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over the shoulder Kitten

Maybe I should give up that dream of owning it

As much as I want to purchase the property I just entered into a lease for, it looks like it will be a bad idea, for the same reason the current owner is trying to sell it. The value of the property exceeds the amount of rent you can collect for it.

By my estimates, the mortgage on this property is about $6,000.00 per month. The combined rent on all 3 units in the building (a commercial/retail space on the 1st floor, a one bedroom apartment on the 2nd floor, and my two floor/two bedroom townhome on 3rd and 4th floors) will bring in between $4,000 to $4,500 per month. The current owner is $2,000 per month short of what she needs to pay the mortgage (that's why she put it up for sale). And while that $2,000 buys her (or myself, if I purchase it) some equity, you could lose $24,000 a year for years before you even begin to build any equity.

Living there while I own it doesn't change this scenario at all. Let's say I moved from the two story townhome into the one floor apartment and rented out the commercial space and the two story town home. I would be collecting about $3,000 to $3,500 a month rent and be stuck paying $3,000 a month of the mortgage for a one bedroom apartment. And wouldn't it make more sense to not do that, and just rent an apartment for $1,000 a month or buy a condo for $2,000 a month? No matter how I look at it, it appears to be a $2,000 a month sinkhole until rental prices start to go up that high in the next 10 or so years. Am I wrong?

Comments

I don't know much about housing trends, but I hear from people that the housing market is going to start going down pretty heftily over the next 5-10 years, making it good for buyers, but not for homeowners. Gordon is holding out on buying a house until this happens, especially because we've gotten very lucky with our rent price.
I have heard otherwise from online news sources. My understanding is that the prices will hold as they are, or drop slightly, for the next 2 years. Then they will start to climb again. So in 10 years, the property you buy now will have already accumulated a good deal of equity. But if you buy now, you are stuck with the property and won't be able to sell at a profit for 2 or more years.
Aye, I'd not expect equity to start making a marked difference in the near term. Add that you are not a REIT, you are a dance studio - anything you tie up in real estate is a resource you don't have for furnishings, advertising, training, or cruises :)
Several things:

1. Does it matter you wouldn't be able to sell at a profit for 2 years? Are you actually planning on selling in less than 2 years?

Unless you're trying to "flip" the property, then the real question is:
* Will I be able to afford this place without paying a loss from month-to-month?

If you're worried about tightening dollars in the economy *and* not sure if you can rent it profitably, then yeah...dont buy it.

If you DO think you can make a profit - even if it's not a lot, from the rents then maybe it's not a bad idea since when you do decide to sell, then you can make some cash.

I'm not interested in profit, I'm interested in not throwing away money on rent every month. There is a possibility I might sell in 15 to 20 years. But nothing sooner than that. The property is too ideal and too well located to let go of once I purchase it.
I must've misunderstood Gordon the first time, because we were just talking about this and he said pretty much what you said. Might be good to buy during the next couple years.