We own our house. Mortgage is fully paid off. Out of nowhere the other day the wife floated the idea of buying a larger house, keeping this one as a rental and using rental fees to help pay the mortgage in the new house.
Thoughts? Anyone doing this that hates it? Would we be better off just throwing money at retirement investments?
Wife and I have the same conversation, mainly buying another “vacation” property and airbnb’ing it while we aren’t using it. And every time we have the discussion we come back to not having the time or desire to manage a 2nd property that we aren’t at. To each their own of course but I don’t think the hassle would be worth the potential return.
My SIL and her husband tried this for a while. The 2nd house is close to their residence; she’s a real estate broker; he’s a stonemason/hardscaper with a good network of people in the trades. Even with all that working in their favor, they found it to be a chore and they’re likely going to sell the second house.
My sense is that unless you want to make the rental property a consistent part of your working life, it’s better to get a management company to work it, or not do it at all.
This. I know a fair number of people that do rent and its great until something expensive breaks or you get a bad tenant.
”bad” tenant.
X2. I really want a second vacation home in the Hudson valley but it’s a weird acquisitive urge. Every year or so my wife patiently points out:
If you want a bigger house, sell your current house and buy a bigger one. Being a landlord is a pain. Better to just invest any money remaining after you sell your current house. There are ways to invest that money in real estate without becoming the landlord, with all the attendant hassles.
It’s not a bad idea. You do have to be mindful of bad tenants, and set aside a healthy portion of the rental income for repairs and maintenance. Being a landlord isn’t necessarily hard, but I find things always go wrong at the worst moments. A plumbing clog at 11pm on a Sunday. Perimeter drains flood in the middle of a 4 day rain storm. Etc.
Also, beware of changing regulations. Here in BC, we sharply changed course on rentals 7 years ago and implimented rules that really tilt the scales against Mom and pop landlords.
It’s a good idea if you want to eventually leave housing to your kids. Which, in Canada, is a pretty big deal but who knows if/how that will change long term.
I hated being a landlord, and that was with a good tenant and a good network of trades/repairmen etc.
I now see all the stories in the news of nightmare tenants, and delays in the landlord/tenant arbitration system, and I want to be a landlord even less.
piling on, do you want to be a landlord?
consider the time sink aspect, along with comparing potential expected returns vs stocks or mutual funds.
I’ve considered this, as my town has had many of the old home purchased and fixed up as STRs and second homes for folks that live hours away. To make it worth my time, I’d really need 5-6 properties to make it work. Most renters do not maintain or let a landlord know the same issues that a homeowner maintains the property.
I don’t know what I want. Seems like a hassle to me but was looking to the LR braintrust fo their opinions.
Seems like most think it’s more hassle than it’s worth.
My experience was that it was horrible. We got caught in the 2008 housing crash. Thought we would keep the condo for a year, make some repairs, then sell. 1 year ended up being 10 or 11.
Tiny cash flow, unexpected days repairing, a week cleaning and painting when tenants changed. The day we sold was one of the best days ever.
Sell your house, buy one you really like, put all the time you would have spent working on a house you don’t live in towards your family and the new house.
We sold our rental house last year. Thank goodness. It was paid off but, with rent control, tenants having more and more and more rights, freedoms, entitlements etc it was becoming a pain. The tenants were good, but the house needed repairs and we were not allowed to raise the rent to recoup the cost. So over the years, the profit was getting smaller and smaller and the maintenance bigger and bigger. Eventually, wife and I decided to sell it.
Also, with today’s uncertainty on who actually owns the land that you buy, it is even more risky.
I think what most others have posted is accurate - can be a pain in the ass with tenants and maintenance. But if you have good reason to want a bigger house for yourself (kids?) and the market is strongly appreciating in your area, it could be worth it. Where I live, the housing market has its occasional stumble, but is generally appreciating enough to make solid gains over a reasonable hold period, like 10 years. I would only do this if you don’t feel the need to maximize the rent charged - just charge a fair market value and try to keep a stable long term tenant. And hire a management company if you don’t want to do it yourself. If that math works, allowing for the a maintenance fund to cover the new water heater, AC unit, etc. that may eventually be needed.
Same dilemma here.
Short answer: don’t. If you want a bigger house sell that one and buy a bigger house.
Leave investment properties and rentals to professional investors.
Equation changes somewhat if you want a small cheap vacation house somewhere remote. But then hotels exist. Or RV, or sailboat with a live aboard cabin.
We bought a new house 4 years ago (same neighborhood) and turned our old place into a rental, and so far, it’s been great.
Couple caveats - we knew that there would be some big potential cash outlays in the first few years, such as a new roof two years ago. We did not expect to collect much excess cash flow for first five years due to budgeting for new AC and random things breaking. As rents continue to steadily grow and the mortgage being fixed, that gap continues to outpace the other operating costs. In the meantime, our equity has grown by mortgage reductions and continued appreciation.
We did not expect to net a lot of $ if we were to sell at the time we bought our other home, so we view our “investment” as pretty small. We have a property manager that takes care of the emergency stuff and I’m not bothered that much. There have been some tax advantages to having a rental as well.
Now, we lived in the house first, so we know it well, and we put significant effort into making it look nice, it shows better than other nearby rentals.
We have had amazing tenants and have had minimal downtime between renters. We are in a good location that has a decent amount of turnover (30% of homes changed hands over a 6 year period), is close to many high paying jobs and zoned to good schools.
The current tenant just informed me that someone stopped by wanting to buy it, and my response was unless they are above market, I’m not interested.
Wow, you timed that pretty well.
I have two homes:
A small house in an older central suburb
A cabin on the edge of the wilderness
I like it!!
Two small homes is better than one large one:
Climate optimization (mountain’s vs desert)
Change of scenery and community
Diversification of risk
I could rent one of the houses if I need extra money. (Or both if I want to live somewhere else for a while).
I do have to pay a larger number of bills. But since the properties are inexpensive, the bills are NOT more expensive than if I owned 1 big house.
The same principle applies to repairs.
Works well for us. But then our property manager is our daughter and she does an outstanding job leasing some property full time and some part time, so that we have a second residence open when we get out of the humidity of the mid-Atlantic summer to run summer day care services for our grand daughter in Denver. She and her sister know full well they will inherit, so she tends the properties accordingly.
How far is your cabin from your home? Do you sometimes feel like you “have” to go to the cabin instead of doing something else?
[quote=“Rick_pcfl, post:19, topic:1297705”]
How far is your cabin from your home? Do you sometimes feel like you “have” to go to the cabin instead of doing something else?
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It is a four hours drive. We can both work from home.
We do the same amount of big trips (involving airplanes or multiple days driving).
We probably do more short trips. (Less than one hour drive). There are more new things to do or see near the cabin.
We do much fewer intermediate distance trips. (1hr< 5hrs). We don’t mind this soo much because we have been in this area 25+ years.