Buying a home single and selling in a few years?

Looking for some opinions and advice from TW! I’ve been out of college for about 2 years saving up some cash. I’m single and currently renting an apt and I want stop throwing away rent money and put it toward an investment. I want to get a cheaper house with room for improvements and fix it up over the next few years with the intent to sell it for more than what I paid and put into it. I’m 90% sure I want to move out west in the next 5-10 years.

Anything I need to look out for owning a home single? Any issues with my plan that I’m not seeing? Advice? Thanks!

 

What kind of skills do you have to fix up a house? Subbing out is gonna cost you.

How much time do you have to work on it?

How’s your credit rating?

Can you assess what a house needs?

Location, location, location..

 

All good questions to think about...

I would be doing everything myself, I’m pretty handy mechanically and with general house work (carpentry, welding, machinery, etc). I should specify, my primary goal is not to make money (though it would be nice), but to break even or lose less money than if I continued to rent an apartment for the next 5 years. I’d be ok with losing a few thousand. Apartment rent is almost 10K a year so any loss under that would be fine with me. The house in mind would certainly be livable so I could work on it every other weekend, it wouldn’t be a hassle or a huge priority. Credit is above 730.

 

I know during my time active duty I always rented a room from a buddy and I was the moron basically paying their mortgage. Maybe get a roommate to help set off costs at first. Good luck and congrats!

 

Consider property taxes, mortgage insurance, and costs outside the price of the home. Make sure you hold on to the home for at least two years to avoid capital gains tax. Go fixed rate and fixed rate only, if you can, buy down the rate using points ahead of closing. All of this advice is contingent upon the market. The single best advice I can give you is to find a broker thats seasoned, a lender who is flexible, and realtor that knows his or her market well.

When you're increasing the equity, don't focus solely on improvements, but also on paying down the principle balance on your mortgage. If you can make two extra payments a year worth of principle, you'll pay down a 30 year mortgage in no time as the interest accrued on the balance will quickly diminish.

Also, have a realistic expectation. If you can walk out of selling the place with 5-10% of the value of the home CIH, you've done alright. You may very well end up barely ahead of where you were if you had rented a place.

Hell, If I were in your shoes, I wouldn't sell. Take a chapter out of Warren Buffet's playbook and buy where property taxes are low and make it an income property.

Moral is: do your homework, to include market research, and understand all the dollars and sense before you buy.

 

Several factors to consider. Your location, are you sure property will appreciate in the time frame you are considering. The difference between the cost of renting vs buying (settlement costs, mortgage, taxes, insurance, upkeep).

 

It could be a great plan, but if you only plan to own it for a couple years get a 15 year mortgage. If you can't afford the 15 year mortgage payment you are probably taking on too much risk for a short term plan like that

 

I know it seems like rent is money thrown away, but when you start considering taxes,interest, insurance, and repairs, rent may be the smart way to go. The market moves the wrong way you could be looking at a loss. Rent also keeps you liquid, if you need/want to move, you move.

 

This is one of the financial planning considerations that needs to be part of your calculus. I MISS the days where I could tell my landlord to pound sand when I was month-to-month and moved within 60 days, penalty free.

 

That plan in the current seller's market is a gamble. But if the economy keeps moving the way it is you have a window to get it done. How big the window is would be anyone's guess. Just buy something you'd be happy living in long term if things don't go as planned.

 

Seems to me there is some strange advice so far in this thread - lots of it good but not necessarily for the situation, IMO.

1) Sounds like you're already thinking about this properly but don't expect to make money. Hope for the best, plan for the worst. There may be repairs you need that you aren't planning for or expecting. There may be market moves that could affect you. Your idea is not a bad idea, but you need a plan B. Plan A can be to fix up and flip when you're ready. But, you need a plan B in case the market crashes. Make sure that you can either suffer the losses on a sale, tough out keeping it longer and living in it until values come back up or make sure you can rent it out and get some, most or all of your monthly obligations covered.

2) Don't look at the mortgage cost, look at your total monthly obligation including taxes, insurance....

3) Make sure you have a good amount of cash on hand for repairs, emergencies, if you lost your job...

