Mortgaging a Rental Property

English: Offering subprime mortgage.

English: Offering subprime mortgage. (Photo credit: Wikipedia)

Now that we’re down to the last ten grand on our mortgage, we’re starting to look into getting another rental property.  The one we’ve got has worked out pretty well over the last two years, giving us about $800 extra  each month.  We broke even on all of the repairs we had to sometime in the spring.  That’s almost $5000 in pure, almost-passive income.

With numbers like that, if we can get a similar property and keep the mortgage under $800, we should be golden for getting another property and avoiding having it as a new drain on the budget.

However…

There’s always a however.

Our current tenants are moving out at the end of the month, which means the passive part of the income is over while we either find a renter or hire a property manager to do that for us.  Since that came at the same time I got the opportunity to be unemployed, there was a bit of panic at my house.

The idea of having a mortgage, no job, and no renter scared us into waiting to buy another property.

It’s not stopping us from getting ready for the next property, though.

We live in a fairly high-cost area.  Our house is on an eighth of an acre and is valued at around $250,000.   Our rental is on a slightly larger lot, but is a smaller house valued at around $200,000.   We don’t have a quarter of a million dollars laying around waiting to hatch into a new house, so we’ll be getting a mortgage.   A mortgage for a business property is a bit different than one for a home you’re planning to live in.

First major difference? You need a 20% down payment, with a 25% down payment getting you a much better rate.    We don’t quite have that, but if we pushed, we could have it in 6 months, I think.   And then we’d have no cushion if anything bad happened in our lives.

The next thing is that we’ll need a reserve that covers all of our expenses–personal and investment–for 6 months.  That can be home equity, savings, cash, or retirement accounts.  We’ve got this one covered.

We don’t qualify for a standard mortgage plan right now, but there are options:

  1. Live poor and save hard for a year.  We could make it happen in 6 months, but I will still want an emergency cushion just in case a job or tenant go away.
  2. Buy as an owner occupant.  This would mean we buy a new house, then move into it and rent out our current house.  We’d have to stay there a year before we’d be allowed to rent out the new property.
  3. Compare mortgages online.   The internet is a wonderful thing, full of the complete knowledge of the human race.  There is no better way to try to find an affordable mortgage than hopping on the net.  Just make sure you’re looking at a reputable site and dealing with a legit mortgage company.
  4. Live comfortably and save slower, then buy the property in 2 or 3 years.

Honestly, of all of the options, we’re probably going to do a combination of 3 and 5, but 2 is a serious consideration, since we’ve talked about moving out of the suburbs a bit anyway.

Did I miss anything?  How would you fund a rental property?

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Buying a Fixer Upper House

English: Fixer Upper in Dorena

English: Fixer Upper in Dorena (Photo credit: Wikipedia)

Have you ever thought about buying a fixer upper house? In recent years there have been some great options for people looking to purchase property for the sole purpose of renovating and flipping real estate. There are some great locations with pretty nice houses that have either been damaged or neglected and are now for sale. These circumstances make it difficult for someone to purchase and remodel the house without spending a lot of money. In recent years there have been a couple of options for people who want to buy run down houses to flip. Mortgage companies have come out with different mortgage options for anyone who is looking to invest in real estate. There are loans tailored to meet whatever goal you have when purchasing a house that even allocate funds for renovation. The two that we will discuss in this post are Home Path and FHA 203 (k) renovation loans.

HomePath Loan:

The HomePath loan program was created by Fannie Mae and is meant to offer foreclosed homes to anyone who qualifies to purchase them. This type of loan is great because not only do you qualify for a loan to buy the house but also receive enough for renovations and remodeling. This pushes buyers to purchase homes that have been foreclosed and thus contributing to the real estate market and the economy as a whole. It’s also great for the buyer because it give them incentive to purchase a space that they might not go for right off the bat. Everybody wins.

FHA 203 (k) Renovation Loans:

203K loans allocate funds for the initial purchase of the house along with funds for the renovations. Companies offer low down payments and flexible underwriting guidelines. Almost any kind of residential property qualifies making it really easy to get approved. Many people don’t know that this kind of loan exists but it is definitely something that is not only beneficial to those taking out the loan but also to those looking to get rid of a place that won’t sell on its own because it isn’t visually or aesthetically appealing.

If you are on the market looking for a home, consider taking out a HomePath or 203k loan designed for houses that might need some fine tuning to look their best. It is a great option for anyone looking to flip property and for anyone who wants to purchase a space that might not be appealing upon first glance. Fixing up a place will not only increase the value of your new home but also probably cost a lot less than if you were to purchase a newly remodeled space for market value.

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How You’re Finding Me

Every once in a while, I like to dig through Google Analytics and see how  people are finding this site.   Some of the search terms are interesting.

“father of three” mid life crisis

Here’s a free piece of advice.  As a father of three, you don’t get to have a mid-life crisis.  It’s not allowed.  Rather, it’s allowed, but you aren’t allowed to act on it.   At a minimum, until your children are out of the house, you need to man up and provide all of the support you possibly can.  No sports cars you can’t afford and no 22 year old hardbodies.   Be there for your kids.

