/biz/ - Business & Finance

Most people realize this.

>>646122
I gues I be Autistic.
Been Looking to buy a house for 100k for two months.

I didn't know how to calculate all the costs, let alone didn't know about these fees.

But everybody, specially my parents are saying BUY BUY BUY

>>646128
Protip: Don't listen to boomers about real estate.

>>646133
So do you really reccomment I go rent a place for $500 a month, instead of buying a house if I may be leaving town in 3 years. (who knows aobut masters or PHD)

>>646128
Glad you figured it out. Not everyone knows this but they should.
Personally I don't think you should buy a house unless you can afford 20% down, can do a 15 year mortgage, and plan on living there at least 6 or more years.
If you buy and sell after two years you're just setting your money on fire.

>>646138
Yes.

>>646115
>>646122
>>646133

Depends where you are. Here in London house prices have gone up by over 10% every year for the last 10 years. The average home went up in value by something like £40000 last year alone. Because prices are so high, costs and fees vanish into insignificance. Furthermore, the deposit you need for a house is increasing by more than most people can save in a year. Meanwhile, rents have also been skyrocketing at a similar pace. Buying a house in London is more or less the best investment going in the last 20 years.

>>646139

Thanks for your two cents.

Is there any scenario that buying a house and selling it in 3 years would work?

In other words, what numbers would make sense? i.e Higher Downpayment.. or maybe you rent more rooms out.

>>646147
And it should only continue to go up! Forever even!

>>646148
>Thanks for your two cents.

>Is there any scenario that buying a house and selling it in 3 years would work?

>In other words, what numbers would make sense? i.e Higher Downpayment.. or maybe you rent more rooms out.


Moreover, right now is "the market to buy" not the market to sell. The houses are cheap

>>646128
Don't listen to your parents.

Mine were on and on and on about how property was a necessity - a starting point. Then they bought a e1million house and thought they were great only to get stung.

They've only seen property rises increase from their first (STG20,000) so they were under an illusion.

Now they say don't bother until you're settling down

>>646147
Good luck with that.
>>646148
Closing costs, interest, and maintenance are the big problems (plus liability and responsibilities). A 3 year time frame usually doesn't make sense.

>>646115

generally break even point on renting/buying is 5 years.

if you put 20% down you wouldn't have 100 bucks pmi per month.

if you put 5% down you are paying about 663 per month and at the start of the mortgage you are paying 291 per month in interest and 145 in principle. at month 48 those numbers are 268 and 167. if we average those numbers (close enough) that is 280 and 155. 280 * 48 is 13,440. 155 * 48 is 7440.

if you put down 5 grand on the house and you build 7440 in equity over 4 years, when you sell you get 12,440 back at closing. (you've said that you paid all closing costs up front when you bought so i am assuming you are assuming all closing costs are paid by purchaser - which is generally backwards)

anyway. buying is cheaper than renting. especially if you don't have to throw your money away on PMI.

the reason this is true is that your assumption that you lose 20,000 isn;'t true. you actually lose 13440. buy your own admission rent would be 800 a month which would cost you 38,400. so buy purchasing a house you are saving shit tons of money.

>home values ARE estimated to rise roughly 4% year over year for the next several years

>>646115
You could have built the house and had the builder pay the fees because theyre desperate.

Also , youre own math showed that you broke even on rent etc by renting. Wheres the loss in your equation vs 24 months of 800 a month?

OP go look at some millionaires bios. 90+ % had real estate dealings

>>646171
Closing costs and maintenance even if his estimate is correct. Rent that only covers the mortgage is usually a waste of time.
>OP go look at some millionaires bios. 90+ % had real estate dealings
Does not mean that blindly buying real estate is the correct course of action.

What if your mortgage payment comes out to be cheaper than a rental payment? Is it still worth it? My parents are also bugging the fuck out of me to buy a place but the thought of being stuck and immobile in a place is kind of depressing as fuck to me. Juat laying in bed looking up at the little bit of ceiling you were able to afford is fucking terrible. I only have like 150k saved up which in southern california wont get you SHIT.

>>646148
Google bigger pockets.

