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Comment by bane | Hacker News Reader

I'd probably just rent my house out. Over the years I've purchased enough of the principle (by overpaying on the mortgage, the difference buys down the principle) that my monthly payment is about the same as the rental rate for a home this size in my area. Even if I lose a little bit every month, I'm just buying more of my own place with somebody else's money.

Something the parent mismentioned is not that he'll be paying $1000/mo 5 years from now while rental rates will simply go up, but you can actually reduce that rate now and free up more of your income for later. It's actually the sole reason I've been able to fund my co-founder to work on our startup full-time while I work a regular boring old day job, I've paid down so much of the principle the past few years that, along with pay raises from my day job, I have enough cash on hand to float another person for the foreseeable future.

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"I'm just buying more of my own place with somebody else's money."

At the cost of incurring risks including but not limited to:

  - Property damage by renters and others.
  - Property damage by acts of god (flooding/fire/subsidence).
  - Default on payments & long eviction periods.
  - Low occupancy/months without rent.
  - Downward price movements in the market as a whole.
  - Downward price movements in your location due to ghettoization, tax increases, service/school decline, structural unemployment or other factors.

Could be worth it for the gain in equity, but it's something to think about - especially as some of these risks can't be insured against.

You are also forgoing returns on your existing equity if you invested it elsewhere. Risk free interest rates for retail deposits here in the UK are currently above 3% for example.

In addition to that you also have the costs (in time and money) of:

  - Management time/effort.
  - Time to deal with renters and searches.
  - Organizing maintenance.
  - Costs of credit scoring etc.

All good points. You have to figure in costs of use when renting. As it turns out in my locale, you can reduce your taxes when renting under the assumption that renters are beating your place up and thus reducing the property value.

I'm fortunate enough to live in an area where finding renters will never be a problem should I end up that route, but you make an excellent point about that.

Also, eviction periods are not too bad in most parts of the U.S., you can write terms into the lease that also help short fuse eviction on non-payment if many places.

The biggest concern I have above all others is just managing the renters. There are services you can hire to handle all that and maintenance, but they consume some not insignificant part of the rent as payment.

I pay 10%/month to a rental company to handle most of that for me. As to the first - this is why you take a deposit, and why you have money in the bank just in case something goes wrong.

The first list is full of what if's...

As a renter:

What if the landlord gets foreclosed on and you are forced out What if they don't pay to fix anything What if the building burns down and you lose everything etc

In the year that I've owned my home, I've toyed with the idea of renting out a room or two. I have three bedrooms and I don't use any of them. I live in my basement. I know, I know. That sounds stupid. I have a basement that is the size of all but the largest apartment I've rented and it is where my sweet home theater is as well as my home office (I telecommute). Since it's where I spend so much time, I threw a sofa and a futon and an enormous bean bag down there (and a fridge and microwave). Now, I never even go to the top floor where the bedrooms are.

I could rent out all the bedrooms, including the master bedroom (with its own bathroom). I don't even know what the right price would be and I've heard plenty of horror stories about renting to people, but if I renteded even two of the rooms at only $350/mo, I'd have two thirds of my housing costs covered!

And, if I ever need to move, I could buy a house somewhere else and keep this one to rent it out. Again, I hear being a landlord sucks - but I have a handyman nearby who could do on-site work for me and once the house is paid off, the renters would basically be paying the mortgage on my second home.

Also, I plan to pay down the principal, too. I'm not making any extra payments just yet, but I am putting money in a savings account. If I have an emergency, I have access to that money today. If I don't have an emergency, then once I have enough saved up, I can pay off a hell of a lot of my house at once.

Owning a home can be a hassle. God damn, I sure as hell learned that right out of the gate. (I did a lot of remodeling to fit my lifestyle and my electrical needs, among other things). One thing it gives you, however, is more options. More choices, even if not mobility.

You should really convert the basement to a seperate residence, so you can independently live there, while also providing the same conveniences to the renter upstairs.

Rent to a family.

Being a landlord does suck. I have worked closely with a real estate investor managing 30 residential rental properties.

I would say the two biggest issues are the quality of tenants and the quality of homes.

Central A/Cs die. Whole homes need to be repiped. Roof leaks.

Tenants do not pay or will have 5 people in a 2 bedroom home. Eviction is costly and time-consuming.

The only real estate I would consider as an investment right now is something commercial/industrial, like a group of warehouses or office suites, something with multiple renters.

One pretty much has to assume that your property is going to need a repainting/recarpeting/other repairs when the tenants move out and price accordingly. Most renters (not all mind you) will do all sorts of bad things to your property. Taking that into account is important when renting out.

