3 votes

Buying Investment Property

This is my first post on the DP and I have a question for everyone. I have a chance to buy a small house on a triple lot that is located directly behind my own home. The property in question is a small 2 bedroom house built around 1900. The house is structurally sound and livable but would need repairs externally as well as internally (all of which I could do myself), the yard is huge by local standards with abundant space for a large garden. The asking price is 24,900 but I believe I could get it for around 20,000. My intentions for the property would most likely be to eventually use it as rental income and more garden space. My question is this: In this economy and based upon what may be happening in the near future is it worth taking a small loan out to buy a second piece of small town property (population: 890)? (I do not have the cash to buy it directly but I would be able to pay it off fairly quickly (2 to 3 years) even without renters.) So what are your thoughts? Thanks in advance.

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If you buy it...

Here are the things you can count on:

The purchase price of the home remains the same even as inflation goes up.
The amount owed on a fixed interest loan will remain the same even as inflation goes up.
Rent rates tend to go up as inflation goes up.
House prices tend to go up as inflation goes up.
At $25k, you should be able to pay this off pretty rapidly, ensuring that you will probably have a roof over your head as long as you can pay the property tax thieves.
There are a lot of worse ways to invest your money.

Here are the bad things you can count on as well:

Real estate, just like any other commodity is subject to price volatility both up AND down.
Costs of repair will go up as inflation goes up. The plumber won't get any cheaper as his cost of living increases. Might want to learn a few home maintenance skills
Property taxes will probably go up as government fiscal irresponsibility goes up (same with inflation).
Utility costs will go up as inflation goes up.
There are a lot of better ways to invest your money.

Don't take that last statement as saying that real estate is a bad investment, quite the contrary, actually. It's just there are some investments that provide higher rates of return. Some investments carry less headaches. With an investment like gold, you aren't guaranteed a roof over your head but no one is abandoning their gold, either. On the other hand, houses get abandoned as people can't afford to pay and move in with other family members, into apartments, etc. So, theoretically, it is possible that in a severe economic downtrend or hyper-inflation, there would be enough available housing inventory to be able to still buy a home on the cheap.

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What do rents go for in that area for a house like that?

Also keep in mind that you really need at least twice the growing place of a single garden in land so you can move the garden to replenish the land. You can garden out an area.

I've heard people say that it takes a 1 acre plot to feed a family of 4 and 3 acres for a decent homestead.

If you have the rents right to make the payment, that alone might be worth it. I say might because you have to factor in the turn around in renters too.

Also if I was going to do this, I would make sure I had enough silver to cover the land when the metal market bubble bursts. I bought 40 acres and am saving silver to pay off the land in case that happens.

I personally would only buy farmland but that's just me.

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not an investment

unless it pays guaranteed dividends...but it may be a good speculation. Buying in hopes of getting a return is a speculative action. With that said, it sounds like a decent deal...

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Buy it

This is probably a great opportunity. Once you buy it set up a simple LLC, and quit claim the deed to the LLC (for the house at least) then if anything goes awry you are prety well covered. Will the house rent for more than expenses (I suspect it will at that price) and you get the lots for free. You get an income producing inflation adjusted asset that buys itself, and a couple lots for your own self sufficienty purposes....very nice. BTW, I have two rental houses not witht he second undergoing renovation and I also just bought two empty lots at the county tax property auction so we are thinking along the same lines here.

Josh Brueggen
Engineer
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Jack of all Trades
Precinct Commiteeman Precinct 5 Rock Island Co Illinois

Wow, what a great opportunity

go for it. IMO

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sounds like

you and I are in similar situations.

As long as you can pay it off fairly quickly (as you say, 2-3 years), and have THOROUGHLY inspected the property for anything that may become an issue down the line, then I'd say go for it so long as you feel like all your other financial ducks are in a row.

Place a few houses down from me is going for about the same price, but I'd have to put another 10k to give it back some of its old curb appeal. Might also rent out my current place and head out west for a bit, dunno yet.

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You can't lose with a rental

You can't lose with a rental property as long as you can pay it off quickly.The whole purpose to saving money in silver and gold is to be able to buy a property cheap later on and then rent the properties for cash flow.I say save silver and gold first and then buy a property when the price of your metals can buy a house.In your case that is cheap for a house but how much can you get for rent?
It may not be worth it because you may have to spend alot more money repairing,maintaining and paying taxes on it.Plus the real estate market is going to continue it's slide down (there are millions of houses in the foreclosure shadow market that are not even being dumped on the market yet)so I would wait.If I were you I would just keep stacking metals,it's a much safer bet right now with all the turmoil coming.Also don't forget your food,water,personal protection and ammo.

I disagree about the property market.

We are well below previous property bust lows,and the corner has turned to the upside. With all that easy FED cash sloshing around prices of real hard assets like a house can hardly help but go up. If the property rents for enough to pay for itself then you are basically gettign the property for free. This is a great way to become wealthy, and retire much earlier than you could with your 401K.

Josh Brueggen
Engineer
Entrepreneur
Gardener
Jack of all Trades
Precinct Commiteeman Precinct 5 Rock Island Co Illinois