The numbers that make sense follow the 2% rule and the 50% rule
50% rule Overview:


50% rule: At least 50% of your rental income will be spent on expenses. So if you get $800 a month in rent, $400 will be spent on expenses external to your mortgage/cost of capital. This is stated to be a conservative rule. Someone else can weigh in on that.

50% rule example: A single family home (SFH) as an investment is currently renting for $1200 per month. What's the maximum I should expect to pay for the mortgage and the expenses?

Answer: You should plan to pay .5 * $1200 = $600 on expenses. This means that you have $600 left over to pay the mortgage and get your profit. If you're looking for a $100 profit per investment, the maximum your mortgage could be is $500.

2% rule overview:


2% rule: Each month you should earn 2% on your investment. So if your house cost $50k, rent should be .02 * 50k = $1k

2% rule example: If a single family home (SFH) as an investment is currently renting for $1200 and the current owner is selling, what is the maximum I should offer for the home?

Answer: Using the 2% rule we can calculate the potential purchase price using the following equation: $1200 / .02 = $60,000. This rule can work the other way as well.

Another 2% rule example: A SFH investment home is currently on the market for $83k. What should I expect rent to be in the area in order to justify the purchase?

Answer: We can calculate this using the 2% rule as well. $83k * .02 = $1660 in rent each month.

>>646173
>Does not mean that blindly buying real estate is the correct course of action.

the market is pretty efficient at pricing things correctly. if op id his homework and instead of selling in 2 years decided to rent it out to more college kids for the next 30 years, he'd be sitting on shit tons of income, plus 100% equity - no matter how bad the deal was.

>>646115
>Want to live in decent neighborhood
>sec deposit +first months rent +last months
>4500 dollars
>No credit or equity built
>paying some jew landlord's mortgage payment

>security deposit never returned, "repairs had to be made"

>Out 100% of every months rent payed plus deposit

>more than 20k lost if staying for more than just 1 year, not to mention no equity built, and no credit built.

>>646187
No. Several levels of no.

>>646186
>2% on your investment

but your investment isn't the price of the house - it's the money you put down...

i appreciate your point of view on this subject but i am not sure you are applying things correctly.

1660 in rent for a 83k house is a ridiculous proposition.

>>646186
2% rule, lol what kind of a delusional retard made that up? Noones gonna pay 1600 a month for an 80k shitbox.

>>646186
>2% rule using the entire price of the house

You're retarded.

>>646193

the 50% rule is a bit odd as well...

1200 a month would equal to about a 2000 sq ft home rental in my area (georgia)

50% of that would be 600. for a year that is 7200 worth of maintenance. over a 10 year period that is 72,000 dollars - which is enough to replace all the AC units and water heater, the roof, all carpets, while having enough money left over to remodel the kitchen... every 10 years. if you're going to pay property tax out of that or pay for utilties for the tenant then maybe i could see it..

>>646193
Right. Your skin in the game is whatever you put it but the banks after you long term for the whole thing. Now most would argue that the 2% rule is really a 1% rule since the new millenium but its debatable based on the area.

You aren't going to find 2% worthy property on mlm or craigslist , its either dumbluck or investment. 1% though? Not hard at all. It just involves fixing the place up or modifying it (turn a 3 bed 2 bath into a 2 bed 1 bath and a 1 bed 1 bath for instance by adding a wall)

>>646206
And you arent a real estate investor

"The 2% rule says if you can find a property priced such that the rent is 2% of the purchase price, it will cash flow. Note that you cannot use this to figure out what the rent should be. The market dictates the rent. Rather, you have to use it to determine how much you can pay."

>>646207
Its a rule of thumb so you dont get greedy. You can roll it over into new down payments but its like a 6 month emergency fund , if the roof collapses you'll be glad you werent spending half the rent on sushi.

>>646115
>tfw bought an apartment and prices have increased 20-25% in 1.5 year so if i sold today i would have doubled my investment in 1.5 year

:^)

>>646249
also im a student

>>646237
2% of 100k is 2000 a month.
>cash will flow
uh.. yeah.. but 2000 a month isn't going to happen on a 100k property. especially with mortgage rates where they are at right now. it would be cheaper to buy after like 72 hours.

