Anonymous
10/16/2013 21:42
Subject: Pay off investment properties or buy new ones - what would you do?
It always amazes me how many people in this forum don't understand how to calculate home equity. I can't count how many times I've been people say they have negative net worth due to their mortgage, despite the fact that their home is worth more than they owe.
Anyway OP, I second the request for more information about your finances. Hard to advise otherwise.
Anyway OP, I second the request for more information about your finances. Hard to advise otherwise.
Anonymous
10/16/2013 21:16
Subject: Pay off investment properties or buy new ones - what would you do?
Anonymous wrote:Haha unless it's on her tax form
Now, now. I really didn't want to mention this, since it's a touchy subject, but when you have SO much, it starts to dribble out in various ways, in small amounts. It's impossible to keep track of it all. Don't you lose loose change all the time? Well...it's kind of the same. Actually, no, it's exactly the same phenomenon at play. *blush*
Don't hate the Cheese Lady. She just wants to help!
Anonymous
10/16/2013 21:07
Subject: Pay off investment properties or buy new ones - what would you do?
Haha unless it's on her tax form
Anonymous
10/16/2013 21:06
Subject: Pay off investment properties or buy new ones - what would you do?
Anonymous wrote:Anonymous wrote:Anonymous wrote:Anonymous wrote:Anonymous wrote:People have tons of different answers to that question. One I have heard multiple times is real estate should be 20% excluding your primary residence. Another common one is 33%, presumably including your primary residence.
This is almost exactly where we are - real estate is 22% of our portfolio without our primary residence, and 33% with it. The rest is in stocks and bonds with a small amount (less than 5%) in cash. Our net worth is about $1.5M total
Your primary residence is CHEAP. wow.
No, whatever you calculated in your head is their equity in their primary residence, not the value of the actual house. For all we know, their residence could be $800,000 with $150,000 down and just starting to pay the mortgage.
Very close. Primary residence was $725K with a $460K mortgage. I estimate equity at about $220K because I subtract estimated costs associated with selling.
I knew it. The Cheese Lady knows how to calculate net worth, having substantial herself. ^__^
Anonymous
10/16/2013 20:54
Subject: Pay off investment properties or buy new ones - what would you do?
Anonymous wrote:Anonymous wrote:Anonymous wrote:Anonymous wrote:People have tons of different answers to that question. One I have heard multiple times is real estate should be 20% excluding your primary residence. Another common one is 33%, presumably including your primary residence.
This is almost exactly where we are - real estate is 22% of our portfolio without our primary residence, and 33% with it. The rest is in stocks and bonds with a small amount (less than 5%) in cash. Our net worth is about $1.5M total
Your primary residence is CHEAP. wow.
No, whatever you calculated in your head is their equity in their primary residence, not the value of the actual house. For all we know, their residence could be $800,000 with $150,000 down and just starting to pay the mortgage.
Very close. Primary residence was $725K with a $460K mortgage. I estimate equity at about $220K because I subtract estimated costs associated with selling.
Anonymous
10/16/2013 19:46
Subject: Pay off investment properties or buy new ones - what would you do?
Anonymous wrote:Anonymous wrote:Anonymous wrote:People have tons of different answers to that question. One I have heard multiple times is real estate should be 20% excluding your primary residence. Another common one is 33%, presumably including your primary residence.
This is almost exactly where we are - real estate is 22% of our portfolio without our primary residence, and 33% with it. The rest is in stocks and bonds with a small amount (less than 5%) in cash. Our net worth is about $1.5M total
Your primary residence is CHEAP. wow.
No, whatever you calculated in your head is their equity in their primary residence, not the value of the actual house. For all we know, their residence could be $800,000 with $150,000 down and just starting to pay the mortgage.
Anonymous
10/16/2013 19:38
Subject: Pay off investment properties or buy new ones - what would you do?
Anonymous wrote:Anonymous wrote:People have tons of different answers to that question. One I have heard multiple times is real estate should be 20% excluding your primary residence. Another common one is 33%, presumably including your primary residence.
This is almost exactly where we are - real estate is 22% of our portfolio without our primary residence, and 33% with it. The rest is in stocks and bonds with a small amount (less than 5%) in cash. Our net worth is about $1.5M total
Your primary residence is CHEAP. wow.
Anonymous
10/16/2013 19:35
Subject: Pay off investment properties or buy new ones - what would you do?
Anonymous wrote:People have tons of different answers to that question. One I have heard multiple times is real estate should be 20% excluding your primary residence. Another common one is 33%, presumably including your primary residence.
This is almost exactly where we are - real estate is 22% of our portfolio without our primary residence, and 33% with it. The rest is in stocks and bonds with a small amount (less than 5%) in cash. Our net worth is about $1.5M total
Anonymous
10/16/2013 19:24
Subject: Pay off investment properties or buy new ones - what would you do?
People have tons of different answers to that question. One I have heard multiple times is real estate should be 20% excluding your primary residence. Another common one is 33%, presumably including your primary residence.
I don't really see the point of putting half down on an investment property if you can get a decent interest rate. You would be better off using the money for other things. If you're terrified of debt, though, there are other ways to put money in real estate without adding debt. Like renting your second home and putting the difference between the mortgage and the rental price in a REIT.
I don't really see the point of putting half down on an investment property if you can get a decent interest rate. You would be better off using the money for other things. If you're terrified of debt, though, there are other ways to put money in real estate without adding debt. Like renting your second home and putting the difference between the mortgage and the rental price in a REIT.
