<p>Why ARE rents so high when home prices are low? More people are doubled up with relatives than ever.</p>
<p>
EK, I was thinking the same thing, but I read this arrangement as a one bedroom loft apartment, not 2 BR. It is hard to believe in the same neighborhood (near campus) you can have a 1 BR loft renting for $1200/mo and a livable 4 BR house selling for only 85K. Surely, local real estate investors would be buying up these houses and renting them.</p>
<p>I would not want to buy any rental property because it is a pain in the neck and a risk. If my kids found a very good deal and were willing and able to take care of everything, there is a chance DH and I would maybe help them buy it. But we would not do anything more than help them buy it. I would not want to pay one red cent towards it. It would have to be self sufficient in that the income pays for the place. There would also have to be a plan to transition total ownership and loan to the kids as I would not want the place in my name nor a loan for it in my name any longer than absolutely necesssary.</p>
<p>I have seen arrangements like this work, My neighbor bought a house near a university, and a number of his kids lived in it and rented out the extra rooms. The kids also managed everything about it, making sure that it was kept current on all payments with the rents going to the parents. In 15 years time, the mortgage was paid and the house is now being managed by two of the kids who split the profits from it. But neither parent was active in the upkeep or anything about the house other than in getting the mortgage. The investment was a winner all around, but my neighbors have told me that there were some rough times with it when some of the renters did not make their payments and when major repairs were needed. No matter how you look at it, properties do need money to be infused in them, so someone has to be on the hook for it. If your pipes break or your roof needs replacement, it has to be done and it requires money. Someone also has to make the arrangements for the repair and oversee it. It is not a situation where you just buy the property and the money rolls in like manna. </p>
<p>You also have to know what is a good deal and what is not. Maybe with lending so tight and few people with the money to buy, it is a buyers market there and buying is a great thing. It might not be. You also have to be aware that if something should happen to the rental market so that it isn’t as easy to get renters and the prices go down, someone has to be on the hook. Unless your aunt is looking for something like this, she may not want to take those kind of risks and you are not able to financially take them yourself.</p>
<p>Why ARE rents so high when home prices are low? </p>
<p>-Both are determined on a market. There is a market for rent and there is a market for buying homes. They are not the same, but they are connected. If more people feel insecure about their employment at some period of time, then rent goes up while home prices might go down at the same time (especially when there are lots reposessed houses). In good times, both of them usually go significantly up, but home prices might go up faster.</p>
<p>This Sacramento? <a href=“http://www.nytimes.com/2011/07/03/magazine/sacramento-levees-pose-risk-to-california-and-the-country.html[/url]”>http://www.nytimes.com/2011/07/03/magazine/sacramento-levees-pose-risk-to-california-and-the-country.html</a></p>
<p>I wouldn’t invest in a house there!</p>
<p>OK, OP, there is to my mind only one way to broach this subject without seeming offensive.</p>
<p>You could send her an email link to the property, and say that since she invests in income properties, if she had any interest in this one, thought it a good value, and were in any position to make another investment, you and your sister would be happy to pay fair market value on a x-year lease and supervise the leasing of the other rooms and collection of rent – AND WOULD OFFER TO DO ROUTINE MAINTENANCE ON HER BEHALF in exchange for an extended lease without increase for a given period.</p>
<p>If you were to approach the situation that way, making clear you are not asking for money and making clear you are not asking for somewhere cheaper to live, then you might actually be assisting a family member and controlling your future costs or receiving extra value in exchange.</p>
<p>I would not recommend asking her to “mortgage” you because as a student your future is too unpredictable and as an aunt, she might have a sudden future need for recovery of the money (been there done that 
)</p>
<p>I just posted on the thread about house sales how our neighbor gave up trying to sell her house and has gotten an excellent rental contract that will cover her costs. Getting a mortgage to buy that house is not easy these days even for those with the income to pay it which make it a good market for rentals since there are folks who want a certain caliber house, can pay for it but cannot get a mortgage these days. </p>
