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JacksonH

Is it a good time to buy?

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Today, I took my first step.  I went to a local Bank of America branch here in San Diego and got pre-approved for a loan to buy a home in Charlotte.  Now it's a matter of having the nerve to actually do something.  I own my house here free and clear, so this new mortgage would be my only mortgage.  My idea is to buy something in Charlotte and rent it for the next several years until I retire, then maybe have it as a second home when I retire.  But a friend here in SD is trying to convince me to use that money, instead, to build a "granny flat" in my backyard.  (San Diego is trying to encourage people to build granny flats, to increase housing options and hopefully drive more affordable housing options as housing costs are out of control.)  But I'm just not sure about that.  Under the tax law here, house values do not get reassessed ever unless a change is made on the property.  My house has appreciated considerably since I bought it, so if I build this granny flat, my property tax it going to soar.  But on the other hand, if I buy anything in Charlotte right now (and I want something on the Blue or Gold line), I'm worried housing prices in Charlotte may be peaking, and a recession is going, and wondering if now is not a good time at all to buy there.  I want something for $300k or less.  Anyone have any predictions on what's ahead for Charlotte real estate?  Also, do many HOAs allow purchases for rentals?

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Just my opinion. Buying a home, even if your intention is to rent it out initially, is a long term investment. If you are looking to make a quick buck I would say don't do it, but if you intend on holding on to the property for 10 - 15 years then buy.  The type of loan you get will be more expensive though if you do not intend on living in the property. Insurance of course will be more expensive too. I would worry about the apartment market softening within the next few years. So far there isn't an end in sight to the apartment boom, but we all know it's coming sooner or later.

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First, congratulations! I agree with your assessment that that building a granny flat and triggering a tax revaluation might not be the best use of that money.

The thing to consider with rental property is the cost and ease of upkeep. Even the best tenants ultimately do not care for things the way you would in your own home. I’m not sure how often you are in Charlotte, or if you have friends or family here who can assist with yearly inspections, move ins etc, but believe me it is in your best interest to keep tabs on the property and not just hope for the best as long as they pay their rent on time.

It wasn’t clear if you plan to purchase outright or obtain a traditional mortgage. On our most recent round of refinancing we opted for 15-year mortgages. The increase in premiums was still below market rate rent so while we are not “earning” as much, we will have the properties paid off free and clear much sooner. 

With a budget of 300k it seems that you wish to purchase as-is and rent immediately, that is not looking for a fixer upper and renovating. Personally I would definitely wait until the next down cycle as Charlotte is definitely in the upper ranges of price bloat. Historically we are over due for a down turn. Still we all know the massive growth in Charlotte is not likely to abate overnight and as the saying goes the best time to buy is yesterday ;) 

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Thank you all for your comments.  They are very helpful.  I have a lot to consider, weighing lots of pros and cons, so I just want to make the best decision.  And things like this scare me a bit.  To Matthew's comment about tenants no taking care of places, I hear you on that.  I have had rental properties in the past, and each time, I hired property managers to deal with tenants.  My first property manager was the property manager from hell, and that experience scared me away from the landlord business for a long time.  Then I was forced to move from San Diego to DC and was forced to put my home up for rent.  The second time I found a different property manager who did such a great job that, in the middle of the great recession I found a bargain for a house in San Diego (while I was still living in DC) and had her manage that for me as well as a second rental property.  That house is now my home.  If I could find a property manager in Charlotte of the same quality as the second one I had here in SD, I would not be concerned.  That said, I do also have family in the area who could also check on things from time to time.

And no, I would not be purchasing outright; I got pre-approval for a mortgage and I'm looking at both 15 year and 30 year options.  When I retire, I would use this property as a second home.  (I'm not looking for a quick buck, Norm, but a future place for myself in an are I would enjoy.)  My fear right now is just the unknown:  If I wait, are property values going to continue rising and cause me to lose out, or if I don't wait, is the economy going to collapse and values come down and I miss out on a better purchase.  I just need a crystal ball.  Looking at Kermit's chart, I could interpret that as either we aren't at the peak yet (assuming 2006 values are the peak), or that values have been going up at such a sharp pace in the last three years, they have to level off or come down soon.  I'm not sure what to make of it.  I need a fortuneteller.

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Another question for those of you more knowledgeable in this area. I'm also in the hunt. I'm looking around $200k but I'm more interested in something that would need some tlc. I know it's very hard to predict the market but does anyone think we will see a market more friendly to buyers within two years? 