Anonymous
10/16/2013 19:13
Subject: Pay off investment properties or buy new ones - what would you do?
What percentage of your net worth should real estate be? We are looking at buying a second property that would make real estate about 40% of our portfolio. We would put down half and mortgage half for 15 years. This is instead of renting in a new city. Good idea?
OP, to answer your question, I would pay them off. But I totally hate debt.
OP, to answer your question, I would pay them off. But I totally hate debt.
Anonymous
10/16/2013 19:13
Subject: Pay off investment properties or buy new ones - what would you do?
Anonymous wrote:I'm a big fan of Dave Ramsey and his no-debt perspective, but I also know that debt (in terms of mortgages) got us to the position we're in today. We own 5 rental properties in DC. Together they make about 20K/month gross - then we pay $13,500 to mortgages and another $1,600 to the property manager. The rest is earmarked for vacancies, repairs, home improvements, and taxes. That "rest" is starting to build up in the account, which is good. Slow and steady.
I'm a little torn between starting to pay the properties off one by one, until all are mortgage-free (which would happen in 14 years anyway if we paid no extra) or gathering up enough for another down payment and adding to our portfolio.
We will be moving back to DC in a year for work (for one year) and then on the road again - we could scratch up enough for a down payment and would qualify for a mortgage since it would be a primary residence. Then when we move in a year, we'd make it another rental. Of course, we would make sure that the rents we could expect would more than pay the mortgage, as we did on the other houses. We have been landlords (until we had to hire the property manager a year ago when we posted overseas) for 11 years and feel pretty confident in our ability to manage well, take care of our tenants, and run a good business. We have the knowledge and experience, and know what to expect. Seems silly to not do it again.
That said, the though of paying them off is really calling to me.
What would you do?
What is the total value of the properties? What is your rate of return? If it is over 10% after expenses, you are doing phenomenal. Compare to the rest of your portfolio--stocks, bonds, etc. Unless your real estate returns are doing great, and this is your specialty as an investor, I would advise you to diversify.
Also, what kind of mortgages do you have? Any ARM's? If so, given the uncertainly in the coming years, I would advise you to pay them off before the rates potentially skyrocket. If you have a 30-year fixed at 3.5%, making excellent returns, and real estate is not disproportionate in your portfolio, then by all means, go buy some more.
But isn't long distance management a major pain? Who wants to hire and pay a plumber when you are miles away?
Anonymous
10/16/2013 19:09
Subject: Pay off investment properties or buy new ones - what would you do?
Anonymous wrote:Gee, you make it sound so easy. What types of properties do you own in DC? Are you a slumlord?
Fool, she can't be a slumlord, she's charging an average of $4,000 per property, not $400. Sez the Cheese Lady.
Anonymous
10/16/2013 19:03
Subject: Pay off investment properties or buy new ones - what would you do?
It's not really possible to answer this question without knowing the rest of your finances. But, for most people, tying that much money up in real estate would be a bad idea because that money could be better deployed to other things. You can make a fair amount of (risky) money flipping properties quickly, and owning your own home can make a lot of sense as one piece of your financial picture. But in general, residential realty isn't a stellar long term investment so I wouldn't expect someone to have five pieces of investment property unless they also have tons of money in other investment vehicles.
Anonymous
10/16/2013 18:38
Subject: Pay off investment properties or buy new ones - what would you do?
Gee, you make it sound so easy. What types of properties do you own in DC? Are you a slumlord?
Anonymous
10/16/2013 18:32
Subject: Pay off investment properties or buy new ones - what would you do?
I'm a big fan of Dave Ramsey and his no-debt perspective, but I also know that debt (in terms of mortgages) got us to the position we're in today. We own 5 rental properties in DC. Together they make about 20K/month gross - then we pay $13,500 to mortgages and another $1,600 to the property manager. The rest is earmarked for vacancies, repairs, home improvements, and taxes. That "rest" is starting to build up in the account, which is good. Slow and steady.
I'm a little torn between starting to pay the properties off one by one, until all are mortgage-free (which would happen in 14 years anyway if we paid no extra) or gathering up enough for another down payment and adding to our portfolio.
We will be moving back to DC in a year for work (for one year) and then on the road again - we could scratch up enough for a down payment and would qualify for a mortgage since it would be a primary residence. Then when we move in a year, we'd make it another rental. Of course, we would make sure that the rents we could expect would more than pay the mortgage, as we did on the other houses. We have been landlords (until we had to hire the property manager a year ago when we posted overseas) for 11 years and feel pretty confident in our ability to manage well, take care of our tenants, and run a good business. We have the knowledge and experience, and know what to expect. Seems silly to not do it again.
That said, the though of paying them off is really calling to me.
What would you do?
I'm a little torn between starting to pay the properties off one by one, until all are mortgage-free (which would happen in 14 years anyway if we paid no extra) or gathering up enough for another down payment and adding to our portfolio.
We will be moving back to DC in a year for work (for one year) and then on the road again - we could scratch up enough for a down payment and would qualify for a mortgage since it would be a primary residence. Then when we move in a year, we'd make it another rental. Of course, we would make sure that the rents we could expect would more than pay the mortgage, as we did on the other houses. We have been landlords (until we had to hire the property manager a year ago when we posted overseas) for 11 years and feel pretty confident in our ability to manage well, take care of our tenants, and run a good business. We have the knowledge and experience, and know what to expect. Seems silly to not do it again.
That said, the though of paying them off is really calling to me.
What would you do?