>>646238
there is greed, and there is being properly leveraged to make your money work for you - from a budget standpoint they can look the same, but have profoundly different impacts on long term wealth. letting 50% of rent sit in an account waiting for a roof to collapse is not smart if after 10 years you have 72k sitting in an account and could have put 20% down on 3 more houses.

>>646192

>not knowing what cash flow is

>>646115
Why not buy a house, live in it during your schooling, then rent out each room once you've completed studies?
Depends on the size of house but:
> $400 per month for a room x 6 rooms (say you have rooms in basement) = 2400/month.. 28,800/year
Use that to pay off the mortgage you could pay off the house in a relatively fast period and once the house Is paid off you'd have an additional income of 2400 a month.>>646115

>>646318
>implying

>>646191

My fucking brain refuses to work for some reason.

You're essentially saying renting is fucking retarded? Or no?


I was always under the impression I'd rather buy a fucking house and be STUCK somewhere for several years, then pay some assholes mortgage off.

Maybe that's just me.
I s'pose if you factor in local employment's volatility in things start leaning toward renter.

Still. I had a buddy who watched something like 40k poof over sub 5 years, and the bitch refused to do any renovation on the property, fix leaky windows, or a compromised foundation.

>>646138
500 a month is pretty cheap

>>646319
It seems like it would be difficult to find 6 people who want to pay $400 a month for just a room and then share bathrooms/kitchen, and have to deal with other people's noise and crap, then have to drive to college. I don't think that price for what they get would be competitive where I live, but I suppose in higher rent areas.

There is certainly a demand for cheaper (or less crowded/nicer for the same price) college housing, since campus housing and nearby apartments can be obscenely priced. It would be easy to out-compete these people by providing a better option.

>>646115
I disagree.

If YOU also contributed $400 a month for rent, you'd be paying off your mortgage at a faster rate and be in a good position financially, with the mortgage down from $95k to about $85k.

At that point you could move out, lease out your room for another $400 and it will continue to cover mortgage, bills and property tax.

Then you can buy a second home with your new, better paying job you get at graduation, and the income from your 1st property will help you reach a little higher than otherwise possible if you spent the entire time just renting without accumulating any equity

>>646365
you never been to a college town

>>646385
>better job
>after graduation

what job

>>646149
>>646155

No, it won't carry on forever. That's why I said it was a great investment at any point in the last 20 years, not necessarily in the next 20.

>>646237

>if you can find a property priced such that the rent is 2% of the purchase price, it will cash flow

2% a month? 24% a year? Are you fucking high?

>>646400
24% a year.. let's run some numbers

i buy a house for 20k down on a 100k house.

mortgage property tax and insurance come out to about 600.

i charge 1000 a month rent and bank 400 to my pocket after paying for most of the things that i will need to cover.

this is 400 * 12 = 4,800 a year - or.. 24% return on my 20k investment.

now.. i know that you guys were talking about 24% rent payment on the price of the house..

but frankly, i think all these 2%, 50% arguments are being phrased by teenagers that don't really understand the economics of the market they are talking about.

when i buy a house to rent it out to people, i look for 10% yearly return on my investment. if you can show that you will hit 24% then that just gives you wiggle room for when you need to replace a water heater or something.

>>646325
I meant renting is stupid and that you might as well buy if you can afford it.

>>646365
You could probably find some freshmen that won't consider those factors when looking for residence. I was using 400 because that was the figure OP used in his example, but I see the logic in your post.

The good thing about owning a house near a college is that there's always a demand for housing, and no matter what state the economy is in you'll always have students that that need that need to go to school.. Also, I'm from Canada and finding a house for a 100k is unrealistic. . Are househouses really that cheap in america?

>>646448

I have a zillow alert everytime a house in ackworth georgia goes on sale for under 100k.

i get about an email a week.

Average home price in the US is 240-260k depending on who you ask.

