Investment Buy?
Time to tap this knowledge pool… Since we have decided to rent in Brownstone Brooklyn (couldn’t afford to buy the space that we need) we still have our “house fund” sitting in the bank. This past tax season has proven that 3 kids just don’t provide enough deductions so we are thinking of buying something…
Time to tap this knowledge pool…
Since we have decided to rent in Brownstone Brooklyn (couldn’t afford to buy the space that we need) we still have our “house fund” sitting in the bank. This past tax season has proven that 3 kids just don’t provide enough deductions so we are thinking of buying something to rent out.
My questions are many, including:
– is this a good idea at all?
– with a budget of no more than 325K, where should we be looking?
– should we bother looking at studios or are 1BRs that much better of an investment?
– Anyone want to sell their place but still want to live there? (hey, you never know!)
Many thanks in advance for your 2 cents.
Something else to consider. Approaching year 7 on our 3-family. Over time, rents go up and mortgage payments stay the same. By all means, use the current rents to do your calculations on the good advice here, but in the future more money will be coming in (an more principal being payed). It’s a good feeling.
Do you want that money to be liquid so you can use it for a downpayment on your own home when the time is right? If that is the case, don’t buy a piece of real estate. Find an alternative financial investment anywhere from risk-free, low-return Treasuries to a REIT (if you really want real estate exposure) to a diversified balanced fund. When you are ready, liquidate the holding and use it on your own pad.
And if you are shopping for tax breaks, you could probably get a bigger tax deduction if you buy your own home, booking the tax break on your mortgage payment, than you would if you bought an investment property.
i.e. if you buy an 800K flat with 20% down, your mortgage of $640,000 (on a 5.25% 30-year) would have a payment of $3530/month. You’d be paying about 33K in interest in the first few years, which would be good for an annual tax break of around 10K, depending on your tax bracket, or over $800/month. So your after tax mortgage payment would be under $2700. And you’re paying your own principal, not your current landlord’s.
CHMomma, Same here! 3 kids, renting, good but not huge income, get killed on taxes, good savings but not enough to buy a big place. We’re about to take the plunge though, the house fund got bigger the last 3 years while prices came down. We also gave up on “Brownstone Brooklyn” and started looking in places like Kensington, Bay Ridge, Flatbush, etc.
Have you thought about purchasing a 2-family? You can get a 2-family FHA loan (if its a legal 2-fam) and get that investment income from right upstairs/downstairs. It would sure help your tax bill.
Since OP states she has three kids but then ponders the relative value of studios and one bedrooms, and also inquires if anyone wants to sell their place and then remain in the unit, I got the impression the question was whether or not to invest the “house fund” in an investment property.
“Anyone want to sell their place but still want to live there?”
Interesting. I sorta fall in that category, in that, I’d like to have the equity in my place- in cash, but I do like the place, and I’m in no hurry to move (my place is currently not on the market).
My building probably wouldn’t be cool with an investor-owner, though.
For less turn over, I’d recommend sticking with one bedrooms or better. I don’t know if your margin will be enough to make it worth your while, but check condos across Brooklyn and Queens. I think you could do ok with areas near Brooklyn College, Rego Park, Briarwood, and, maybe, Bedford Stuyvesant. If you find something that looks good, research rental rates for that size in that neighborhood – knock off the really high and low prices and average the rest. Calculate your profit margin using a number slightly lower than that and subtracting RE tax, repairs, etc. If you’re not going to take an active role in the renting and maintenance of the place, look up or talk to your accountant about IRS passive activity loss limitations. You’ve probably thought of most of this, but hope some of it helps.
all excellent advice. i would also add that you should ask your accountant whether or not owning an investment property affords the same write-offs that owning a property used for your primary residence does.
The decision should be based solely on the opportunity cost at this point without knowing what your “gains” in the value of the proprty may or may not be.
In other words, if you can get a 30 year Treasury yield now of 4.4% risk free, you need to have a net, net, net yield of more than that with the potential property. Yes, there is still capital risk in the Treasury but not mush over it’s lifespan of 30 years.
Additionally, you can get higher yields (tax free or taxable) in the financial markets. You really need to consult a good Certified Financial Planner.
You have found yourself that it is cheaper to rent than to own. This answers your question about the investment value. To be clear it doesn’t mean that housing prices in our market won’t continue to rise–they well may rise quite a bit–but on this important measure of value real estate as an investment doesn’t look great, even including tax incentives. Also, real estate is among the LEAST liquid investments, and comes with very high transaction costs. Find a good tax and investment adviser and look at other investment and savings options.