Is it a bad idea to buy two houses at the same time?
March 30, 2014 10:55 PM Subscribe
My fiancé and I have been planning to buy a home this year. This will be the first home purchase for both of us. We currently live two hours apart, and I'm trying to move closer to him, which is where the house will be. However, there's a chance I'll be stuck where I am for another year due to job-hunting difficulties. I recently learned that the condo across the hall from me (where I rent at my current location) is up for a sale. I think it would make a great investment as a rental property down the line. Is it crazy to buy this condo as well as a house with my fiancé in the same year?
Some background and clarifications:
- There's about a 50% chance that I can't move to fiancé's city this year. I'll only know in late April or May. Hopefully, I will be able to move there with a much higher probability next year.
- I'm only considering buying the condo at my current city if I end up staying here this year. It turns out that the mortgage and property tax is quite a bit cheaper than renting, and if I stay at my current apartment, I'll have to pay rent anyway! It's tempting to channel that into a long-term investment since this area is a huge seller's market when it comes to renting, and it will be nice to have a little income generator down the line.
- Fiancé has been talking of buying a house together for some time. His lease is up this summer, and he is reluctant to either stay in his current apartment, or move to a new rental apartment. He's moved around a lot recently, and having some sense of permanence is important to him.
- My parents have generously offered to help me with the downpayment on my current city's condo, so I'll be able to afford a 20% downpayment for both places. (If, upon further investigation, it turns out that the finances won't work out, I certainly won't do it.)
- The two cities are in different states in the US.
- We're getting married in the summer, and hope to close in on the house in fiancé's city around that time.
- If I stay here, we will have to maintain separate residences. For career and geographical reasons, living together midway and commuting an hour is not possible. (We don't have jobs with fixed schedules, and the midway points are wastelands.)
Our tentative idea is that if I stay here, I get on the mortgage on my current city's condo, but not on the mortgage in fiancé's city's house. I'll put in my share of the downpayment for both places. When I move to fiancé's city next year, I'll rent the condo and add myself to fiancé's mortgage.
My concern is that I'll have two mortgages going at the same time, which seems a bit too much for an inexperienced first time home-owner, although one mortgage will be covered by rental income. I'm just not sure what the banks think of this sort of arrangement.
Are there any other legal, financial, or logistical issues that make this a bad idea? Or do you know people who did something similar?
Some background and clarifications:
- There's about a 50% chance that I can't move to fiancé's city this year. I'll only know in late April or May. Hopefully, I will be able to move there with a much higher probability next year.
- I'm only considering buying the condo at my current city if I end up staying here this year. It turns out that the mortgage and property tax is quite a bit cheaper than renting, and if I stay at my current apartment, I'll have to pay rent anyway! It's tempting to channel that into a long-term investment since this area is a huge seller's market when it comes to renting, and it will be nice to have a little income generator down the line.
- Fiancé has been talking of buying a house together for some time. His lease is up this summer, and he is reluctant to either stay in his current apartment, or move to a new rental apartment. He's moved around a lot recently, and having some sense of permanence is important to him.
- My parents have generously offered to help me with the downpayment on my current city's condo, so I'll be able to afford a 20% downpayment for both places. (If, upon further investigation, it turns out that the finances won't work out, I certainly won't do it.)
- The two cities are in different states in the US.
- We're getting married in the summer, and hope to close in on the house in fiancé's city around that time.
- If I stay here, we will have to maintain separate residences. For career and geographical reasons, living together midway and commuting an hour is not possible. (We don't have jobs with fixed schedules, and the midway points are wastelands.)
Our tentative idea is that if I stay here, I get on the mortgage on my current city's condo, but not on the mortgage in fiancé's city's house. I'll put in my share of the downpayment for both places. When I move to fiancé's city next year, I'll rent the condo and add myself to fiancé's mortgage.
My concern is that I'll have two mortgages going at the same time, which seems a bit too much for an inexperienced first time home-owner, although one mortgage will be covered by rental income. I'm just not sure what the banks think of this sort of arrangement.
Are there any other legal, financial, or logistical issues that make this a bad idea? Or do you know people who did something similar?
redlines: "Fiancé has been talking of buying a house together for some time. His lease is up this summer, and he is reluctant to either stay in his current apartment, or move to a new rental apartment. He's moved around a lot recently, and having some sense of permanence is important to him."
This strikes me as unreasonable. If you are able to make a decision at around the same time, then do so. Rushing into buying a large, not-at-all-liquid, difficult-to-unload asset is fraught with peril. Waiting is almost always preferable absent an outside, rare circumstance.
Questions you should be able to answer before you become a landlord or take steps to eventually become one:
- How will you pay for the property if there is no rental income?
- How will you pay for the inevitable repairs, both from the normal passage of time and potential damages from renters?
- How will you maintain the property from afar?
- How will you screen and choose tenants?
- How will you handle when the tenant does not pay?