<p>But you gotta know the market. You also always have a risk when you buy investments and properties are no exception. </p>
<p>An $85K house can be supported by a $1000 or less monthly payment, but is the OP and her sister able to guarantee that payment to the aunt and take on any other expenses that may arise? Rentals do have their problems. But the investment could be a nice interest income, if your family will assume the risks of owning the property and position your aunt as the “bank” and just pay her back her money with interest. The question is whether you can afford to do this…</p>
<p>The rent is too damn high!</p>
<p>… disappointed I am the first one to post this.</p>
<p>I do not believe this is appropriate all all. First, unless you know that your aunt has alot of money (which you don’t know since you hardly know her ) what makes you believe she would ever be comfortable doing something like this. I can’t imagine what kind of home sells for such a low price. I would think it is either in a very depressed area or the house is a mess. Either way she is basically a stranger to you, and since she is a stranger to her own nephew than that means she, and your father obviously do not have much of a relationship. You should not ask family who you barely know to do something just because you see a benefit for yourself. Frankly it sounds selfish. </p>
<p>I feel so strongly about loaning money to family because years ago I loaned my niece alot of money because my sister was financially strapped when my niece was getting married. The agrrement for payback was that she would pay a large sum when she received the gifts from her wedding and the rest would be paid out over three years. Well, to make a long story short she never paid me the initial payment after the wedding. One year later my husband lost his job, and I had told my niece that I would appreciate her starting to make payments. She avoided me for several more months until one day my husband and I stopped by her apartment and discovered that she was living with all of the latest and greatest technology and very expensive furniture that I myself would not have even purchased. I explained to her again that the loan of $50,000 needed to start getting paid back. It was not until five years later when she struck it rich at a casino that I got half of it back…she dragged the rest out over three more years. She won well over a million dollars and I sat waiting all of those years to get paid back. I watched her buy a home and travel to Europe and the islands several times. Now ask me how I feel about my neice? I would never loan money to a bad risk or unless I was able to do it never expecting to get paid back. My children are the only ones I would ever “loan” money to because they are my flesh and blood and unless I was desperate I would not care if it was paid back. </p>
<p>Just don’t do it unless you are willing to risk having very bad feelings toward each other, or having your father and his sister never speak again. Your aunt could lose a job tomorrow and need that extra money to get by. You don’t know her situation since you say you hardly know her…just leave it be or find a cheaper place to live.
If she wanted investment property which many people would never consider because of the headaches they create with tenents, she would have been in that market already. My father has a house that I have been renting out for four years now. My tenent has not paid rent for the past 7 months. It is such a pain in the neck and very frustrating…not easy to get deadbeats out and just as my attorney got involved the lousy tenent sent my dad a letter that she filed bankruptcy. Believe it or not she is still allowed to remain in the house. Our attorney told us that it could be another three months before she is forced to vacate. The point is how does she know you will not take advantage of the aunt- nephew relationship?</p>
<p>LOL, soccerguy315.</p>
<p>
</p>
<p>I live in Sacramento. </p>
<p>Sacto was one of the boomiest places during the boom. Everyone here caught the fever, prices skyrocketed (the value of my average suburban home more than doubled from 2001 to 2005), developers went crazy, buyers panicked and bought houses they couldn’t afford, aided by questionable lending practices, and the area got way overbuilt. It was the same phenomenon as most other places, but writ large. When the bust happened, it hit Sacramento harder than most places. More foreclosures, more short sales. There are houses here that were built in 2006 and have never been lived in. There’s just too much inventory. Also, our unemployment rate is near 12%, and even those who are employed feel insecure; people feel that this is not a good time to take on a mortgage. Prices are low (and still dropping) because there’s lots of supply and little demand.</p>
<p>OTOH, the rental market here is booming. As homes are foreclosed, those homeowners become renters. Decent single-family rentals are in short supply and command a premium price. The worse the housing market gets, the more expensive it gets to rent.</p>
