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Posted: 1/13/2015 7:37:47 PM EST
[Last Edit: 1/13/2015 7:44:17 PM EST by Aloxite]
I bought an old, decrepit 1400 sq/ft house and have been fixing it up. It sits on .25 acres but also included a .2 acre buildable lot behind it. I could pay it off and then build a garage for my old cars and have lots of space around me for a small cider orchard. But I'm starting to think about a different path.

On the back lot I could get these built. With needed setbacks these just fit at the back of the lot, side by side. There is still 30 feet left in front of the buildings. They would be financed with a construction loan until completion and then a conventional mortgage.

I'd get one of these houses which are pretty much identical:

4 bedroom version - I like this the better due to the better master suite.

5 bedroom version - Might rent for more.


Plus this garage:


The garage would be modified with a 1 bedroom Accessory Dwelling Unit (ADU) and a deck and outdoor stairs above the shorter garage door. This garage couldn't be built on my lot without an ADU because garages are limited to 18 feet high but an ADU can be 25 feet high. The property owner has to live in either the ADU or the primary house per code.

The house costs $112,000. The garage costs $50,000. Figure another $30,000 for the ADU fittings as well as utilities. So total $192,000. It will appraise at over $300,000 that so no PMI.

A 30 year fixed for $192,000 at the current 3.75% costs $890 a month, not including property tax and insurance. Figure $4000 a year for tax. I'm not sure what insurance would cost. The house would rent for $1,500 to $1,700 in today's market.

So I can pay all of that mortgage on the rental income. Plus maybe some left over to invest. I would live in a 700 square foot ADU above a 6 car shop with room for a lift. This suits me fine since I'm single and own 4 classic cars.

I could rent the original house for $900 - $1100. I owe $95,000 on it and it is appraised at $170,000. Maybe knock that down to $155,000 if the back lot wasn't included.

As the years go on my equity increases and likely the rental income does as well. If I get married I can move into the new house and rent the ADU out to a divorced motorhead that needs shop space.

Eventually I could buy a piece of land out in the country and start a decent sized orchard and build a shop and house out there. I would still have the ADU to stay at in town and the shop.

So what do you think? Any major holes in this?

FWIW this property isn't in the best school district. Not awful but people basing their renting criteria probably will look elsewhere. So I'm leaning to the 5 bedroom design so I catch renters with big families that couldn't afford the better school districts.

I'd love to hear your thoughts.
Link Posted: 1/13/2015 10:47:20 PM EST
Your assuming you will always have a renter. Plan to pay for both houses with no renters.
Link Posted: 1/13/2015 11:02:13 PM EST
[Last Edit: 1/13/2015 11:03:08 PM EST by Aloxite]
Good point. Currently I'm putting around $1350 a month into paying off the existing house as fast as possible. I plan to be saving and investing that. Assuming I don't lose my job I could cover the more expensive mortgage easily. If I had to cover both I might need to dip into savings a bit.
Link Posted: 1/14/2015 10:19:07 PM EST
Anytime you invest in anything there is a risk of losing money. Generally the higher the return on the investment the higher the risk of losing.

I would not recommend borrowing money to invest because if things go wrong it could put you in a major bind. I have lost tens of thousands of dollars over the years on various investments and it sucks but it was my money and nothing happened other than a sharp pain in the nuts. No bankers came calling. If your idea works then great and it may work but what if it doesn't ? What if you get caught up in that perfect storm? Think it won't happen to you? Neither did all those people in the newspaper under the bankruptcy heading.

I have seen a lot of wealthy high income people go bankrupt due to using leverage.
Link Posted: 1/16/2015 7:24:11 AM EST
this would be like taking out a secon mortage on your home to invest in the market, thinking that while the morgate rate would be 4%, you can make 8%/year in the market...

That is generally considered a bad idea right??


Can you not use the little lot as the collateral, seperate from the property and morgatge for your house? Could you keep them seperate like this to where worse case scenario the little lot/home gets forclosed on and some really trashy people w/ pitbulls & loud music buy it from the bank .
Link Posted: 1/16/2015 7:39:41 AM EST
Discussion ForumsJump to Quoted PostQuote History
Originally Posted By collinkp:
Your assuming you will always have a renter. Plan to pay for both houses with no renters.
View Quote


And to research renting laws to see what rights the renters will have and what responsibility the landlord will have. i'd recommend hiring a lawyer to at least go over it with you.
Link Posted: 1/16/2015 8:16:29 AM EST
Discussion ForumsJump to Quoted PostQuote History
Originally Posted By collinkp:
Your assuming you will always have a renter. Plan to pay for both houses with no renters.
View Quote


This.

And more importantly, plan to have a renter that isn't paying their rent. Been there, done that. It is a major pain in the nuts.
Link Posted: 1/18/2015 2:05:09 PM EST
Thanks for all the replies.

Your responses back up my natural reluctance to get involved in renting property. I have friends that are landlords and from what I've seen there are risks, but the rewards are there.

From my point of view this boils down to how best to utilize a lot that right now is an attached/included lot with my house. The same lot ready to build is going for around 100k in this area. Do I keep it as an extra big back yard or do I make some money off of it?

Another option would be to build a house on it and sell it off. I could even divide it into two lots and develop them independently. Or I could grow poppies. I hear that's profitable.
Link Posted: 1/19/2015 12:06:00 AM EST
you might get this guy to protect it for you
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