This last one is important. I was told, by a colleague with several rental properties, that you must be able to answer "yes" to this question before you can ever become a landlord, otherwise you're a charity: "Can you kick a single mother with her two toddler-aged children out on the street the week before Christmas because she hasn't paid rent since before November, she says she has nowhere else to go, and you have a well-qualified tenant who wants to move in last week but has been delayed because of this current resident?"
My opinion is that you'll have too many other changes happening in your life and in your partner's life to make two major purchases.
redlines: "add myself to fiancé's mortgage."
For what it's worth, this almost always takes a refinance of the existing mortgage. Adding a married spouse to a deed is easy in most states. Adding a married spouse to a loan usually requires a new loan.
posted by fireoyster at 12:19 AM on March 31, 2014 [4 favorites]
This strikes me as unreasonable. If you are able to make a decision at around the same time, then do so. Rushing into buying a large, not-at-all-liquid, difficult-to-unload asset is fraught with peril. Waiting is almost always preferable absent an outside, rare circumstance.
Questions you should be able to answer before you become a landlord or take steps to eventually become one:
- How will you pay for the property if there is no rental income?
- How will you pay for the inevitable repairs, both from the normal passage of time and potential damages from renters?
- How will you maintain the property from afar?
- How will you screen and choose tenants?
- How will you handle when the tenant does not pay?
This last one is important. I was told, by a colleague with several rental properties, that you must be able to answer "yes" to this question before you can ever become a landlord, otherwise you're a charity: "Can you kick a single mother with her two toddler-aged children out on the street the week before Christmas because she hasn't paid rent since before November, she says she has nowhere else to go, and you have a well-qualified tenant who wants to move in last week but has been delayed because of this current resident?"
My opinion is that you'll have too many other changes happening in your life and in your partner's life to make two major purchases.
redlines: "add myself to fiancé's mortgage."
For what it's worth, this almost always takes a refinance of the existing mortgage. Adding a married spouse to a deed is easy in most states. Adding a married spouse to a loan usually requires a new loan.
posted by fireoyster at 12:19 AM on March 31, 2014 [4 favorites]
Sorry, but it sounds like you're underestimating the difficulty and expense involved in being a landlord from afar. I wouldn't recommend that for a first-time landlord.
posted by neushoorn at 12:49 AM on March 31, 2014 [11 favorites]
posted by neushoorn at 12:49 AM on March 31, 2014 [11 favorites]
I am surprised that ownership costs (you mention mortgage + property tax) is that much cheaper than renting a condo. Are you sure you are factoring in all costs like upkeep, utilities, insurance (higher on a rental unit as opposed to owner-occupied), monthly condo fees, special assessments (how much have they cost in the past five years - if there haven't been any does that mean necessary maintence has been deferred?), future property tax increases (how is local governance?) parking spot, etc?
posted by saucysault at 3:36 AM on March 31, 2014 [2 favorites]
posted by saucysault at 3:36 AM on March 31, 2014 [2 favorites]
I wouldn't want to be a long-distance landlord, though obviously people manage it. But as mentioned, add in all the real costs before committing -- one of the hard to assess benefits of renting is the ability to give notice and leave town on short notice (like if you got a job offer in the other city), while owning means you need to deal with selling or renting out the place. Selling means eating the transaction costs (the agent commissions plus all of the various taxes and fees), which also need to go into your buy vs rent calculations.
I also agree that if you are helping pay for the house in the other city that you should be on the mortgage and deed from the beginning.
posted by Dip Flash at 5:37 AM on March 31, 2014
I also agree that if you are helping pay for the house in the other city that you should be on the mortgage and deed from the beginning.
posted by Dip Flash at 5:37 AM on March 31, 2014
I'm a first-time long-distance landlord. The key to success for my partner and I has been using a property manager that we trust. Our property manager takes 10% of the rent (which is not too painful because our place is in a hot neighborhood with higher rents). We've used her for three years, and through two tenants pretty successfully. The only significant drawbacks have been that we've had to pay for some small repairs that we likely could have done ourselves. Also, our place ended up sitting empty for about three months between renters because of repair coordination issues, and some potential renters we had offered the house to pulled out at the last minute before signing a lease. These ultimately didn't overly affect our profit margin, or stress our cash flow too much, but then we only have one mortgage, not two. Also, we have a house, and not a condo with all of the related carrying costs.
posted by kimdog at 6:09 AM on March 31, 2014
posted by kimdog at 6:09 AM on March 31, 2014
I've owned a condo and I would advise you NOT to do this.
1. Condos typically do not hold value as well, nor do they appreciate the same way homes do.
2. Condos can be full of unpleasant surprises. For example, what if the board decides that this is the year that they replace all the balconies? Your part of the assessment will be $7,000, and you need to have it to them in 60 days.
3. Do you know how much your association fees are in your building? Do you know if the condo board reserves or if they assess for large expenses? What's on the agenda for improvement?
4. What percent of the condos in your building have to be owner-occupied versus renter-occupied. In our building it was 75%-25%. That meant that even if someone wanted to, they couldn't rent their unit.
