I live in a townhome and want to move into a SFH with my fiancee. I’d like to keep the townhome and rent it out ($100 positive cash flow a month). If I buy the SFH and keep the townhome, I would spend around $170K on the SFH. If I sell the townhome I would spend $225K on the SFH. People at work are telling me that the best thing to do is to buy the most home I can get in an area that is going up the fastest. They said I’d make the most in equity this way. However, I’m thinking that a cheapie starter home at $170K that keeps my monthly payments low would be better even if it doesn’t appreciate as fast. Plus I’d have my townhome producing a small cash flow each month. Thoughts on this?
Also, the people at work are telling me that I wouldn’t qualify for bank financing on a SFH if I kept the townhome - I guess there’s some 30% percent rule they use. Thoughts on this?
Re: Buy Within My Range or Get the Most Home? - Posted by Jim Locker
Posted by Jim Locker on December 21, 2000 at 09:27:55:
Let me add to some of the other comments.
How secure is your job? What is your fallback position?
Personally, I think we are headed into an economic downturn, and probably the real estate market will soften - in some areas, considerably. If you buy in an area that has shown rapid appreciation in prices, you COULD find yourself on the wrong side of the slope if that area retrenches.
I would recommend not purchasing something that causes you to get extended. You need to have a fallback position available if something goes wrong. And periodically, in this business, something DOES go wrong.
Re: Buy Within My Range or Get the Most Home? - Posted by Quinton (IN)
Posted by Quinton (IN) on December 21, 2000 at 09:17:45:
Personally,
I would ALWAYS take the lesser of the homes that MIGHT appreciate in value! Right now our economy might be slipping for a few years, and the amounts that people were paying for a home, will NOT go up as in past years.
Since my first home, (hehe) I am always for buying a home that is at most 2 times my salary. That way if the economy tanks real bad, I can still afford things!
Carol is right on the qualifying. 75% of the lease will go to off set your loan debt and HOA monthly payment on the TH. I would think the spread between the $170 and $225 purchase prices wouldn’t need to be that large. However the anser to which is better depends on whether you are more conservative and less I think. There isn’t any right answer it’s what allows you to sleep best at night.
I would think you could get a SF house that doens’t max you out, that would appreciate as much as a $225k house, I know I could in my area. Also, hopefully you know enough about your HOA that you aren’t goig to get any surprises there with any special assessments or large increase in dues any time soon.
The idea in Kiyoski’s book is that your own home is not an income producing asset and therefore it is a liablity and you wan to limit or exclude all your liabilites in order to create wealth. Therefore he says if you have to buy with a loan, don’t max yourself out, so you still have cash flow to make investments that will enable you to create wealth. Most people live over the this line, he feels, and that is why most people have no wealth and acculmulate lots of debt and liabilities, i.e. credit card debt, car payment debt, etc.