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23 minutes ago, go_vertical said:

Another question for those of you more knowledgeable in this area. I'm also in the hunt. I'm looking around $200k but I'm more interested in something that would need some tlc. I know it's very hard to predict the market but does anyone think we will see a market more friendly to buyers within two years? 

Short answer in that price range no.  Homes under 250K are in short supply all over the metro area and especially in town. I don't foresee that changing anything soon.  When job growth is good people buy homes plain and simple.  This is a growing region and housing especially entry level is getting harder to harder to find not impossible but there is a lot of competition for it.    Even if there is a slowdown higher priced properties would be affected first.  Banks and lenders are so much more conservative in giving loans now than in the run up to 2007/08.   

With any purchase don't expect to make thousands of dollars in a quick money scheme but if you hold real estate for a while 5-10 years you will be fine.  Residential real estate class that has traditionally had small steady gains over the years until the worst depression 2007/2008 since the great depression.  Always buy smart and hold and you will be fine. 

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5 hours ago, KJHburg said:

If you are in real estate for the long term 7-10 years it is always a good time to buy.   Homes under 300K are the fastest disappearing homes and quickest selling in the region.  Land is more expensive, materials more expensive.   Buy and hold is always a good strategy and it has worked wonderful for me.  (as another note your trips to Charlotte then become tax deductible as you have to check on my investment) '

One more thing I would add my insurance on my rental properties is no more expensive than regular homeowners insurance. You are still insuring the structure remember.  as for tenants the key is finding the right tenant who will take care of it and not taking the first person who hands you an application.  I manage my own and have learned by way of mistake but now I am really good at it.  I tell my owners sometimes you have to forgo a month or two to get the right tenant.  Tenant screening is the utmost importance.   

Thank you.  Excellent about the tax deduction for trips to Charlotte!  Being across the country, I would still want a property manager to deal with the routine tenant issues.  Hopefully that wouldn't be an impediment to qualifying for the tax deduction.

 

Edited by JacksonH
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8 hours ago, JacksonH said:

Thank you.  Excellent about the tax deduction for trips to Charlotte!  Being across the country, I would still want a property manager to deal with the routine tenant issues.  Hopefully that wouldn't be an impediment to qualifying for the tax deduction.

 

set up a meeting with your property manager and that is checking on your property.  Plus don't underestimate drive bys of any rental properties I do that all the time.   Plus with proper notice you can make an appt to see your occupied property under the terms of the standard NC lease. 

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Some years ago my accountant made a suggestion for tax purposes that we consider becoming a landlord. We were uncomfortable with prices in Charlotte. She said the property could be anywhere on earth. We chose a condo in Montréal, our favorite city, and visited annually  and while there had a short discussion/lunch with the property manager we hired and 2-3 times made an inspection and that part of the trip was deductible. A proportion of the trip, that is, was deductible. Plus we had a Montréal bank account where the manager deposited funds and we wrote checks from. It was a wonderful way to entice us there. We considered making the place a holiday home but after a few years the ability to stay in a hotel and throw the key card on the bed and walk out was just too easy. We waited to sell until the market was in our favor and the currency had trended our way. Cap gains tax is greater in Canada so after sale there was no US tax liability for us. One must have a strong working knowledge of the target location, though to achieve this goal.

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On 2/23/2019 at 10:39 PM, JacksonH said:

Today, I took my first step.  I went to a local Bank of America branch here in San Diego and got pre-approved for a loan to buy a home in Charlotte.  Now it's a matter of having the nerve to actually do something.  I own my house here free and clear, so this new mortgage would be my only mortgage.  My idea is to buy something in Charlotte and rent it for the next several years until I retire, then maybe have it as a second home when I retire.  But a friend here in SD is trying to convince me to use that money, instead, to build a "granny flat" in my backyard.  (San Diego is trying to encourage people to build granny flats, to increase housing options and hopefully drive more affordable housing options as housing costs are out of control.)  But I'm just not sure about that.  Under the tax law here, house values do not get reassessed ever unless a change is made on the property.  My house has appreciated considerably since I bought it, so if I build this granny flat, my property tax it going to soar.  But on the other hand, if I buy anything in Charlotte right now (and I want something on the Blue or Gold line), I'm worried housing prices in Charlotte may be peaking, and a recession is going, and wondering if now is not a good time at all to buy there.  I want something for $300k or less.  Anyone have any predictions on what's ahead for Charlotte real estate?  Also, do many HOAs allow purchases for rentals?

I wouldn't be worried about anything along the Blue Line or close into town really.  The amount of office space coming to Uptown/Southend will keep everything in demand IMO.  Good luck doing it for $300k or less

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