<p>ETA – The MLS shows just 19 listings in Sacramento County for under $100K. None of them are what I’d call a desirable investment, and none of them are in areas that I’d want my daughter living in. None of them would be great rentals either, even if the aunt did want to become a landlord.</p>
<p>You weren’t really clear on what you were hoping to do. Were you planning on renting the other rooms and reducing your rent? People who invest in properties do so to make the maximum amount of money possible. I hope you weren’t thinking of asking your aunt who you barely know to let you and your sister slide on any portion of the rent…that is just so wrong. It would be different if your bond was strong and really enjoyed a great relationship…but not under these circumstances.</p>
<p>Come on guys! Let it go - obviously the OP is ■■■■■■■■ and playing you guys!</p>
<p>^Momma-three what a sad story. Kind of you to finance such extravagance and unbelievable that your niece took advantage. Seems to me it’s the one’s who “need money” and aren’t living “within their means” who end up taking advantage of those typically more careful with their expenditures.</p>
<p>That said, the original poster did not “sound” like an ingrate looking to take advantage – but rather, made a practical observation that for the $1200 they’re paying in rent (which near universities does not strike me as that high) would in essence buy the house and then coupled that logic with the aunt who, unless I misunderstood, already OWNS several properties – presumably rental.</p>
<p>In that case, having familiar tenets in a lease-to-own or simply a lease-with-super-duties does not seem out of scope – although like any familial transaction could be fraught with complications.</p>
<p>So I’d be willing to give the poster the benefit of the doubt in this case and say that if they’ve carefully considered the situation, commitment, and all the ramifications, there is a decent way to approach the aunt – so long as they completely understand a swift NO without angst and so long as the poster is truly offering a win-win.</p>
<p>I had a situation go the other way – seriously wanted to buy my son an income property for his years at university – which he requested I not do because he felt the prospective responsibility might be a bit much. I was completely OK with his being up front and practical about it given the demands of his degree, and likewise am completely OK with the fact that we will have paid in excess of $40k on temporary housing by the end of his degree. But if he were a handier kid in terms of fixing things up and didn’t have course overload on a dual degree…It might have been a nice way to help him build some equity and get a start. (To his mind, of course, it would have been something that tethered him to that community post grad, against his desire, which I also respect.)</p>
<p>So I think if people are just straight up and treat each other with respect and don’t get attached to outcomes etc. there is always the possibility for a win win win situation.</p>
<p>LasMa, $85K sounds ridiculously low for anywhere in California, but Zillow shows thousands of properties in Sacramento either for sale or recently sold for less than $100K. Are those not real sales? Is there some kind of foreclosure shenanigans with them?</p>
<p>[Sacramento</a> CA Homes for Sale & Sacramento Real Estate - Zillow](<a href=“http://www.zillow.com/homes/sacramento_rb/0-_price/0-_mp/#/homes/for_sale/Sacramento-CA/house_type/20288_rid/0-100000_price/0-401_mp/1_hidenhoods/38.792684,-120.870914,38.329865,-122.051944_rect/9_zm/0_mmm/1_rs/]Sacramento”>http://www.zillow.com/homes/sacramento_rb/0-_price/0-_mp/#/homes/for_sale/Sacramento-CA/house_type/20288_rid/0-100000_price/0-401_mp/1_hidenhoods/38.792684,-120.870914,38.329865,-122.051944_rect/9_zm/0_mmm/1_rs/)</p>
<p>My aunt called today asking for more details, she sounds so eager, turns out my dad told her about the house. I lied and said that the owner sold it to someone else. </p>
<p>I was being selfish when I did not take into consideration how this might affect our family relationship. A good family relationship is more important than saving rent. Yes, that was my intention. </p>
<p>Me and my sister are already looking at 2 bedroom apartments for about $750. Seems like a reasonable price…</p>
<p>So, thanks everyone for making me realize that.</p>
<p>Wow - the prices shown on the Zillow link CardinalFang posted are really low. I knew Sac was hit hard in the downturn but it’s almost crazy that homes could be as low as they apparently are in Sac for any major metro area in California. It certainly hasn’t gotten anywhere close to that inexpensive around here.</p>
<p>OP - I think your enterprising nature on this is fine. I don’t blame you for wanting to try to be entrepreneurial in this way. That’ll serve you well in life. The issues with this one though are -
- To buy it yourself, if you can’t get a loan from a bank it likely means your a credit risk which then means you shouldn’t try to get one from a family member and put them at risk.