I would only advise you to buy real estate if you planned to live in it, and live in it for at least a decade. (This is for the US, different markets are different obviously, but 10 years is a good guideline.)
One buys a house because there is a psychological need to put down roots and stay in one place for an extended period of time. Houses aren't less expensive than renting, frequently they are more expensive.
It is fun to decorate houses, and buy furniture for houses, and there are tax advantages (in the US), but if you're buying a house for an investment, it's pure speculation.
Would your parents loan you that down payment money to buy stocks? If not, why not? It's about as risky. At least stocks won't nickel and dime you in expenses like a new hot water heater (condo-owners responsibility) or a new roof (condo-assessment) or a raise in the cost of insurance.
Think long and hard about this. This is not a one time deal, and it won't be the only chance in life you'll ever have to invest.
Think long and hard about buying a house two hours away with someone you don't have a legal relationship with.
posted by Ruthless Bunny at 7:00 AM on March 31, 2014 [6 favorites]
1. Condos typically do not hold value as well, nor do they appreciate the same way homes do.
2. Condos can be full of unpleasant surprises. For example, what if the board decides that this is the year that they replace all the balconies? Your part of the assessment will be $7,000, and you need to have it to them in 60 days.
3. Do you know how much your association fees are in your building? Do you know if the condo board reserves or if they assess for large expenses? What's on the agenda for improvement?
4. What percent of the condos in your building have to be owner-occupied versus renter-occupied. In our building it was 75%-25%. That meant that even if someone wanted to, they couldn't rent their unit.
I would only advise you to buy real estate if you planned to live in it, and live in it for at least a decade. (This is for the US, different markets are different obviously, but 10 years is a good guideline.)
One buys a house because there is a psychological need to put down roots and stay in one place for an extended period of time. Houses aren't less expensive than renting, frequently they are more expensive.
It is fun to decorate houses, and buy furniture for houses, and there are tax advantages (in the US), but if you're buying a house for an investment, it's pure speculation.
Would your parents loan you that down payment money to buy stocks? If not, why not? It's about as risky. At least stocks won't nickel and dime you in expenses like a new hot water heater (condo-owners responsibility) or a new roof (condo-assessment) or a raise in the cost of insurance.
Think long and hard about this. This is not a one time deal, and it won't be the only chance in life you'll ever have to invest.
Think long and hard about buying a house two hours away with someone you don't have a legal relationship with.
posted by Ruthless Bunny at 7:00 AM on March 31, 2014 [6 favorites]
Depending on your locale and situation, lenders can have tougher restrictions on condo loans versus home mortgage. This is because condos historically have more volatile pricing.
With or without that fact, echoing what has been said above - being a landlord isn't easy, especially from a distance. Wouldn't recommend, this won't be your only "opportunity", and I'll also add that your parents assisting with the down payment is nice but I would avoid that sort of financial entanglement on a risky venture.
posted by shinynewnick at 7:05 AM on March 31, 2014 [1 favorite]
With or without that fact, echoing what has been said above - being a landlord isn't easy, especially from a distance. Wouldn't recommend, this won't be your only "opportunity", and I'll also add that your parents assisting with the down payment is nice but I would avoid that sort of financial entanglement on a risky venture.
posted by shinynewnick at 7:05 AM on March 31, 2014 [1 favorite]
You are unlikely to be permitted to be on title for the second place (in your fiance's town) if you aren't on the mortgage.
posted by HoteDoge at 7:48 AM on March 31, 2014
posted by HoteDoge at 7:48 AM on March 31, 2014
If you buy the condo first, be aware that this might mean you won't qualify for the house purchase; the debt-to-income ratio will have to work with both mortgage payments, rather than just the one. Some lenders will allow you to claim 50% of the rent income as income, but AFAIK no lender will allow the full rental amount. Can you afford two mortgage payments at once? (As in, would you still be below 35% of your income with the full condo payment and half the house payment?)
posted by rabbitrabbit at 8:26 AM on March 31, 2014 [1 favorite]
posted by rabbitrabbit at 8:26 AM on March 31, 2014 [1 favorite]
redlines: "add myself to fiancé's mortgage."
For what it's worth, this almost always takes a refinance of the existing mortgage. Adding a married spouse to a deed is easy in most states. Adding a married spouse to a loan usually requires a new loan.
And to do that, they will likely require a lot of proof of the rental income of the condo or a year of reserves for the mortgage of the condo - you might not have that proof/reserves at that point.
posted by Pax at 9:25 AM on March 31, 2014
For what it's worth, this almost always takes a refinance of the existing mortgage. Adding a married spouse to a deed is easy in most states. Adding a married spouse to a loan usually requires a new loan.
And to do that, they will likely require a lot of proof of the rental income of the condo or a year of reserves for the mortgage of the condo - you might not have that proof/reserves at that point.
posted by Pax at 9:25 AM on March 31, 2014
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condominiums are more complex than standalone houses, they have an extra layer of government and potential hazards lurking in their financials, which you should have a firm grasp of before you buy one.
posted by bruce at 11:18 PM on March 30, 2014