Quote:
Originally Posted by freakshow
You have a $500,000 place with a mortgage of 2000 (1800 + fees), but can rent it out for 1400. This means you have a net loss each month of 600 bucks; however, you also have someone else putting 1400 into your mortgage. If you don't plan to sell the place, and, in 5 years, it's still only worth 500,000, although you put in 36000 (600*12*5), someone else has also helped you put in 84000(1400*12*5). Wouldn't that have been considered a good move?
I know I guessed at a lot of factors, but overall, it seems that unless the market drops by a lot, you still have someone (the renter) who is essentially giving you a reasonable amount of money.
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You're ignoring one important aspect: your mortgage payment is principal + interest: If your mortgage is $1800, only $500 is principal and $1300 is interest.
So you're gaining $500 equity in your house (principal being paid down), yet its costing you $600 to do it. If your house never increases in value, you're making -$100/mn.
Consider prices are still down from 2 years ago (they are close, yet still down from the peak) and all trends point to prices leveling out for a long time.
Therefore in the short term, you're making -$100/mn, plus if you have to sell you'd lose 5% of $500K ($25K) and lawyer fees ($1K) plus any associated maintenance with renting (paint, repairs, accounting, ...)
Plus we haven't even touched on the fact you have to pay income tax on the $500 principal, so the -$100/mn becomes more like -$300/mn.
Rental properties are not worth it unless one of these 2 things are true:
- housing prices are increasing dramatically
- you're making a cash-flow from renting