Rental Property
Does it make sense to have a rental property that just covers expenses and mortgage payment for a long term investment?
Does it make sense to have a rental property that just covers expenses and mortgage payment for a long term investment?
I don't think I have enough info to make correct assumption, but if you are looking to reduce your income tax liability, it makes sense to me.
Quote:
On 2003-10-13 16:55, miked82 wrote:
Does it make sense to have a rental property that just covers expenses and mortgage payment for a long term investment?
As long as it covers "ALL" expenses and it is a long term investment, your answer is yes! You must always take into account that rents will go up year after year while your tenants are paying down your mortgage. You will be building equity in your property and you will have great tax advantages.
Repoman
A few thoughts...
What are your investment goals and is this consistant with them?
Are you buying at FMV or are you getting equity?
How much money did you put into it? If it's a no money down deal, then sure. If you are putting money into it, then I think you're nuts to get 0% ROI until you sell it.
How fast is your area appreciating? If it's appreciating very slowly, then maybe not.
Finally, how much time do you have to put into it and what is the opportunity cost of owning this property. It may not be worth it if it takes up much of your time.
How does it reduce income tax burden?
Since I already asked a newbie question, let me ask another:
Would you pay 2 points if you can reduce rate by 100 bps? Would you pay 1 point if you can reduce rate by 50 bps? Or rates are low, so use your cash to buy more properties than lowering rates further?
Quote:
On 2003-10-13 18:48, ahmedmu wrote:
Since I already asked a newbie question, let me ask another:
Would you pay 2 points if you can reduce rate by 100 bps? Would you pay 1 point if you can reduce rate by 50 bps? Or rates are low, so use your cash to buy more properties than lowering rates further?
Whether that's worth it is going to depend on the term of the loan ... and whether you expect to be prepaying that loan at any point. If you're going to hold for the full 30 years, the answer is likely yes. But as that term gets shorter, the graph lines cross at some point for both of the alternative scenarios. You need to make that decision, as well as a decision about what you could do with the cash you're not plunking down ... can you do something better with it now?
Hey,
Hell no, it is not okay to buy a rental that just covers expenses (Is that a strong enough answer?).
Why do I say that?
1) You are banking on something you can NOT control: appreciation. Even if the area has gone up 10% every year, that does NOT mean it will go up from now on.
2) When something happens at the house, and it WILL happen, you have no reserves to fall back on. Now instead of having zero cash flow, you have negative cash flow.
3) Regardless of how much money you have invested in the house, you are at RISK. And you have to receive some sort of return for that risk.
Bottom line: Only buy Rentals when they make you positive cash flow.
I agree with Bruce.
Be real carefull.
RK