Buying a home for the short term - why not?

I've been trying to find a place to move to which is closer to work and fun things. Rentals in the area are ridiculous, probably around 1800-2000 a month which would be split between my girlfriend and I. Homes, which are difficult to find with my requirements, can be found from anywhere around $120k - 200k. Seems like the obvious choice would be to buy, as I have enough saved up for a downpayment. The issue is, I would like to move to the East Coast of Florida within 3-4 years. This makes it more difficult to recoup closing costs/costs to update/fix in this short period. That being said, the end goal here is to find a place that would satisfy my needs but also become a nice rental property after I move. Who knows if that actually would happen because I would imagine managing a rental property from 3 hours away might be a pain but I would want to give it a try. What do you think? The unknowns (how long I would be here, turning it into a rental, jobs, etc) make it hard to decide

Managing a rental property from across the street would be a pain

Everyone was flipping houses that fast when the prices were going up so I don't see why not...

Anyone else?

Doesn't sound like it's worth the hassle.

But I'm lazy.

Managing a property 3h hours away is doable if you have a couple of trustworthy-ish contractors locally for emergencies like burst pipes. If you don't it's going to be a pain in the backside.

I think especially with the prices in Fla, I would think a horizon of 3-4 years is OK if the area has a decent demand for rental properties. It's not like you want to flip the house in a couple of years.

By the time you pay your closing costs to buy and realtor fees when you sell, you'd be better off renting. I just went through selling our old house and buying a new house last year, and it's something I'd want to do as few times as possible.

In reply to dj06482:

Keep in mind that Enyar is thinking about keeping the property as a rental, that makes a difference in this case.

I have a rental house in orlando from when I used to live there. If you find a good prop management company its not too bad. Except when things at the house keep breaking and it cost you money out of your pocket. Seeing as the houses rent for a lot and they don't cost very much to buy seems like a no brainier.

Is this in Tampa or a sounding community?

BoxheadTim wrote: In reply to dj06482: Keep in mind that Enyar is thinking about keeping the property as a rental, that makes a difference in this case.

I should have elaborated more - he's looking at becoming a landlord for all the wrong reasons, and he'll likely have too much cash in the rental property to buy the home he wants on the East Coast. My bet would be that he sells the rental in order to buy the new one. In that scenario, the transaction costs and hassle of it all don't make it worthwhile.

jonnyd330 wrote: I have a rental house in orlando from when I used to live there. If you find a good prop management company its not too bad. Except when things at the house keep breaking and it cost you money out of your pocket. Seeing as the houses rent for a lot and they don't cost very much to buy seems like a no brainier. Is this in Tampa or a sounding community?

Yes, I am looking at a neighborhood in Tampa and one in St Pete.St Pete is better in every way other than commute to work, which is pretty important. The house hunting search has been put on pause as I am about to leave the state for work for 2 months. Once I am back, the search continues.

The goal would be to move in right around January of next year, put 20% down and have my girlfriend move in. Just missed a deal on house that would have been perfect, $125k for a 3/2/2 car garage with a nice yard and around the corner from a boat ramp.

dj06482 wrote:

BoxheadTim wrote: I should have elaborated more - he's looking at becoming a landlord for all the wrong reasons, and he'll likely have too much cash in the rental property to buy the home he wants on the East Coast. My bet would be that he sells the rental in order to buy the new one. In that scenario, the transaction costs and hassle of it all don't make it worthwhile.

While this is entirely possible, that would not be the goal.The properties I have been looking at are around $120-$160k and I think could rent easily for $1200-$1400 a month.

I wouldn't want to buy a house if you plan on moving in just a few years. It may take awhile to sell too when that day comes. Having rental property isn't always fun either.

So, the problem is that typical banks are going to want a minimum of 10% down on the purchase of your rental home. Then when you buy the house, you're going to have closing costs. In the end, our closing costs ended up being another 4% on top of our down payment. So, no matter how little you put down, you're going to have real money sunk into your rental home.

The problem comes up when you decide to become a landlord and buy another home. Your mortgage contract states that it's owner-occupied, which is no longer the case. They're going to want to jack up your interest rate when you are no longer occupying the home, as you represent a more significant default risk than when you took out the mortgage.

The real problem is going to be your mortgage on your second home. Even if the first home's rent covers the mortgage, your mortgage lender isn't going to see it that way. They see that you owe a significant amount of money on your rental home, and although you may have a reliable source of income in home #1, it's not guaranteed. No matter how you slice it, you'll be on the hook for two mortgages, and you'll be a higher risk for the bank, so they'll want a much higher interest rate on your second mortgage (along with higher down payment requirements). Higher interest rates will significantly impact your monthly payment. And then you'll have to come up with a down payment on home #2, as well as the closing costs.

If you want to learn about real estate, I highly recommend this blog: http://www.searchlightcrusade.net/

He's both a real estate agent as well as a mortgage broker, and he tells it how it is. Just about everything I've learned about real estate has come from reading his posts. The search feature works well, just type in "rental property" and enjoy.

dj06482 wrote: So, the problem is that typical banks are going to want a minimum of 10% down on the purchase of your rental home. Then when you buy the house, you're going to have closing costs. In the end, our closing costs ended up being another 4% on top of our down payment. So, no matter how little you put down, you're going to have real money sunk into your rental home. The problem comes up when you decide to become a landlord and buy another home. Your mortgage contract states that it's owner-occupied, which is no longer the case. They're going to want to jack up your interest rate when you are no longer occupying the home, as you represent a more significant default risk than when you took out the mortgage. The real problem is going to be your mortgage on your second home. Even if the first home's rent covers the mortgage, your mortgage lender isn't going to see it that way. They see that you owe a significant amount of money on your rental home, and although you may have a reliable source of income in home #1, it's not guaranteed. No matter how you slice it, you'll be on the hook for two mortgages, and you'll be a higher risk for the bank, so they'll want a much higher interest rate on your second mortgage (along with higher down payment requirements). Higher interest rates will significantly impact your monthly payment. And then you'll have to come up with a down payment on home #2, as well as the closing costs. If you want to learn about real estate, I highly recommend this blog: http://www.searchlightcrusade.net/ He's both a real estate agent as well as a mortgage broker, and he tells it how it is. Just about everything I've learned about real estate has come from reading his posts. The search feature works well, just type in "rental property" and enjoy.

Excellent post! You brought up a bunch of points I would have never thought of. I'll have to think about this one a little more now.