When should you NOT use the one percent rule for rental property investing? In today’s episode, I encourage two callers to violate the One Percent Rule for real estate that they already own.
WHAAATTTT? Why would I say that? Especially given that I’ve gained a bit of a reputation as The World’s Most Staunch Advocate of the One Percent Rule? (Long title, I know, but someone’s gotta wear it.)
And if you’re not going to use the One Percent Rule, how should you make decisions about your real estate investments instead?
Find out in this podcast episode. Enjoy!
Here’s more detail:
Anonymous asks:
I have a duplex in a great suburb of Boston which is undergoing revitalization and is a magnet for young people. I bought it for $500,000 a year and a half ago, and it rents for $4,100. It cash flows, but clearly not at a good ratio.
I know I can find other properties that hit the one percent rule – triplexes in the same town, or in a different, cheaper market – so I’m thinking of selling. I don’t think the duplex has appreciated much, so if I can only get what I paid for it, is it worth selling? Or should I wait for rents to rise?
Ingrid asks:
I have two rental properties, both with pretty big mortgages on them, but I also want to keep investing in other properties. I read your 2014 article on paying down your mortgage or investing and I loved it, but I was wondering if your thoughts on the subject have changed since you published it. How do you decide between paying down the mortgages on your properties or investing in others?
Also, is there a way to pick which mortgage to pay down?
Angie asks:
How do you evaluate a neighborhood when you’re deciding to buy a rental property?
I’ve heard you mention specific zip codes that you like and find attractive, but how do you drill down to a specific couple of blocks within a neighborhood?
Rose asks:
I have a dilemma that I need your help with: my husband and I have two properties in two different states that we go back and forth between. For simplicity’s sake, we eventually want to sell one.
One property is paid off, and the other has a mortgage balance of $180,000 (we paid $300,000 for it two and a half years ago). Its estimated current market value is $400,000. I love this property and don’t want to sell it, so I thought: maybe I can rent it in case I want to move back.
Does it make sense to rent this property out if the most I can rent it for is $2,000/month (maybe more, if semi-furnished)?
Jackie asks:
I own three properties: two are full rental units, and one is a duplex. While I have $30,000 saved for a downpayment on another property, my debt-to-income ratio is too high to qualify for a traditional bank loan.
I want to buy the next property and hold it for a long time – do you have any recommendations for how to secure financing? The only debt I carry are the mortgages on these properties.
I tackle these five questions in today’s episode. Enjoy!
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Rose Weinberg
Thank you Paula for answering to my question. Really appreciate your opinion. May I add that my husband argues that the equity from the sale of this house would serve us better invested? If you have something to add, I’d really appreciate it.
Rose
Paula
You could borrow against the equity and invest that money, if you want to redeploy that equity into a rental property.
But as a larger framework: again, we’re comparing a personal purchase to an investment. If you sold your couch, mattress and TV, you could also invest that money in the stock market and get a better return. But your couch, mattress and TV are personal expenses, not investments, so comparing the opportunity cost of holding onto those items vs. investing the money doesn’t make sense. Ditto with this home. It’s 100 percent fine — wonderful — to have a home because you enjoy it. I support that entirely. But it’s a personal item, not an investment.
Rose Weinberg
Paula,
you’re the best! Thank you! thank you for taking the time to respond and thank you for all that you do!
Andy
I have the same question as last caller and am contemplating what should I do for next property purchase. Should I pay cash or buy using a mortgage?Could you please share your article link that you wrote in 2014 regarding it. Thank you Paula for a wonderful podcast.
Erin @ Team Afford Anything
Hi Andy – The article the caller was referring to is this one: https://affordanything.com/showdown-keep-your-mortgage-vs-crush-your-mortgage-who-wins-the-championship/
Hope that helps!