Despite the current market I am thinking about buying a second home and I am trying to figure out the best way to approach it.
1. I currently own a home, it is not under water but I only have about 10% equity in it so I probably will not be able to borrow against it.
2. I have enough cash to put down about 10%, but I would like to use as little about that as possable.
3. I currently have enough disposable income to cover in full my current mort, and the second one without having to rent out the second home.
Incase you are all are wondering why the hell am thinking about getting a second place in this market, here is why
My sister, her husband and my mother are all sharing a place that is a dump. They are paying $1700 a month in rent and most places in the area are renting for over $2k a month so they cannot afford to rent a new place. They do not have the credit to buy a home. In the same area, because of all of the foreclosures I can buy a nicer place then they are renting for only $140k with very low HOA. Basically P+I+HOA+taxes would come to only slightly more then $1k a month. What I would like to do is buy a place and rent it out to them at a rate just enough to cover the total payments on the house. I figured doing so could be win win for everyone. I have however heard that getting a second home loan is near impossable with less then 20% down.
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FollowBefriend1 threads276 comments
How safe is your job?
Looking at your post, it doesn't look like you have good savings. It does sound risky. If you are very good at your work and your job is very stable, You probably can afford the risk.
FollowBefriend2 threads73 comments
My job is stable. You are right the amount I have savings a little low, I do however have a good chunk of money in my 401k as backup. I am a good saver, but I purchased my house a few months ago so I am still re-cooping my savings from that. I plan on saving a little more before I buy a second place, I however however want to help out my family as soon as possable so I am trying to see what my options are.
FollowBefriend4 threads36 comments
Here's another thought. What if one of them loses a job or income? Are you prepared to lose the house and take the hit to your credit if something happens to their income? Or can you cover the piti on that home after an income loss for an extended period of time?
I think it's great you want to help out family but I hope circumstances beyond their control won't lead to putting you in a risky spot. I'd be very nervous about future lay-offs as this slowdown unfolds.
FollowBefriend4 threads1,477 comments Hampton, VA
If they are paying $1700/mo now, and you will only charge $1,000/mo, they should be able to put $700/mo into savings. At that rate, it will take a little over 3 years to save enough for 20% down on a $140k house. Maybe at that time they can buy the house from you; you get your money back and they get an affordable home.
FollowBefriend (25)413 threads6,979 comments Saint George, UTelliemae's website
Look around for a rental in the area that they can afford & help them into it by paying down payments, etc. . If there are that many foreclosures, they might be able to score a great rental deal. If they can't do that, subsidize them with your savings until they can find a cheaper place.
But committing to purchase another home in an area with falling prices to help out family members can backfire; you're responsible for the property and they can walk away to a better deal. You won't make your money back for a long time, if ever. Or loan them the money for a down payment and let them buy.
It won't be win-win if there's a problem (hurricane or flood or fire or ???) and you're on the hook for it.
FollowBefriend9 threads334 comments Manchester, NH
You're on the hook for more than expenses. I don't know what kind of relationship you have with your sister+mother, but its going to depend on how "realistic" expectations are.
My sister and parents currently live with me.
My sister is a pain in the ass. My parents are my parents.
So at what point are they going to buy the house from you? Are they going to find a house they like better?
Thanks for all the comments. I think in the short run I will keep saving my money. I however do suspect that eventually I will end up buying a place and having them rent it from me. I already anticipate that over the next few years I could end up on the hook for subsidizing my mom whether it be by purchasing a place for them to rent from me or helping them pay their current rent because I do not know how much longer my mom will be able to work. Me and my wife's combined income is about 3x my sisters household's income so it would be unfair for me to expect that my sister and her husband will take care of everything if my mom has to stop working. When that happens I will most likely be morally forced in to subsidizing my moms income one way or another. Although some have suggested for them to find a cheaper place to rent, I do not see that happening unless rents substantially drop. My sister's family is currently living in one of the cheapest areas in her county and I do not have much faith that my mom could find a new job at her age if she relocated. Due to the current rent/purchase prices, it appears to me that buying a place is currently the most affordable option available today assuming I could get a reasonable loan.
You should consider tax benefits in the whole package. This will give you a better true cost of 2nd home ownership. It is assuming there is not further purchase price erosion after purchase.
The waiting lists for Section 8 housing are long - some areas are 5-10 years. I would suggest your mother getting onto a list when they're accepting applications. Keep up with the app, too. Even if you buy a home, Section 8 will subsidize the payment to you if/when she's approved.