7

I'm under contract for my first house. But I just got an outstanding job offer across the country that is almost double what I currently make. I will be moving.

Purchase price for the house is 290k, bank appraised it for 297k. I believe it will go up in price and want to keep it for the investment.

The reasons I believe it will appreciate a lot are:

It is in an area that used to be a poor neighborhood, but due to urban sprawl, and a new hospital being built down the street, house prices have been rising a lot. It is in the Denver area, and many people are moving to it.

If I keep the house, I would need to rent it out. I would use a property management company.

The mortgage for me (including all other costs, PMI, home insurance, etc.) is $1900. I don't know what I could get for it with rent, but from asking around it appears that $2000 is reasonable given the close proximity to Denver and the hospital (travel nurses).

The negative sides are: I've never even owned a house let alone been a landlord. However I'm confident I can learn what I need to do it.

My question is, is it wise for me to keep the house? Any other info I should provide to help assess? I'm asking this anonymously so I'm comfortable asking most questions.

  • 2
    It really sounds like you're saying, "I really want to keep the house as a rental property and long-term investment," in which case your question is actually, "What should I consider when purchasing an investment/rental property 1000 miles away from me?" It might also be, "How do I become an effective landlord?" That might want to go on a separate SE forum. – Hari Ganti Mar 16 '17 at 22:06
  • FWIW, your actual question is a pretty good one, but I'd consider rewording the title and the question itself to be clearer. – Hari Ganti Mar 16 '17 at 22:07
  • Is there a more relevant site for this question? – Jim Mar 16 '17 at 23:23
  • It doesn't seem like it, but I only did a cursory search. – Hari Ganti Mar 16 '17 at 23:26
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    No, back out. How much experience do you have managing real estate? Likely very little to none. Managing from a distance with a mortgage complicates matters to the point of leading to a disaster. Also considering that you choose this house to live in likely makes it a poor choice for a rental. – Pete B. Mar 17 '17 at 12:03
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Unless you think it's likely that you'll move back soon, this is probably not the best way to get experience as a landlord. You might want to talk to a property management company and look at the fees they would charge to do your job as landlord.

You should also consider that your mortgage may require you to occupy the house for a certain amount of time. Mortgages for non-owner-occupied properties usually have a higher interest rate and vetting criteria are more strict.

  • I think it is very likely that I will move back in the future. Not for a few years at least. And yes I've discusses this with my mortgage bank. There is a clause that I must occupy the house but if I sign the offer letter for my new job AFTER closing, then moving for a new job is a justified reason to not occupy the house ( and rent it out instead) – Jim Mar 16 '17 at 22:27
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    @Jim That's a good workaround. I'd still advise a management company for the rental. – FightOrFlight Mar 16 '17 at 22:36
  • @Jim You may also end up paying much more in property taxes on a home without a homestead exception. see en.wikipedia.org/wiki/Homestead_exemption – CrimsonX Mar 17 '17 at 19:40
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I would advise against this.

My main reason for saying so is that you are in a time of major transition, and transition equals uncertainty. What if the new job turns out to be a bad one, and at the same time the house is more difficult to rent out than you expect? That seems like a situation that would be worse than the sum of its parts.

Some other things to consider: first, if you want to buy a house where your new job is located, you will not be able to borrow as much for that house. This is especially important if you are moving to a city with a very high Cost of Living.

Second, your margin on the rental doesn't sound like it would leave much room for profit. A $100 difference between your mortgage and your rent amount will be eaten up very quickly through property management fees and maintenance. If the value of the house does not rise like you expect, that could mean you put in a lot of effort for very little or no gain.

Finally, this will require a good deal of time management. Between relocating, closing on this house, and beginning a new job, it sounds like you'll have a lot going on. This may not concern you much, but it's still worth considering.

  • What do you mean little or no gain? Even if I lose say 500$ each month, that's 1400$ in equity gain, no? Clearly a large profit. Am I missing something? – Jim Mar 16 '17 at 23:51
  • An increase in equity is not the same as profit. If you make $20K in payments and have $15,000 in equity, that is actually a loss of $5K. Furthermore, that $1900 will probably only equate to about $350 in equity gained each month at the start of the mortgage. – Wesley Marshall Mar 17 '17 at 0:21
  • That makes sense but my goal is long term investment. Not short term profit – Jim Mar 17 '17 at 0:23
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    Right. My point is that unless you're right about the home's value increasing significantly, you won't make a profit, even in the long term, unless you have a net positive cash flow from the rent. – Wesley Marshall Mar 17 '17 at 0:25
  • There would be a profit, when the interest is paid, and payments go towards the principal right? Possibly later to account for the total net loss each month. But after that it is profit. How is that not a long term investment? I'm responding to your explicit statement "you won't make a profit, even in the long term" – Jim Mar 17 '17 at 0:29
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I would not advise buying a home because you think you will make money.

(1) Return on Investment If you have $290K, have you asked yourself how much your investment would grow if you invested it in other ways. At 2% growth re-invested, your money would grow to $307K (or 17K) after 4 years. $290,000 * 1.02 = $295,800 * 1.02 = $301,716 * 1.02 = $307,750

(2) Homeowner Experience Without the experience of owning your own home, it's hard to know relate to complaints and expectations that your tenants might have. It's hard to know to anticipate problems and repairs and costs due to home ownership. Homeowners have many decisions to make regarding upkeep of a home. The costs are difficult to predict if you have no experience to draw upon.

(3) Managing Rental Property: It's a "job". You either take on this responsibility, or you subcontract it to someone else who you pay to manage the property and contracts! Is this something you are passionate about doing?

If you need to travel back to the home, it's clear across country. It's not close enough to visit.

  • Regarding #1, in not buying it in cash. It is a home loan. So I wouldn't be getting that return. – Jim Mar 16 '17 at 23:50
  • And regarding #2 and #3, I will use a property management company. Not be a landlord – Jim Mar 16 '17 at 23:50
-1

If you feel the house will appreciate, I'd say go for it. I'm not familiar with the Denver market but real estate can be a great way to build wealth.

Besides, it seems like at this point you would lose your earnest money deposit if you back out.

I do agree with people here though about the potential risk. The only way to make money is if the property appreciates.

In Seattle, properties have appreciated like crazy in the past 5 years. Some have even gone up by 3x or 4x of what it was before.

If you are right about appreciation in your market, this could be a gold mine.

With all investments, there is risk involved.

If you do plan to move forward, here are some suggestions:

  1. Have a reliable property manager and/or maintenance person in Denver.
  2. Most importantly, remember to close on the house before you make any job changes!!

Best of luck!

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