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Is this a terrible financial plan or not so uncommon
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imasoftov









  


Post  Sun, Apr 15 2018, 9:46 am
I don't have any opinion about whether it is or isn't either a terrible plan or common, just want to point out that its advisability and how common it is are entirely independent.
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amother




Teal


Post  Sun, Apr 15 2018, 9:57 am
amother wrote:
It’s a small two family with just two bedrooms on each floor and one floor is not big enough for my family.


How much would you be able to charge to rent out half?

Even though you feel 2 bedrooms is too small for your family, your oldest is only 5.

Maybe it would make sense to rent out half for just a year or two? Iow, you don't need to think of renting out as, forever.

As to whether this is a good plan. You should not create a situation such that you have no cash on hand. You should have enough cash in the bank to cover several months of living expenses.
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amother




Seashell


Post  Sun, Apr 15 2018, 10:11 am
amother wrote:
How much would you be able to charge to rent out half?

Even though you feel 2 bedrooms is too small for your family, your oldest is only 5.

Maybe it would make sense to rent out half for just a year or two? Iow, you don't need to think of renting out as, forever.

As to whether this is a good plan. You should not create a situation such that you have no cash on hand. You should have enough cash in the bank to cover several months of living expenses.


I would only want to rent to someone frum and no one frum would rent it out in the condition that it’s in. I would have to put a new kitchen paint and do floors to get a renter and it really doesn’t pay to put in the money for a renter if it’s so short term.
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Amarante









  


Post  Sun, Apr 15 2018, 10:20 am
Paint and a cheap new floor is not that expensive. Even an inexperienced person can paint a kitchen so there is only the cost of the paint. And landlords put in cheap flooring all the time - not sure what is wrong with the current floors and what it has to be replaced with.

Depending on where you live, the cost of painting and cheap new flooring would be minimal compared to the rent you would get. And you would also receive tax benefits because the cost of heating and other utilities would be partially paid for by the tenant.

I think you are trying to convince yourself that this is a good economic decision but it really isn't.

Think of this as your "starter" home. Make the adjustments necessary to live within your means and save. Since you have never owned a home, you have no idea of how much more it costs than renting - mortgage and taxes are just the beginning especially for an older home - which I assume this is in terms of being a two family in an urban area - every month or so, there will be costs that you have never thought about until homeowner ship - electrical; plumbing, faucets, hot water.
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amother




Mistyrose


Post  Sun, Apr 15 2018, 10:20 am
amother wrote:
I mean I will have no savings left. When this is done I will have 10k in the bank and owe my parents 40k.


Honestly this is very risky. Not because you will owe your parents. I assume that if there’s an emergency, you can forego payments to them. But because the slightest thing going wrong could cause financial ruin. A lost job. A new roof or sewer line. Medical expenses. You have no cushion, and no expectation of having one for a decade.
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dancingqueen









  


Post  Sun, Apr 15 2018, 10:29 am
IMO, it sounds like you can’t really afford this renovation. Are there any other cheaper houses that are less of a fixer upper, or that you can delay fixing up longer?
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amother




Denim


Post  Sun, Apr 15 2018, 10:36 am
Op your plan is a bad one. I’m sorry to be the bearer of bad news. And I know you only want to rent to someone frum - but sometimes it’s worth getting out of your comfort zone somewhat for financial security. There are some (plenty!) respectable non Jewish/ frum people or there who would make great renters. We just rented out to A quiet couple in law enforcement, no kids. They were happy with the house the way it was, and it will give us much needed money every month until we can afford to do without it. Don’t bite off more than you can chew!!
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Raisin









  


Post  Sun, Apr 15 2018, 11:07 am
amother wrote:
I would only want to rent to someone frum and no one frum would rent it out in the condition that it’s in. I would have to put a new kitchen paint and do floors to get a renter and it really doesn’t pay to put in the money for a renter if it’s so short term.


Our first apartment was half a floor of someones brooklyn house. One bedroom, a kitchen and a living room. It was run down and old but we were very happy because it was a bit cheaper then everyone else was paying and really not terrible. Not every frum family is looking to spend above their income. And frum people are not always good tenants either.

Can you cut one of the floors in half and rent it?
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petiteruchy









  


Post  Sun, Apr 15 2018, 11:46 am
We have a fixer up house in an up and coming area too. We rent the upper half to quiet grad students. They are amazing. They're away a lot over the summer and holidays, they study a lot and if they have people over they always run it by us and are respectful of the fact that we have little kids. They pay more than half our mortgage, meaning that even with taxes, our monthly housing costs are less than when we rented. So that part is amazing and working out really well for us.