- To have family buy it and you rent it from the family also puts the family member at some financial risk if the value goes down even further or they get stuck for a period of time with no renters or worse, bad renters.
- It’s true that in an economy like this rental demands can go up and along with that rental prices but the differential here seems more extreme than expected. If you’re trying to compare the rent vs buy it needs to be same vs same as much as possible - i.e. same neighborhood, similar condition, etc. You can’t fairly compare renting in a very nice place to buying in a lousy place.
- As a college student you’re probably better off renting so you can be mobile, free, and dynamic at this point in your life since you never know where you might be as soon as you graduate.
- If your Aunt is all excited about investing in real estate there are apparently a lot of homes for sale in Sac for around 85K or even less. If she’s local and understands the market well and is willing to take some risk and has the financial resources to put up then she can still do it even without your involvement. If she doesn’t have all 4 of those attributes I just mentioned then she shouldn’t be buying anything.</p>
<p>I am not a financial wiz. Someone may be able to explain this better- or more accurately. Use this as an example of how this is not as simple as you think.</p>
<p>If she left her money in a bank CD, at 2% interest, in 8 years, her 84k would have been worth nearly 100k. If she buys the house outright, she loses that gain opportunity. Plus she has spent at least $100/month on landscaping and sewer ($9600 minimum.) So, if she buys outright, over 8 years, the total amount you technically may owe her could be nearly $110k, mimimum. Plus insurance costs AND property taxes she paid, which I can’t estimate. </p>
<p>Plus, who knows what maintenance on a cheap old house would run? A leaky roof could be $2500 to 10k-plus; there could also be a burst pipe (and ensuing damage,) a broken window (which must be repaired for renter safety,) a paint job, a broken appliance? Do that math. That total number she spent (and interest she lost) minus what you paid her to-date would be the balance you owe her. For every subsequent year it takes you to pay her back, all these charges continue to accrue.</p>
<p>If she puts it on a mortgage, <strong><em>someone can explain this better</em></strong>, the initial payments are primarily toward the interest nut, not toward a decrease in the amount borrowed. Thus, in 8 years, the balance could still be 80-90% of the original loan. (Depends on interest rate and monthly payments.) So, though you have paid $x for 8 years, the balance could be 60k or greater, plus the other dollars she spent.</p>
<p>Whether or not she would get any mortgage interest break on her taxes depends on her own situation. Etc. Does this make sense as I wrote it?</p>
<p>The only benefit would be if she could sell it in 8-10 years, at a price that covered all this and then some. Or, if you planned to keep it and wait for the same. And, that’s uncertain in an inexpensive neighborhod in CA. </p>
<p>***I realize OP may have resolved this.</p>
<p>That sounds ridiculous, whats wrong with your loft?</p>
<p>Golden apple, I’m glad you feel we helped but also don’t let our caveats PREVENT you from striking a balance if in fact your aunt is interested. if she’s experienced at owning rental properties and knows the risk and you are prepared to be a good tenant, there’s actually no real reason you couldn’t proceed if you first discussed the potential pitfalls. So give that a little bit of thought and see how you feel about it.</p>
<p>looking forward, there are folks who do reasonably well buying, renting then flipping properties. If you believe the market will recover at all and have cash right now without overextending yourself, it is in fact a good time to buy. Four bedrooms near a university can certainly give a strong return on investment for the pittance the mortgage would be on a 15 year term at 4+ percent right now. Not to mention said aunt likely LOST more than the price of the house in the crash a few years back ;)</p>