Build new home, rent out old home
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    Build new home, rent out old home

    We're thinking about building a home and I'd like to get some objective thoughts on if this is a bad idea.

    We bought our current home in 2006 and are underwater (surprise). We're interesting in moving to a neighboring city for a few different reasons.

    There is an established builder in our area that has a guaranteed lease program. We build a new home with them, and then they will rent out our previous home for 3 years (can extend up to 6). They give us a guaranteed rental check every month (will offset our first mortgage), and they handle the property management.

    I'm hoping that after 3-6 years we'll have enough equity in the first home to sell it, or maybe we can keep renting it. Anyways, does this sound like a terrible idea?? It would be a good opportunity to move exactly where we want, and to move into a home that suits our family's needs better.



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    Re: Build new home, rent out old home

    Depends on how many Ukranian brides you have to host...



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    Re: Build new home, rent out old home

    Quote Originally Posted by snowcraig2.0 View Post
    Depends on how many Ukranian brides you have to host...
    Have to, or get to???



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    Re: Build new home, rent out old home

    It sounds like a good deal if you can live with the difference in the rental check and the mortgage.

    The people I know that rent their former house out usually don't have too much trouble unless they hit deadbeat tenants but it doesn't sound like you will have this risk.



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    Re: Build new home, rent out old home

    Quote Originally Posted by longtimeclone View Post
    It sounds like a good deal if you can live with the difference in the rental check and the mortgage.

    The people I know that rent their former house out usually don't have too much trouble unless they hit deadbeat tenants but it doesn't sound like you will have this risk.
    Yeah, I think it sounds like a great idea, and the fact that the company guarantees the rent is nice. I would try to check with a separate real-estate guy or a property management company to learn what the downfalls of this deal are.



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    Re: Build new home, rent out old home

    Here's a few things to think about - what happens if the tenant trashes the house? Will the builder agree to pay for any damages? What about ongoing maintenance and repairs - I assume these would still be your responsibility. Is the amount of rent they send you each month specified, or is it whatever the builder can rent it for? Does the amount of rent increase each year, or are you locked in for 6 years? What if you find a buyer during the rental period - does your contract with the builder, and the builder's lease with the tenant, allow you to kick out the tenant within X number of days?

    The guaranteed rent part sounds nice. But you should also consider things that could possibly go wrong and try to protect yourself contractually.



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    Re: Build new home, rent out old home

    A concern is the financial strength of the builder to pay your "guaranteed" rent. What if their cash flow doesn't allow them to pay you. Your present mortgage holder wants paid each month and it is up to you to make the payment. If the builders cash flow doesn't allow them to pay you, are you in a position to make that payment plus the one on your new house? Your disposable income needs to be high enough to be able to make both those payments. You'll hit more road blocks when you try to get financing for a new home. If you are in the DM area, you are aware of the financial situation of some of the builders. The word bankruptcy comes to mind.

    Quote Originally Posted by MrGreg View Post
    We're thinking about building a home and I'd like to get some objective thoughts on if this is a bad idea.

    We bought our current home in 2006 and are underwater (surprise). We're interesting in moving to a neighboring city for a few different reasons.

    There is an established builder in our area that has a guaranteed lease program. We build a new home with them, and then they will rent out our previous home for 3 years (can extend up to 6). They give us a guaranteed rental check every month (will offset our first mortgage), and they handle the property management.

    I'm hoping that after 3-6 years we'll have enough equity in the first home to sell it, or maybe we can keep renting it. Anyways, does this sound like a terrible idea?? It would be a good opportunity to move exactly where we want, and to move into a home that suits our family's needs better.



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    Re: Build new home, rent out old home

    Quote Originally Posted by MrGreg View Post
    We're thinking about building a home and I'd like to get some objective thoughts on if this is a bad idea.

    We bought our current home in 2006 and are underwater (surprise). We're interesting in moving to a neighboring city for a few different reasons.

