Buying new property

  1. My hubby & I might have the opportunity to buy a neighboring piece of property very, VERY cheap. We currently have a mortgage for our home but are interested in tearing down the house next door & expanding our yard. The cost that has been tossed around by our former neighbor is literally no more than buying a car.

    So I'm wondering what type of loan would be best to get. It's such a small amount, we could just take out a loan like we would for a vehicle, but I wonder if it would be cheaper, percentage-wise, if it was known that it was for property, like a mortgage. My sister also mentioned just taking out a home equity loan for "improvements" & not say what exactly we would be spending the money on.

    The home is currently rented as well which we could continue although I have no interest in doing this more than a yr or two; just long enough to help pay a good chunk against the purchase.

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  3. by   Jules A
    Very cool, I love real estate and of course would advise you discuss this with your accountant.

    My non-professional understanding is that you are likely able to write off mortgage interest on it as an investment property but probably not as a home equity loan. You will probably be best to present it as a rental property for financing, lenders aren't as enamored by empty lots especially if the intent is to combine with your present property as there is really minimal if any additional value there. Keeping the tenant for a couple of years would probably cover the entire purchase amount if like you said its only about the cost of a car which is another plus. Having tenants is a pita often but I haven't found anything else that provides this type of financial return on your investment. The other thing I'd consider while it is a rental property is adding anything to it you might want for the future such as a shed, pool, patio etc. which you can write off as expenses on the rental property but wouldn't be of a financial advantage if you wait until the entire parcel is part of your primary residence.

    FWIW I don't ever attach my personal residence to any rental property with regard to the mortgage. I was told this long ago by a very wise investor friend. You don't ever want to take a chance on defaulting on your primary property and frankly we never know what the future might bring. Better to be safe than sorry, imo. Good luck and please keep us posted.
  4. by   RainMom
    Thanks Jules!

    That's my thinking as well regarding not tying it to our existing house; you never know what could happen. Hoping this works out & then we'll start looking at the property on the other side of ours, hee hee. Bye Bye sucky neighbors!
  5. by   imintrouble
    I don't know anything about financials.
    But I love the idea of buying real estate.
    If I won the lottery I wouldn't buy cars, clothes, trips, or jewelry.
    I'd buy up every single acre I could get my neighbors to sell.
  6. by   Jules A
    Quote from imintrouble
    I don't know anything about financials.
    But I love the idea of buying real estate.
    Like anything it is something that can be learned. It has been amazing to me. I have done live-in renovations, which I no longer do because I'm older and sleeping with a dust mask on is less glamorous now plus I have more money. I have also done basic fluff up and rent out.

    The big things to remember is real estate is not liquid nor is it for delicate flowers. If you are someone who will decide you need to move, leave, or sell your property immediately the market might not cooperate. In general and historically sensibly purchased real estate should increase in value, possibly slowly but it should increase over the course of time. If however the neighborhood is taking a bad turn, which is not something that happens overnight, you need to be aware and jump ship even if it means taking a loss. I'm all for buying and renovating in an upcoming area that is ready to hit but no way would I sit around and hope a declining neighborhood is going to magically turn around. You will be stuck with an unsalable property and glum tenant prospects.

    Sensibly purchased real estate to me usually means something ugly in an excellent neighborhood so you are getting in lower than the pretty properties. Do basic upgrades to make gains in value early. If you are going to rent be prepared that renting, even to the best tenants is a PITA and requires some babysitting. You can't expect to just sit back and collect $15,000 a year in rental income without breaking a sweat in most cases. I've been very fortunate with my tenants however I'm very picky about the neighborhoods which naturally results in prospective tenants who are professionals and easily able to pay the rent. I am brutal about not even considering someone with poor credit even if their story tugs at my heart. People who have financial struggles are usually chronic and getting someone out of your rental property can be brutal.