What do you do in this situation? Buying another property

10 Replies

I have a house and I'm thinking of taking advantage of this great market opportunity to buy a newer house for myself, then rent out my existing house.

Now, I'm worried about the possibility that I won't be able to rent my current house in the future as my house is in a bad neighborhood.

How would you proceed and/or how would you prepare for months when you can't rent out a property? Thanks.

Sell the old house! No matter how good the current buying market is, the bank isn't going to lend to you so you can "speculate", which is what you'd be doing. They're going to insist on seeing a signed lease, and then only count 70% (IIRC) of the rent shown on the lease.

If you know the market and you're worried about being able to rent, imagine how they'd feel if they knew.

Sell that old unit, NOW.

all cash

Well the problem is, the value of the house is $15,000 less than the loan amount. If I sell it, I would be owing the bank $15,000 since the value of my house went way down.

Sorry, but if you're upside down on your first house, the idea of buying a 2nd one seems good why? I hope you see the irony. While you didn't provide nearly enough information, it's unclear that you can even afford house #1 so getting into more property sounds like it could be a recipe for disaster.

More simply put, if you're not in good enough financial shape to bring an extra $15k to the table to sell house #1 *and* put enough down on this newer house that you want to buy, then you're not in position to buy this newer house period - let alone own 2 houses. You don't go buy a new car everytime you see a "good deal" on one do you? This really isn't that much different.

I agree with Tom, your in a bad position being 15K upside down on house #1. Typically, to cashflow a property well, your loan to value ratio can't exceed 80%.

Since you are looking for answers and maybe someone guidence, I would suggest checking out hud.gov to see what the fair market rents are for section 8 housing. Section 8 rents by my observation are higher than standard rents for a home in a not so good part of town. In memphis, I have one home that can rent for $800-850 on the open market, but section 8 pays me $990 (god I love the government). If the math of the fair market rents justifies renting your own place, then get yourself and house #1 property qualified with your local housing authority before you go and dive into house #2. To become qualified for section 8 you have to take a 2.5 hour class and your property has to be inspected by the housing authority.

Let the numbers tell you what to do.

I'll be blunt since everyone are being too nice.  Don't be stupid twice in a row.

Don't get yourself further under water.  House number 1 is not an asset if you owe will owe money on it after you sell it.  

Do you have the 20% cash for a down payment on the new house, plus closing costs?  If not, then DON'T EVEN THINK ABOUT IT.  

Who are you thinking will bail you out of bankruptcy when you can't make payments on either property?  Count on vacancies, and repairs when you rent in a good neighborbood.  Bad neighborhoods require more cash reserves.  

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