WWMMD?

CuriousKiddosMama · October 2013

So we met with a new financial adviser last night and my head is still spinning from all the information he gave us. It seems like we have a big decision to make before we really move forward with more investing. We have X set aside in an account that has been doing nothing. We found out last night it is pretty much all invested in bonds (not what we were told when we bought into the fund) and that is why it has been losing money. Since it had been doing so poorly we started thinking about other options for this money, like buying a second rental house. Our investor said that would be a good way to diversify our portfolio, and so he wouldn't be opposed to it. But as the conversation continued we also discussed that we will probably be moving within 5 years to a bigger house. Our current house is a nice size for 3 people, but when we think about adding 1-2 more kids, we are sure it will be way too small. It's a decent size house, but just a really poor use of space and no storage for things like toys or really for anything. We are going to wait a while to try to get pregnant again (January probably) but not too long because it took us 2 years to have this baby, so I don't know how long it will take me to get pregnant again.

The consensus came down to if we want to buy a house for ourselves in the next year or two, we should just hold onto the money so we can pay cash for the next house. If we are going to wait 3-5 years, we should buy a rental and just save the income and a little extra or get a small mortgage to buy our next house. To me it feels like a decision I can't make. I don't know when I will get pregnant again, and to me that greatly impacts when I feel we need to buy a new house.

So what would you do with this money? Buy a rental house, or hold it and wait to buy a new house for us. A rental property could probably make us $1100 a month in income- after expenses are taken out. Rentals are going in this area for up to $1500 for a single family house.

hoffse · October 2013

The only thing I have to add here is consider the implications of being a landlord - some people love it, some don't. There's a cost associated with that, and how much that cost is varies person by person and situation by situation. You will be responsible for tenant complaints and repairs. You will probably need an attorney to draft a lease in your favor. You may need a different insurance policy to protect yourself against tenant and guest injuries on that property. You will also need some umbrella coverage in case you get sued - you don't want the house to be seized. The likelihood of getting sued goes up a lot when you own a rental vs. owning only a private residence. If you have a tenant that you need to evict for one reason or the other, you have to go through the legal channels to do so. This will likely involve an attorney, and you may lose rental income while it's happening. If you want to sue for back rent and lost profits, that's yet again another legal process. Your taxes are going to become a lot more complicated as well, because you'll have a non-homestead property that depreciates but that also generates income. Your financial adviser should have pointed these things out to you - if he didn't, then I might find a new financial adviser because they're pretty basic. I'm not a landlord, financial adviser or a real estate attorney, but these are things that I thought of just off the top of my head. There may be more.

If it were me I'd probably hold onto the money - but then, the hassle of being a landlord isn't worth it to me. If you were renting to a trusted friend or family member, that's one thing - you will have a sense as to whether they will pay on time, ask you make costly repairs, etc. A true investment property necessitates some pretty significant due diligence on your part, however.

Obviously, if everything goes according to plan (nothing breaks, nobody gets sued, nobody needs to be evicted, nobody is injured, etc.) then you can make some good money on this. But if not, you have to be prepared to encounter the other costs associated with it.

I'm not saying you shouldn't do it - I personally wouldn't do it, but I'm not you. I just want to make sure you see the big picture so you can make an informed choice.

maple2 · October 2013

Another thing to consider is that you wouldn't necessarily have to move immediately upon conceiving or even delivering your 2nd child. Babies really don't take up that much space, so even if you got pg quickly, you could probably stay in your current house for 3 more years without too much inconvenience if you needed to (at least 1 year of that would be without a 2nd kid even if you got pg immediately in Jan). We lived in a 2 bedroom apartment with 2 kids for awhile and survived just fine. I wouldn't have wanted to do it permanently (though plenty of people do), but knowing that we would be moving eventually made it not seem so difficult.

maple2 · October 2013

Another thing to consider is that you wouldn't necessarily have to move immediately upon conceiving or even delivering your 2nd child. Babies really don't take up that much space, so even if you got pg quickly, you could probably stay in your current house for 3 more years without too much inconvenience if you needed to (at least 1 year of that would be without a 2nd kid even if you got pg immediately in Jan). We lived in a 2 bedroom apartment with 2 kids for awhile and survived just fine. I wouldn't have wanted to do it permanently (though plenty of people do), but knowing that we would be moving eventually made it not seem so difficult.

Sisugal · October 2013

I am not landlord material - it would frustrate me to no end. So I would recommend skipping the rental home and keep saving for your next home and pay cash. A cash offer will beat a mortgage offer in most situations so makes you a more attractive buyer.

CuriousKiddosMama · October 2013

We currently have a rental property, so that helps make the situation a little easier for us to accept- we are already doing it. After talking to DH and sleeping on it for a couple of nights, and of course considering all of the points brought up on here so far, I think we are going to go for the rental. We decided we can make this house work for us a lot better if we get rid of the formal dining room and use that as a play room for the kids when we get to the point we need a play room. That will help our living room not feel so cramped, and give us an area for the kid(S) to play besides in their bedrooms. We figure if we do that, we can maybe thrive here a lot longer than the 5 years we had even been planning. That helps make a rental seem much more worth it as well, because then we would have even more rent earned before we buy, and can probably pay cash then for our new house after selling our current house.

Mom987 · October 2013

Honestly I'd probably hold it.

cordsniper · October 2013

Being a landlord is awful. So many expenses and hassles.

WWMMD?

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