    There is an established builder in our area that has a guaranteed lease program. We build a new home with them, and then they will rent out our previous home for 3 years (can extend up to 6). They give us a guaranteed rental check every month (will offset our first mortgage), and they handle the property management.

    I'm hoping that after 3-6 years we'll have enough equity in the first home to sell it, or maybe we can keep renting it. Anyways, does this sound like a terrible idea?? It would be a good opportunity to move exactly where we want, and to move into a home that suits our family's needs better.

    How exactly are you able to obtain financing on the new house, do you have the 20% down? It seems like one of the "We'll pay your old car off, if you buy a new car." deals and then they just add the old car to your new loan.

    I would be pretty leery of their financing, and read all the fine print. Does the builder get a portion of the equity of the old home when you sell it? Is there a crazy arm? Are you paying PMI? Under a traditional bank loan, they're going to want to see the income on the rental (I think for 2 years), and 20% down these days (especially on a second home). How exactly is the builder getting you around this and what's their angle, would by my questions.

    Good Luck.



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    Re: Build new home, rent out old home

    Like the shared risk concept, but unless you can live with the negative equity on your current home, I would rent in the new city if you have to move until you can get out of it. IMO....



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    Re: Build new home, rent out old home

    Quote Originally Posted by snowcraig2.0 View Post
    Depends on how many Ukranian brides you have to host...
    ..or how many Brazilian sand volleyball players are looking to rent.


    Let my Fred's Posse Ride: Georges, Naz, Hogue, Bryce, Nader, Monte, Matt, and McKay.

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    Re: Build new home, rent out old home

    Quote Originally Posted by MrGreg View Post
    We're thinking about building a home and I'd like to get some objective thoughts on if this is a bad idea.

    .
    Are you actually 'building' a new home, or buying a spec home being built (a pre-sold in their terms) from your builder?

    Are you getting a construction loan you convert to a permanent fixed rate loan upon completion?

    Pre-sold? Some builders will build a spec home with a handshake with one of their friends. Little or no money down. Kind of like ordering a new car from a dealership with a handshake. If the deal falls through, the builder simply hires a realtor to sell it to someone else.

    Construction loan? Basically a line of credit. You pay your builder installments, or you act as a general contractor and sub everything out. You refinance the balance with your lender upon completion. You typically some liquid assets to qualify --5%-10% minimum . So a 300K house you need 30K for example in cash, stocks, etc.

    Is your builder really established? Like Regency Homes, the giant Iowa company with their own lending company? The same builder who abandoned 300 homes and went BANKRUPT? The same company who hired Bobby Hansen and Mark Gannon?

    buyer beware. Have your builder preform a background check on every potential renter of your existing home. A friend of mine has done this on his old home for 15 years---alway weeded out deadbeats



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    Re: Build new home, rent out old home

    Just know you are going to have to qualify for the new mortgage being able to make the payment on your new home and your existing home.

    I would set down with your lender of choice before I ever met with any builder and determining my financing options figured out.



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    Re: Build new home, rent out old home

    If it sounds too good to be true, it probably is. This company probably banks on the rental and you only see a small bit, plus they sold a new home.



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    Re: Build new home, rent out old home

    we bought a townhouse in '03 and have been renting that out since we bought a new house. Have been doing it on our own. Believe it or not, the best way I've found out info on potential tenants is through facebook. Finding out who you know that they are friends with. Has weeded out several and I have had no issues.
    When we moved, the lender gave us financing and counted I think it was 80% of our rental income to offset the mortgage payment on it. With the tax advantages of it, I come out dead even. In 22 years, (if this works out in my optimistic mind) I have a nice-sized income producing asset that I put very little money into.


    Exaggeration is a BILLION times worse than understating.

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    Re: Build new home, rent out old home

    do not do this. two mortgages are murder and cost of upkeep on the rental is always underestimated -- wait



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