4) Don't worry about being single. That doesn't affect anything other than you won't have any second income or anyone to help work on the house. In fact, I think it's good to get into this when single. And, if you get married down the road GET A PRE-NUPTIAL AGREEMENT!

5) Don't pay points to get your APR down. Do the math, I can almost certainly guarantee that it's the wrong decision for you. It's smart to do this if you plan to live there for the full mortgage term. But, if you pay for points now you probably won't save enough money in the short time you own it (3-5yrs) to make it really make sense.

6) Don't make extra payments. Similar to points this is something that benefits you in the long run, not the short run. You're better of not paying down your principle if you just plan on selling soon. That money is likely better spent on home improvements to get ROI or possibly even better putting that money into the stock market, 401k...etc

7) Don't do a 15yr mortgage unless you've got a good amount of $. With what your goal is you should be focused on keeping your initial investment (down payment, points, fees) and monthly obligation (mortgage, taxes, fees) as low as possible. This means you have more money each month to put back into the house. The more money you can put into it, the more money you can likely make back due to ROI.

8) If possible, consider a different plan - basically do what you're doing now but don't flip it. Is there any way you can buy in now, renovate and then in 3-5yrs start renting it out and buy another house to live in? Lots of situations and details to consider, but in the long run real estate is typically a very good investment and if there's any way you can swing it now you'll be stoked in 35yrs when you've paid off the house you're living in and you're now getting $2k/month in rental income as well.

9) My overall concern is that right now may not be the best time to buy. Different areas are different, obviously, but generally speaking the housing market has been climbing for a decade now. Historically we see a big dip in housing about every 10yrs. The cycle we're in now is probably different due to the severity of and slow climb out of the great recession, but, personally I'm expecting a dip in pricing within the next 3-5yrs. So, for what you're looking at it's kinda risky. But this depends a lot on your situation. If you can buy for pretty much the same monthly obligation that you'd have for rent then it might be a different situation. For me, it took about 5yrs of sweat equity, housing market increases and rental increases until I was at a situation where I could rent my house for about what my monthly obligation is. When I bought my house I could have rented something similar for probably 75-85% of what I was spending to have bought a house.

 

Out west where? West coast? You won't make enough for a down payment for a home in Seattle or similar.

You need to stay in your basic market area.

Good on you for thinking about remodelling and flipping houses.

You need to stay in a home for 2 years not to get taxed heavily on the profits from the sale.

 

I question if in Alabama you can just keep dumping more money in a property and increase profits. I am guessing that your in a somewhat rural market similar to what we have in Ga and decent houses at lower market prices sell way better than elaborate ones that are above market average say on a sq ft price basis. You have to increase the homes value in what matters to the local market and that can be very tricky to discern.

The people that make good money flipping houses either have tons of cash already and can afford to float projects or are in high priced markets. Its a lot harder to make money when you are paying lots of interest and also in a market where average houses are selling for $200k or less.

I don't know where exactly in AL you live but I picked Clanton and looked on Zillow and the cheapest non-foreclosure house I could find was $43k vs $440k for Lakewood, CA. My quess if you are in Birmingham or some other metropolis tho that prices would definately be higher.

 

After you own the property 1 year it is taxed at capital gains rate which at least is lower than regular rate, as low as 0% depending on which tax bracket your in.
Your main residense becomes tax-exempt as long as you lived there 2 out of the last 5 years.

 

Yeah, the OP definitely needs to understand their area. But, the general idea is the same. I'm assuming his area has cheaper houses, cheaper labor rates and that he has a lower income compared to the avg house/labor/income where I live. Same principals though, someone here may need tens of thousands extra to remodel their house where he could get away with only thousands more needed. Either way, you're looking at a % of your monthly obligation. If you live in an expensive area and have $3000/mon obligation you could pay 10% more each month to pay it off sooner - that would cost you $300/mon or $3600/yr. That's $3600 you could have used to fund a couple of kitchen appliances for your kitchen remodel. If you live in a cheaper area your monthly obligation may be half that, 10% is half again and you end up with saving $1800/yr which could then be used to pay for...whatever they need. We're not talking crap tons of money here, just the stuff that takes the edge off home improvements. There are tons of variables, as you pointed out so it's really hard to know for sure what the best course of action is and that's why he's getting general advice here.

