I am thinking of buying the house that i will be in for 20+ years. I am scared that if I rent out the house that I am in now, and the renter does not pay the rent will the bank foreclose on my new house as well as the old one? How do i protect the new house? Is there any way to shelter the new house from being taken away? such as LLC or any other option out there? I live in california.
2007-12-24 20:05:15 · 7 answers · asked by ag 1 in Business & Finance ➔ Renting & Real Estate
Only the individual property pledged as security for the mortgage is subject to foreclosure if the mortgage isn't paid. Your new home would be safe though your credit would be trashed of course. Also keep in mind that the lender won't start foreclosure for 2 or 3 months at least and that's if you stop making payments entirely. Carrying 30 days late for several months while you get back on your feet financially will harm your credit rating but will NOT normally trigger a foreclosure. The lender wants your money, NOT your house!
As a former landlord with several properties -- and more lean months than I'd care to count where I had to "feed the alligator" -- I would strongly advise you to have several months worth of mortgage payments on the rental property stashed away in the bank for just this eventuality.
It's not a matter of "if" but "when" you'll come up short on your cash flow. It might be a tenant who fails to pay the rent (ALWAYS start eviction proceedings immediately) or it may be a sudden unexpected major expense that derails you. I've had tenants fail to pay the rent and even had one who trashed the place and did a midnight move on me. I've had a heating system fail on Christmas Eve, a water heater rupture during the Super Bowl (that cost more than the Christmas Eve callout did!) and had a sewer line collapse that caused raw sewage to back up into the house rendering it uninhabitable for 2 months.
Before you take the leap into becoming a landlord, get smart about what you're facing. Find out what your place would bring on the local rental market and compare that to your mortgage payment and other expenses. If you have a positive cash flow, prepare to salt ALL of it away until you have AT LEAST 6 months worth of mortgage payments in the bank for contingencies. If you have a negative cash flow, make SURE that you can afford to "feed the alligator" for an indefinite period of time AND that you have that 6 months worth of payments in the bank BEFORE you rent it out.
Consult with a local property manager to get some idea on what you might expect for rental income. And seriously consider retaining him or her to manage the property for you. When that heating system dies on Christmas Eve or that water heater takes a dirt nap during the Super Bowl, it will be THEIR problem to get it taken care of; you'll only have to worry about coming up with the money. And they'll probably have contracts with local tradesmen that will get the job done more quickly and at a lower cost to boot.
Any business venture has risks, and being a landlord is no different. If you understand the risks and prepare for them you'll do fine. Don't let anyone tell you that you can't do this -- crunch YOUR numbers and look at YOUR risks and plan accordingly and you'll do fine.
I've since gotten out of the rental business but I did make a TON of money when I liquidated my holdings. I did wince a little when I wrote that large 5-figure check to the IRS to pay the capital gains taxes but I still had a heck of a lot of money in the bank even after I did so.
2007-12-24 23:37:57 · answer #1 · answered by Bostonian In MO 7 · 2⤊ 0⤋
You make both house payments. It is up to you to make the house payments not your renter. What collecting rent does is aid you in making the house payment. If a renter does not pay you rent, then you must have reserves to make up the difference while you evict him and find another renter.
If your renter does not pay you rent, and you do not have money to pay the bank, they will forclose on which ever property you do not pay for. It will not effect both houses unless you miss payments on both houses.
2007-12-25 16:11:11 · answer #2 · answered by saejin 4 · 0⤊ 0⤋
If the renter does not pay you would want to make the payments to protect your credit. If payments are not made mortgage company can foreclose on the rental home. As far as your new home as long as the payments are current you should be fine.
2007-12-25 03:56:24 · answer #3 · answered by Trevor 1 · 0⤊ 1⤋
Here is the rule of thumb when deciding to buy an investment property or keep your residence to rent out instead of selling it, to buy another....
If you MUST have the rent, in order to make the mortgage, then you CANNOT AFFORD to keep/buy the home.
Period.
Yes, they will foreclose if your renter doesn't pay and that causes you to skip your mortgage payment. They could care less that you rented the home out, because their contract is with YOU to pay...not the renter.
2007-12-24 21:42:25 · answer #4 · answered by Expert8675309 7 · 2⤊ 1⤋
Today you will probably not get the new loan. But if you had enough down you could eventually find a high interest investor. No renting is protected totally. The most you can sue for is the time period of the lease.
2007-12-25 03:16:04 · answer #5 · answered by Anonymous · 0⤊ 1⤋
Sell your current home to buy your next one. It is apparent to everyone (but you) that your finances are too tight to keep both homes. Do NOT depend on someone else to keep you out of foreclosure.
2007-12-24 21:50:00 · answer #6 · answered by areyouserious? 3 · 2⤊ 1⤋
Don't put your residence up as collateral.
2007-12-24 20:14:17 · answer #7 · answered by Anonymous · 2⤊ 2⤋