House plus rental purchase- please analyze

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Topic Author
LuckBeALady
Posts: 111
Joined: Sun Mar 14, 2010 7:33 am

House plus rental purchase- please analyze

Post by LuckBeALady »

Hi, financial wizards. We are considering a real estate purchase and would love input.

We have $150,000 cash to put down on a purchase, leaving a $70,000 emergency/cash fund and two reasonably stable jobs. We have good retirement savings and college tuition is done.

We are considering a house purchase for $464,000. In addition to the main home, there is an ADU (accessory dwelling unit) which is on the back of the property with parking and entrance on the alley. The ADU would bring in $1000/month rental income. The house is in a desirable neighborhood in CO which has appreciated quickly in recent years; it sold for about $378k 3 years ago. It was built 7 yrs ago and the ADU 1 yr ago; both have been kept up very well.

Our gross combined income is $200k to $260k depending on bonuses and self-employed income.

We are both 50; this may be our last house purchase. It has a disability-friendly layout, is close to health care, and has plenty of room for friends, family or a caretaker to live with us. The location would allow us to go to one car; it's a bike-friendly area with all amenities within biking or walking distance.

Are we nuts to take on a 300k mortgage at our age? And does it seem wise to purchase a home with an ADU? The plan would be to use it for rental income in the near future, perhaps converting it to an in-law/vacation visitor suite in the future.
davidlukewilcox
Posts: 117
Joined: Sat Dec 24, 2011 1:44 am

Re: House plus rental purchase- please analyze

Post by davidlukewilcox »

The answer to your question about whether or not you should take in the mortgage depends much on current retirement savings, how long you both desire to keep working and estimated expenses. You should update the thread with that info.
scrisp
Posts: 24
Joined: Fri Dec 05, 2014 2:34 am

Re: House plus rental purchase- please analyze

Post by scrisp »

Are we nuts to take on a 300k mortgage at our age? And does it seem wise to purchase a home with an ADU? The plan would be to use it for rental income in the near future, perhaps converting it to an in-law/vacation visitor suite in the future.
I don't think this is nuts, but then I own rental property, so consider that bias. Oh, I also recently purchased an expensive property that will become my retirement home and am carrying a mortgage, close to retirement. So consider that bias too. :wink:

If this property is something that really works for you, the ADU could provide good financial reward to help justify the investment. Depending on your income, you may get some tax benefit of renting the unit, once depreciation, upkeep, apportioned mortgage/yard maintenance is accounted for.

It also seems like it would give you flexible options of either long-term tenants, or perhaps short term rentals if not restricted by HOA or community limits. And then, as you note, later on when you don't want to have a tenant, you have a wonderful place for friends and family to stay, and everyone gets some privacy. Sounds pretty much like an ideal arrangement.

FWIW, given my biases. Best of luck with your decision.
If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away. HDT
Topic Author
LuckBeALady
Posts: 111
Joined: Sun Mar 14, 2010 7:33 am

Re: House plus rental purchase- please analyze

Post by LuckBeALady »

Well, after DH and I agreed on making an offer, I became terrified of carrying 2 mortgages with all the associated expenses. The costs would total approximately 50% of our net monthly income.

We have decided to wait until our previous residence is sold. It's tough to pass up this opportunity, but the main residence is not absolutely perfect for our wants. And who knows what the market will do- maybe it will cool down and prices will become more reasonable.
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