Some areas of the country are reliably 80 to 100 bucks a sqft, so it is not unreasonable to find bargain priced places that are a decent (small) size for that price. Some of them can even be sort of old, or "quaint" and "charming." Personally I like 10 ft cielings and new construction and most of what i would want to live in is about 160 $/sqft in georgia - where things are a bit cheaper than places like california or new york...

the other thing we have here that is sort of weird maybe.... is how foreclosures work. it's totally stupid. if you don't pay your mortgage, the bank forecloses on your property and takes owndership of it. the property is then sold at auction on the county courthouse steps, or on the steps outside of the sherrifs department - depending on each jurisdiction... these houses are often sold for less than the remaining mortgage amount. which, assuming a conventional mortgage, puts the house 20k under market value right off the bat.

the other interesting thing about housing... is a lot of our colleges are not that old... and they have been built (on purpose) out in the middle of no where, where land was cheap. (again this doesn't apply to places like cali and new york) so finding rentable living space within a 10 minute drive of campus for pretty cheap is still doable.

the better off families will often buy a house and make their children the land lord for 4 years to a number of classmates/friends/tennants. after graduation the place can be sold or held onto since the rental income from areas around a school are usually pretty good.

>>646128
>646122
your parents are cum guzzling twats

>>646186

use 1%

>>646448
I live in the middle of Kansas and houses are not that expensive here. I haven't researched it but 100k would get you a pretty decent house. I know a lot of rural areas, such as western Kansas, are quite low. I'm sure 100k would get a great house there. In fact, I'm thinking about moving there after college since they have a shortage of pharmacists.

>>646149
will keep going up long term as long as the US/Western governments remain stable.

then you're listening to all the people who's been shrilling the impenitent the crash of the US/UK/society every day since the dawn of time.

>>646418
Right. 2% is rule of thumb. 1% is mor realistic but ill take less than 1% if the market ia good , say dallas.

These are rulea of thumb /biz/ , basic real estate investment 101 . You keep these in mind when searching but dont stick to them hard and fast

>>646528
Isn't real estate investment 101: "Don't invest if you don't have money"?

>have no money
>buy house
>pay property tax, maintenance, insurance, xyz every year
>pay mortgage interest
>take on risk that the house won't be worth as much when you sell it (bubble bursts, economy sinks, area goes to shit, etc)
>have your assets and credit tied to it
>call it an investment
>boomer logic

If I wanted to spend that much on an investment, I'd put it in a mutual fund or some bonds.

Poorfags and especially students have no business buying shit. If you can't wipe out a good chunk of that principle from the start, AND pay it off very rapidly (within five years), you're gonna get jewed over on the mortgage interest. People who pay the minimum payments on the mortgage and don't apply extra towards the principle every month are suckers.

Now, if you have money, you buy a house and rent it out, and be a slum lord (or student lord, same thing.) Eeeexcept renters are notorious for destroying your property, so good luck with not getting fucked over.

Really, it's better to stay away from real estate. Too much risk for what it is. And that bubble is pretty ripe right about now. We have tons of houses sitting empty, so supply and demand, why would prices increase?

>>646479
>often buy a house and make their children the land lord for 4 years to a number of classmates/friends

I know folk who did that. If you have a man on the inside, they can protect your investment (ensure the kids don't party and trash it, or leave it sitting in filth.)

>>646115
You realize that rent isn't that cheap everywhere, right?

Here in Boston, you're hard pressed to find a sub-$1500 rent for any type of apartment. Purchasing a place makes more sense, though, since your mortgage payments on a house (okay, not a house house, but you get what I mean) are less than that.

>>646191
you act as though people cant save money while renting.

>>646164
This, OP
If you have a mortgage paid for by renters it's hard not to have buying a place be worth it.

And you're not considering tax write offs on income from mortgage insurance deductions. they can be very large if the mortgage is large and your income high

>>646319
Yea, his parents clearly have cash if they're encouraging him to buy. They just see it as him acquiring the family another rental property. He's not going to need a profit on that shit in three years, he'll keep it as a rental and become a college slum lord.

Buying 10/10. Source, my dad has 7 properties, my grandparents have 3, I have 1. Even if I move in a few years, I can redo the bathroom and kitchen and pull a profit.

>>646832
I have to do a lil more research and do more calculations and get back to you guys.

The dilema now is that the interest on the morage + government beaucracy fees all around make you actually lose money when you buy a house. In other words, let's say you'd be losing $500 a month on all that (you're in the negative) therefore, it's better to rent a nice place for $500 AND NOT DEAL WITH ANYTHING.

>>646896
^ THAT IS of course true only if you plan on selling in less than ~ 8 years.

But who the fuck wants to stay in a shiit town after graduating from the U?

