There is a saying in the real estate business that an owner-occupant will always pay a higher price than an investor. When buying rental houses, this translates to the fact that someone who wants to live in a home will usually outbid you if it is a tight housing market. If there are more homes on the market than buyers, you can pick and choose.
A situation with many buyers and few homes means you will probably have to concentrate on fixer-uppers. Most potential owner-occupants lack the vision to see through a mess of a property to what it could be with very little effort. You will have little competition for those homes.
Many, many real estate gurus tell you it is all right to buy something with mortgage payments larger than the potential rental income because the property will increase in value over time while your mortgage payments remain constant. They also tell you that the tax write-offs will make up for the negative cash flow and you will be rich in the end.
It sounds good, we all want to believe it, and it sells tickets to seminars because we are all hoping it is true. Our job would be so much easier if we could pay too much for a property and have everything turn out okay. It is preposterous, though!
If you have negative cash flow, or you must take personal income from your job or other sources to supplement the rental income from the home, how many of those deals can you do? Try to make it up on volume, and you will invest yourself right into bankruptcy! If you enter the monthly payment you can afford, the spreadsheet will tell you how much money you can borrow to make that monthly payment.
Research rental rates in the area for the type of house you want to buy. That is the gross monthly income you will have. Subtract the following numbers. These are my examples, but the percentages might be higher or lower in your area and for your type of property.
The number that remains is the mortgage payment you can afford. Plug that into the spreadsheet you created, and you will see how much debt you can afford.
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This article was sent to us by:
Bradley Smith at
07012010
1. Things to Know Before Selecting an Apartment
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