This was exactly the situation I was in. I could have put 20% down but it was smarter to keep cash on hand - both for emergencies and to help fix up the house. It was smarter to pay my minimum monthly so that I had a few hundred extra every month to help me pay for stuff like new light bulbs, masking tape, sand paper, paint...etc. There's no way I could have fixed my house up the way I did if I had a 15yr mortgage and was trying to pay it off as quickly as possible. I'd still be living in a fixer I couldn't afford to fix. If I was wealthy and could do both then that would have been another story. But, I'm guessing this guy isn't in that situation.

He's not really doing a traditional flip. A traditional flip is done as quickly as possible, often engineered so you almost have no payments towards the loan before you sell and pay off the loan. He's planning to keep it for at least a few years. He's not trying to make a big winfall but instead make a small one by buying his own place rather than renting and paying someone else's mortgage.

 

Buying a home with the intention of making money is a crapshoot. So many variables along the way that can eat into profits. I just bought a new construction home as a rent house and plan to hold it for 5 years before selling. At worst I should break even, but hopefully will come out ahead. Did a 20yr loan, 20% down, no points. In 5 years it should be ready to sell.

Buying or renting usually comes down to long and short term plans. If you're going to be somewhere 5 years, you might as well buy and live where and how you want. If you break even on the way out, you still come out ahead because of the freedom of living in your own home. Less than 3 years and renting is probably the better option.

Personally, I'd do just about anything to not live in an apartment.

 

Do it. You get to learn the ins/outs of home ownership and hone your fixer-upper skills. As long as you pick a good location and get something that's not over your head to repair, you'll be fine. Plus, you'll likely have a garage to store your Taco. I put money down on my 1st home before I was 21 and never regretted it.

 

I've worked on HVAC in a lot of rentals thru the years. I'd say 50% of renters are good and take care of the place, and 50% of renters will trash the place. I would never get into the rental game, because I would end up in jail for beating up some slob that destroyed my hard work.

 

As others have pointed out, given the likelihood of a dip in the housing market at some point in the next 5 years, I would really do my research before buying if your plan is to sell short-term (i.e. within five or ten years). Given the amount you'll have to pay in closing costs/taxes/legal fees/etc, it's really easy to be underwater on real estate for the first few years, even with a decent down payment--and that's without a dip in the housing market. Don't get me wrong, it's not impossible to make short-term buy/sell profitable, but if you're not really careful, you'll be at the mercy of market forces, and right now the indicators aren't great.

Holding on to the property and renting it out, as a few folks have suggested, can be a great thing--it's a great way to build a portfolio that can help see you through rough times the rest of your life. But you have to understand the risks. Maintenance can be pricey and time-consuming. Property management is something you'll need to consider if you're a long-distance landlord (and it sounds like you would be). I own a duplex about three hours away, and it's worked out great for me, a few minor headaches notwithstanding. It pays for itself and the mortgage on our house. But you've just got to do your homework. Above all, if you go this route: vet your tenants. Credit check, background check, verify employment, meet them in person, etc. I like to be a nice guy, I'm not nearly cutthroat enough to be hugely successful at business... but being a hardass in choosing my tenants allows me to be a softie now. My tenants are awesome, so if I give them a little leeway they don't take advantage of it. But being a softie when you're screening your tenants will fuck you. Tenants make all the difference. Being a landlord with good tenants is awesome. Being a landlord with shitty tenants is a stressful and expensive fucking headache.

I dunno, man. It's awesome that you're thinking of it, just really do your research. And my advice is to try to develop a relationship with a credit union or a small bank--anywhere that your loan officer will be an actual human person whose direct number you'll have. It's cliche, but it makes a huge difference when things come up. We've had little administrative headaches--like just recently some electronic fuckup meant that an automatic payment that was supposed to go from our escrow account to our insurance company didn't go through. It was relatively little shit, but something that would have been a nightmare dealing with an 800 line on a big national mortgage broker. But it was solved in about fifteen minutes on the phone with a person who knew me. And credit unions usually offer the best or competitive rates. Be very wary of saving a few hundredths of a percent going through a big national company where you're just a ten-digit customer number who clicked "I agree" on their website a few times.

Good luck, whatever you decide!

 

This is great advice that people seldom talk about.