>>646896
No, you make the rents you charge your roommates cover the mortgage, taxes, and repairs.

>>646138

some shithole in Arizona with landlords who hate white people and never fix anything

>get job in a neighboring city making 55k starting
>decide to buy a nice little house for 120k with zero down instead of renting
>6 years the later the mortgage is paid
>if I'd have rented a similar house for 6 years I'd have spent 65k on rent with nothing to show for it
>mfw my house is worth way more than I paid due to fixing up the yard and getting it repainted

Sure if you're a student it's not a good idea to buy, that's obvious. I feel like buying is always a better option than renting as long as you're going to be there for at least 3-5 years and you buy something that you can actually afford to pay off within a reasonable amount of time.

>>646115
A year ago i got a mortgage with 3% interest, no PMI, 20% down. While I agree a 2 year flip generally isn't effective, my calculations put me in the black by year 3 (already made 5k in repairs, 5k expected over next two years).

Also, you overlooked the tax benefits of owning in the US (idk about elsewhere), which has been a huge benefit for me and many others.

>>646115
>not charging more for rent
>getting that high of an interest rate
There's your problem.

>>646147

Please tell me you're 18, if you were an adult in 2008 there is literally no reason for you to have this opinion unless you're literally stupid. Honestly I can't believe anyone would even have the gall to try and post on /biz/ (fucking BUSINESS of all boards) without understanding what literally just threw the entire world into a recession for the past 7 years

>>646115
Owning your own home is cheaper than it's ever been, and you pay more than the cost of mortgage in rent with interest rates this low. It's also generally regarded as the first step to financial independence.

Sounds like OP needs to go to real estate church.

>>646984
That's not what I'm saying. What I'm saying is that over time owning a house will always be cheaper than renting an apartment. Look at a timeline of 20 years on a property bought at 140k in a decent area, and you're going to make a profit over someone who rents.

>>646115

Who the fuck buys a house just to sell it two years later? Only people who are professional house renovators/flippers should do that.

>>646418

Yes, that makes complete sense. 2% a month on 20% down (plus costs) is closer to a 5% yield, which is a pretty decent rate on residential property here in the UK. Things like extra costs and risks all depend a lot on what you're buying as well. There's a world of difference between buying a flat in a new-built serviced apartment block, and buying a flat with a shared freehold in a listed townhouse.

>>646927

Yes, sub-prime lending caused the crash in the US. It also tanked Northern Rock in the UK, and put a lot of other banks on the brink of collapse. Funnily enough though, house prices in the UK weren't that badly hit, and prices in London flatlined for a couple of years, rather than dropping in value. There are numerous reasons, not least of which is that the government is scared shitless of any drop in house prices as it would mean electoral oblivion. Rock bottom interest rates have stopped anyone from suffering too much from negative equity, and as the rest of the world went to shit and the pound lost strength, money flowed into London property. Another enormous factor is that the UK doesn't build anything like enough houses to meet demand. In London the estimated need for new housing is running at over 60000 units a year, and less than 20000 are getting built. That's been going on for decades, so rents have been heading ever upwards too, driven primarily by high demand. Global cities are a very different beast in terms of property price growth to the kind of overextended American suburban borrowers who were wiped out in the crash. Also note, I said that buying property in the last 20 years has made people a fortune, not that buying property in the next 20 will.

>>646918
>Sure if you're a student it's not a good idea to buy, that's obvious. I feel like buying is always a better option than renting as long as you're going to be there for at least 3-5 years and you buy something that you can actually afford to pay off within a reasonable amount of time.
What is the difference between you and a student? Did you like pay 3 k every month towards your mortgage?

>Also, you overlooked the tax benefits of owning in the US (idk about elsewhere), which has been a huge benefit for me and many others.

hello from Le Canada

>Please tell me you're 18, if you were an adult in 2008 there is literally no reason for you to have this opinion unless you're literally stupid. Honestly I can't believe anyone would even have the gall to try and post on /biz/ (fucking BUSINESS of all boards) without understanding what literally just threw the entire world into a recession for the past 7 years
I'm a 30 year old student. Now Now... calm down. Please explain what you mean? And if I think I know what you mean.. how do u predict I will default on my loan?