“payday loans” which accepts guest posts

Payday loan marketing.   Just go away.  You aren’t running a guest post here.

slow carb” hungry all the time

You’re doing it wrong.  If you are hungry, eat more bacon.   Or beans.   Beans fill you up longer.

$1000000 business idea

Ideas are the easy part.  Execution makes you a millionaire.

articles on why appearance shouldn’t matter?

Appearances do matter, and always will.  Your appearance is what makes the initial impression when you meet someone new.  You don’t have to be a model, but basic grooming and fashion sense is necessary.   Take this with a grain of salt.  I’ve got a week’s growth of a beard and I wear a different plaid, button-down shirt every day.

are push ups supposed to be hard

Only the first 50.  After that, I kind of go on blissed-out autopilot.  If you can do 100 pushups, you can probably do 200.

acceptable place to put tattoo

If you wear clothes there, you can put a tattoo there.   Visible tattoos are called “job stoppers” for a reason.  If you put a tattoo on your face, the only job you qualify for is “drug dealer’s girlfriend”.   Or possibly prison janitor.

burning bridges with toxic people

If you must burn bridges, filling them with toxic people first isn’t a bad idea.

candied pork butt

Rule 34:  If it exists, there is porn of it.  Interesting side story: while double-checking the rule number, I stumbled across My Little Ponies doing things they never advertise on the box.

cut my wife’s hair

I did this once.   Pro tip:  In the back, at the bottom, cut small chunks and leave them longer than you think they should be.  You can always cut more, but uncutting hair is really hard.

f***** on the roadside by your mechanic

He probably deserves a tip for that.

girls fart for money and girls live farts

See the bit about the pork butt, remove the funny, and…ewww.

how to be a successful debtor

I recommend starting by paying your bills.  When the debts are gone, you win.  Success!

i ate bacon on slow carb diet

So did everyone else, sweetie.  It’s the biggest draw to the slow carb diet.

in memory of pets tattoos

When I get a pet, I get it with the understanding that I’m going to outlive it.   The day I bring it home, some small part of me is preparing for the day when I have to dig a hole in my backyard.   Tattooing that day?  Not gonna happen.

thickening felt behind testicle

Why are you on google?  Go to the doctor.  Please?

Interesting.  Between girls farting and my post about being well-trained, there is a significant amount of fetish traffic coming through here.  Maybe I need to explore a new advertising strategy.

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The Evils of a Reverse Mortgage

Fritos Logo

Image via Wikipedia

Picture it: Sicily, 1922.

Sorry, wrong channel.  Let’s try again.

Picture it: 20, 30, 50 years from now.   You’re old.  The money you’ve been failing to save so you could stock up on Fritos and obsolete video game consoles(to survive the zombie apocalypse in style) would come in handy about now, since the end of the world never happened.   Note to self: Never trust an ancient Mayan.

You’re 70, with no savings and no income aside from the Social Security check that hasn’t been adjusted for inflation since the Palin(Bristol) administration.

But you own your house and that nice young man down at Yersk Rude Bank recommended a reverse mortgage.   That could give you all of the money you need to live a comfortable retirement and pay for a bit of a funeral.

Right?

Nazzofast.

Of all of the possible social security strategies, this is one of the worst.

What is a reverse mortgage?

In a traditional mortgage, you’re given a chunk of money guaranteed by your home.  You have to pay that money back over time, or you’ll lose your house.  In a reverse mortgage, you’re still converting your home’s equity into cash, but you don’t have to pay it back until you die or move, including moving into a nursing home.  You are effectively abandoning future-house in exchange for now-money.

Who qualifies for a reverse mortgage?

If you are 62 or older, and live in a home you own, you qualify.  Credit and income are not considered.

Why would you want a reverse mortgage?

If money is tight and you have no prospects, a reverse mortgage may be a valid consideration.    A better consideration would be to take out a traditional loan and make monthly payments out of that lump sum, or sell your house outright and move someplace more affordable.

What are the downsides of a reverse mortgage?

You lose your house.   Technically, your heirs lose your house.  A reverse mortgage becomes due when you die.  If your heirs can’t cover the loan, the house will be foreclosed.    Also, this is a loan.  It accumulates interest, even if you aren’t paying it back.  If you borrow $200,000 and die in 10 years, your estate may owe $400,000 on the reverse mortgage.   If this is a treasured family home, losing it could come as a shocking blow at a time when your family would already be reeling from the loss of, well, you.

What if you really don’t like your heirs?

I’d still recommend getting a traditional mortgage.  You can throw a killer party and then, you’ll rebuild equity over time.  That way, if you live longer than you expect, you can refinance and throw another killer party.  If you go this route, don’t invite the kids, but be sure to hire a videographer so they can see how you’re spending their inheritance.

I’m not a banker or a financial advisor, but I’d recommend against a reverse mortgage in almost all circumstances.

How about you?  Would you get one, or recommend one?  What’s your preferred method to hurt your ungrateful heirs?

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