home for the money?

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