How was this house purchase profitable??

Question

A friend of mine brought a $200,000 new KB house with the intent of using it for investment.

I believe its a 15yr mortgage, with high monthly payments.

For a while he had people renting it for a decent amount, but since January the house has been vacant, and he is left paying the mortgage whilst he pays monthly rent for his apartment.

Therefore, in what way is this an investment....if he planned on making $X profit, surely this is now being drained away in mortgage payments & maintenace of the house ($500 gardening/month).

I also believe that the profit he planned on making is not going to be anywhere near what he had first planned because this house has been ont he market for 4 months, its in a not very nice neighbourhood, and he's reduced the price once and is being asked to reduce it again.

How on earth is this profitable???

Answer 1

without knowing specifics, there's no way to know. It doesn't sound profitable but it very well could be.

If the income he recieved from his renters was enough to offset the interest he paid on the mortgage then the profit he makes will be equal to the inflation of the property.

If he can sell the house for enough to offset his interest and repairs and then it's profitable. Unless you can tell us exactly what it sells for, what profits were made from renting, what all the expenses were (mortgage rate, maintenence, etc) then no one on Yahoo answer's will be able to give you an answer for sure

Answer 2

I don't see where this was profitable at all. I think your friend should go ahead and sell the house, even at a loss. That way he would not have to continue to make the double payments, mortgage and rent. The other option, if it were in a good neighborhood, would be for him to live in the house.
What a pity, it was a hope and a dream more than anything else, I guess.
Next time he decides to invest he should look more closely at the neighborhood and other statistics readily available on the internet.
Yahoo recently published a list of growing cities. That would be a fine starting point for new investors.

Answer 3

If he can sell it for say 20% more than he paid for it, it may still be profitable, but it sounds like he'll be lucky if it doesn't bankrput him. A few years ago doing what your friend did was common and people could often sell the places for much more than they paid (20% more as a starting point, often alot more than that percentagewise).

They made alot of money back then, but now that real estate is cooling down fast, you probably can't make money doinig this unless you buy the property at least 20% below market (figure with fixup, commissions, hold costs and closing costs on both ends you will spend at least 15% of the sales price just to flip a house, so your markup better be more than that to turn a profit).

So your friend probably got in to late, and is gonna take a beating on this one. A hard leason to learn but thats the way it is.

Answer 4

In this case it sounds like the only hope for profit is in two areas either fix it and add to the value and sell quick (with in a month or two) or if you are stuck with it rent it and keep it rented until the market in that area becomes more desirable

Answer 5

unless you are in a few hotspots in the US, houses aren't profitable at all at this time. i'm sure in 50 years it will pay itself off...

the only way it possibly be profitable is if he somehow knew that the whole neighborhood would be revitalized in the future.. but if the houses around stay the same he's screwed...

i think your friend saw some infomercials on tv and didn't really research this through..

Answer 6

It is only profitable if the sales price plus rents received is higher than the purchase price plus upkeep, mortgage interest and taxes.

Answer 7

i think of that they only replaced the regs approximately food prep in residences - i think of in case you sell as much as a definite quantity you do no longer ought to have a license or inspections? i think of I heard something like that. besides - sure, i could purchase stuff that way - To industry your self, i could pass to easy faculties and daycares - places with busy mothers who have not got time to back themselves, yet nonetheless desire the selfmade experience - Why no longer exibit at some community craft gala's - have some small scale examples waiting to purchase - and function a menu of alternative products to pass with in spite of they purchase.

Answer 8

It depends on the equity in the house. Why doesn't he move into it if he's renting somewhere else? That doesn't make sense.

Answer 9

It isn't. From what it sounds like, your friend isn't a very savvy investor.

Answer 10

It's not profitable........ if it were your friend would gaining money not losing.