I purposely keep the rent just a little lower than normal for the area so that I have my pick of renters, can hold onto them longer, and have them feeling lucky and grateful to be where they are (and not feeling ripped off by shabby floors etc).

Now for the bad part - the house is in worse shape than we realized when we bought it. We're in the process of a very expensive and time consuming basement reno that is addressing several hidden defects. So we're squished into a tiny main floor. No room in my house looks nice right now. All our plans to redo rooms one by one are on hold until we finish the structural work and we've had to borrow from my parents too. Needed repairs are getting put off because of the scope of the work. I would never in a million years go into a house like this again. Very fortunately, my parents don't need to be paid back very soon, but if one more thing goes wrong, we're really going to be in a bad spot.

Old houses, unless they're in a very desirable location and pay for themselves in rental income, are not good investments for middle class people, especially those who will be spreading themselves thin to make it work. Houses do have a lifespan.
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amother




Seashell


Post  Sun, Apr 15 2018, 12:42 pm
petiteruchy wrote:
We have a fixer up house in an up and coming area too. We rent the upper half to quiet grad students. They are amazing. They're away a lot over the summer and holidays, they study a lot and if they have people over they always run it by us and are respectful of the fact that we have little kids. They pay more than half our mortgage, meaning that even with taxes, our monthly housing costs are less than when we rented. So that part is amazing and working out really well for us.

I purposely keep the rent just a little lower than normal for the area so that I have my pick of renters, can hold onto them longer, and have them feeling lucky and grateful to be where they are (and not feeling ripped off by shabby floors etc).

Now for the bad part - the house is in worse shape than we realized when we bought it. We're in the process of a very expensive and time consuming basement reno that is addressing several hidden defects. So we're squished into a tiny main floor. No room in my house looks nice right now. All our plans to redo rooms one by one are on hold until we finish the structural work and we've had to borrow from my parents too. Needed repairs are getting put off because of the scope of the work. I would never in a million years go into a house like this again. Very fortunately, my parents don't need to be paid back very soon, but if one more thing goes wrong, we're really going to be in a bad spot.

Old houses, unless they're in a very desirable location and pay for themselves in rental income, are not good investments for middle class people, especially those who will be spreading themselves thin to make it work. Houses do have a lifespan.


When you bought the house did you know about the structure work or not. This house is almost 100 years old but it’s up to code.
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amother




Coffee


Post  Sun, Apr 15 2018, 12:47 pm
amother wrote:
When you bought the house did you know about the structure work or not. This house is almost 100 years old but it’s up to code.


It's wonderful that your house is up to code, but that doesn't guarantee that you won't have expensive repairs. It's really important to have a financial cushion when you buy.
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petiteruchy









  


Post  Sun, Apr 15 2018, 2:18 pm
how do you know the house is up to code? unless you have a certified report from a structural engineer and guarantees that plumbing, electric and all else have been properly replaced, how do you know what is going on behind the walls?

If the house really is sound, then it is not a bad investment to buy and reno, but chances are that a house you feel can't be rented out in its current state hasn't been taken care of in quite the way you seem to be assuming.

Why not buy, rent out the top for 4 years, and save for your reno?
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amother




Papaya


Post  Sun, Apr 15 2018, 4:27 pm
I agree with those who mentioned possibly renting the top out for a few years. Maybe you can get an estimate how much to fix it up to be presentable for renting & can calculate about how much can get in rent and see if it's worth it to you. Hatzlacha rabba!
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amother




Yellow


Post  Sun, Apr 15 2018, 4:41 pm
amother wrote:
I would only want to rent to someone frum and no one frum would rent it out in the condition that it’s in. I would have to put a new kitchen paint and do floors to get a renter and it really doesn’t pay to put in the money for a renter if it’s so short term.

Just thought I'd mention I painted my kitchen and living room on my own, and the kids put down a new floor- vinyl tiles that are self-stick.
Your kids are too young to help with these tasks, but maybe some nieces or cousins or neighbors? That is, if you wanna do it.
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Mommyg8









  


Post  Sun, Apr 15 2018, 7:48 pm
OP, it's relatively inexpensive to put in cheap vinyl tiles, paint, and a really cheap kitchen, if need be. You'll probably get your money back in a few months (depending on the rent where you live).

That said, please don't feel pressured to do something that you will be unhappy with. As for the financial plan - none of us really know the whole financial picture, even if we give you advice, it's just a guess based on assumptions.