Unless I moved out of my home, I'd actually be more likely to just rent out rooms. I think there's far less risk and legal complication if you're essentially renting out a room to a "roommate" versus giving over your entire home to another person or family.

Just seconding - being a landlord can REALLY suck, and is full of hidden obstacles. You need to be committed to it, get proper legal advice and do everything by the book. In principle (though I don't know specific state laws in the US) - tennants have a lot of rights. It's their HOME - even though you own the structure. You may not be able to evict them because you want to move back in. You may be liable for all kinds of things.

And that handyman close by? That's great - until he has a family emergency and isn't available - then it's 100% on you to fix.

I'm not saying the renting-to-pay-other-mortgage is bad idea - it's not, it's a valid strategy - but it's something to be taken really seriously, not something you should try to just pull out of a hat.

Take a look at CL, there are no shortages of handymen.

Let me say that we just moved into a rental unit and the landlord is pretty dang carpy. He is too cheap to pay a qualified person to fix anything. Stuff is falling apart all over. He resents us for asking for simple repairs that cost less than a tenth of what we paid to move in. He calls the neighbors to try and get them to do it for free, and if they won't do it, he comes over on the weekend to try and fix it himself (usually failing, always doing a "ghetto fabulous" job).

We are on the verge of asserting my state's statutory process to compel the landlord to fix things because he is too cheap to use a qualified repair person, even on complex or potentially dangerous tasks like the gas stove, and even when there will be a long lag time on repairs if he doesn't.

My advice is that if you're going to be a landlord, get familiar with some of the maintenance companies in your area and don't be too cheap to call them out. I have been following this discussion with some interest, but I really believe any position, renter, owner, or landlord, can make sense in the correct set of circumstances. You just have to think things through and do it the right way, and it will save everyone involved a lot of headache.

I feel compelled to reply. You're basically saying that by paying extra money for years you now pay about the same money as a renter next door. What a terrible way to invest your money. You could have been taking that extra money you were paying in principle payments for years and investing it in conservative investments and making 6-7%. Instead you've wasted it on a depreciating asset that only requires repairs, costs taxes every year, and isn't likely to appreciate in value for the next 3-4 years.

Take all of the extra principle payments you have made - calculate what they would have made at a 5, 6, or 7% interest rate. Then, look at your home equity, subtract the amounts you have paid in repairs and taxes, and ask yourself which number is larger. Chances are you have been foolish with your money.

Instead you've wasted it on a depreciating asset that only requires repairs, costs taxes every year, and isn't likely to appreciate in value for the next 3-4 years.

I'm not sure you understand the difference between a depreciating asset and an appreciating asset. With very few exceptions, a car is a depreciating asset. It's worth less tomorrow than it is today. A house (with few exceptions) is not a depreciating asset. With the singular exception of 2007-2010, home prices tend to rise.

Also, I'm sorry to say, unless your definition of "conservative instement" includes a money printing machine, no conservative investment vehicle since the end of 2008 has broken even 3%, and 5% since 2007 let alone 6%.

http://www.fhlbdm.com/rg_history.htm

"A house (with few exceptions) is not a depreciating asset. With the singular exception of 2007-2010, home prices tend to rise."

In the words of Shaun Micallef: "All cats are brown, as this exception to the rule proves".

http://www.infochoice.com.au/banking/savings-account/term-de...

If you compare 5-year term deposits most are in the 6.8% - 7.1% range.

Sorry, we don't have those in the U.S. Our equivalent is called a Certificate of Deposit (CD) and those have just finally climbed above the 1% range after a few years sporting near 0% ROI. Put another way, they weren't even worth the time it took to go down to the bank to buy one.

Now...if you have something over $100,000 USD burning a hole in your pocket that you won't need to touch for a while, you can purchase something called a jumbo CD, and the 5-year instruments will just break 2.3%.

I don't know where you're getting your numbers from, but even Treasury I bonds were returning 5.93% (according to the calculator at http://www.treasurydirect.gov/BC/SBCPrice).

In any case, "home prices tend to rise" doesn't make sense if you're trying to justify buying one as an investment. Borrow ten times your net worth and buy a house hoping it'll appreciate. Not exactly a brilliant investment scheme.

Also, you could argue that a house is a depreciating asset. Shit breaks and you have to maintain it. If you were a business you'd actually have to account for depreciation on buildings.

http://en.wikipedia.org/wiki/Depreciating_asset

"In the United States, residential rental buildings are depreciable over a 27.5 year or 40 year life, other buildings over a 39 or 40 year life, and land improvements over a 15 or 20 year life, all using the straight line method."

Basically the only thing that will appreciate when owning a house is the land it sits on. A really nice house in a crappy area is going to lose value until the demand for the location starts going up again.

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