I think it's much smarter to find someone IRL who is financially savvy and give him/her all the details, so that he/she can advise you. It doesn't have to be a financial planner, necessarily, but perhaps an older smart person...
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amother




Seashell


Post  Sun, Apr 15 2018, 8:56 pm
I know the house is up to code because someone else almost bought it recently and then pulled out because a bigger house came up.
I am definitely doing the first floor right away. I am living in an apt now and I need more space for my sanity. I should be able to pay back my parents in 4 years.
The question really is when I am all paid up how will I convert the second floor. I can have someone come put up drywall floors to separate the living room and kitchen or I can do it properly and get the most for my space and make myself a proper master bedroom but I have some time to worry about that...
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amother




Mistyrose


Post  Sun, Apr 15 2018, 9:26 pm
amother wrote:
I know the house is up to code because someone else almost bought it recently and then pulled out because a bigger house came up.
I am definitely doing the first floor right away. I am living in an apt now and I need more space for my sanity. I should be able to pay back my parents in 4 years.
The question really is when I am all paid up how will I convert the second floor. I can have someone come put up drywall floors to separate the living room and kitchen or I can do it properly and get the most for my space and make myself a proper master bedroom but I have some time to worry about that...


You’re relying on word of mouth from someone who got a report and then, having reviewed the report, decided not to Buy?

GET A COMPLETE HOME INSPECTION OF YOUR OWN.

And if the house is 100 years old, expect things to go wrong. Its just a fact of age. That’s why you need a financial cushion. If you don’t have one, and don’t expect to have one for a decade, this is beyond risky.

Do you really expect that a 100 year old home won’t need a major repair in a decade?
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DVOM









  


Post  Mon, Apr 16 2018, 7:01 am
Hello poster!

So, here is what we did. We bought a very old fixer-upper in a very desirable neighborhood. For our budget, it was either this larger house very much in need of repairs, or a much smaller one that would need far less work. Part of the equation was that we fell in love with the very old, very decrepit house (the fireplaces! the funny little bedrooms in the attic with slanty roofs! the built-in desks and bookshelves! original hardwood floors!) and couldn't see ourselves buying anything else.

We bought the old house a year ago. We knew we could not afford even the most minimal repairs and would be living in it as is. The only thing we changed was the flooring in one room; the previous owners had animals that they kept in that carpeted room and you can imagine how that carpet smelled...

We've been very happy with our decision. There are some holes in the ceiling of one room. There was no lighting in the entire house when we moved in. The kitchen is tiny and has only one sink that I think might be traif at this point, careful as I've been with dairy and meat. The kitchen walls are a revolting green color that I'm dying to get rid of. The washer and dryer are down a steep flight of steps in the haunted basement where in its past life as a farmhouse we believe animals were slaughtered (there were meat hooks attached to the basement ceiling and drains in the floor-- we think for blood! how gross is that?) There were dead squirrels in one of the fireplaces and alive squirrels that were living in the garage. But we love this house. We're really happy we bought it.

We focused this year on rebuilding our savings that were depleted when we bought the house. We now once again have a nice cushion in the bank and can start saving up for all the repairs we'd like to do. We know that within five to ten years the house will need a new roof. We'd like to change all the windows to make them more energy efficient. I am dying to paint and redo the kitchen. We'd love to finish the basement and garage. My husband is very handy, so part of the equation for us is all the work we can do by ourselves. He spent his x-mas break this year wiring the house room by room, gluing down all the loose tiles in the kitchen, regrouting, recementing some of the crumbling brick on some of the fireplaces, and fixing all the doors (none of there were really able to close properly) it's so nice to be able to turn on lights and lock our bedroom door! We love having this house as a long-term project.

That having been said, my sisters both bought fixer-uppers and went into considerable debt fixing them up right away. They have beautiful new kitchens and bathrooms and rooms with closets and clean floors. It's really lovely. They both have told me that they couldn't live the way we are living, and are glad they did it the way they did.

You have to know what works for you, OP. My husband and I are both very scared of debt, and would rather save and then spend than spend and then pay back. We also have no one we could really borrow from interest-free (like you have your parents) so that is part of the equation as well.

This has been a very long and rambly post. I think I'm putting off getting up and waking my kids.... OP, do some soul searching. I couldn't live with more debt. For me there was a lot of peace of mind in buying what we could afford, and no more. Do some soul searching and figure out what works for you.

OK, getting out of bed now... by everyone!
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amother




Teal


Post  Mon, Apr 16 2018, 8:22 am
Want to also point out. Even if you invest money into re-doing certain things in the house, there are *other* things that will inevitably come up, and most likely those will NOT be the things that are high on your priority list.

For instance, you may want to first, spend money on a new kitchen, followed by new windows, followed by redoing the laundry room, etc. You can spend money on those things.

But then in 3 years, your roof starts leaking. Or water leaks from the upstairs bathroom into the kitchen. And those had not been your priorities, but they also can't wait.

If you have no cushion of savings, you'll have to borrow more money or maybe refinance, neither of which are your ideal choices.
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