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Thread: Buying a 2nd home

  1. #1
    AudreyLeigh
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    Default Buying a 2nd home

    OK - Im not even done closing on my first home and B is already wanting a 2nd. I want the good and bad... heres the situation...

    Bs childhood friend K owns a cabin in the mountains. He just refinanced the house down to what its worth - $200k. He has offered 50% of the house to us and another friend of his and Bs - each at 25%.

    So we would have 25% ownership, S would have 25% and K would have 50%. We would each pay our share of the homes mortgage, taxes, insurance, electric, etc. We haven't gone over EXACTS yet but its around $500/month for us.

    We would get the cabin one week each month - but if its available (as in Keith isn't using his week/weekend) we can go up there. Holidays would rotate every 3rd year - 4th of July, Memorial Weekend, Labor Day - each would get one every year rotating, etc.

    The cabin is local - 45 minutes away and weve been there a half dozen times and love it. We think it would be nice to be able to get away once a month and just relax. I guess this is kind of like a timeshare (which I know nothing about).....

    OK - give me the good and bad (simplified please) on having a 2nd home. Thanks!

  2. #2
    Banned Melonie's Avatar
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    Default Re: Buying a 2nd home

    'time share' properties, even amongst friends, have a way of turning into BIG problems. For instance, what happens if S is suddenly unable to keep up with his 25% mortgage payment and his bank attempts to foreclose on all three of you ?

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    Default Re: Buying a 2nd home

    Interest rates will go up. In Australia there are lots of people getting into property "thanks to" low interest rates and govt stimulus. They're sorta gambling that their pay will go up as fast as interest rates rebound, though.

    Best case scenario, if the US hits hyperinflation, your mortgage will be worth the price of a doughnut in a few days
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
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    Banned Melonie's Avatar
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    Default Re: Buying a 2nd home

    ^^^ re hyperinflation versus fixed rate mortgages, your point is absolutely true. However, that point does NOT apply to variable rate mortgages.

    The flip side risk of course is that, as the entire world's economy finds itself in a 'race to the bottom', and as creditworthiness / repayment ability becomes an increasing concern to those throughout the world that still have 'capital' to lend, future would-be housing buyers may find themselves 'shut off' from access to affordable new mortgages, or faced with interest rates that have enough 'spread' versus Fed Funds / LIBOR rates to actually cover expected future bankruptcy losses. If this is indeed the case, then the potential pool of 'qualified' home buyers will shrink, and along with it the market prices for real estate will shrink as well !

    I guess the answer to this question is in the hands of US politicians who set policy for Fannie Mae / Freddie Mac i.e. whether or not the US gov't will continue to purchase 'shaky' mortgage debt at interest rates that are far below the levels necessary to cover future bankruptcy losses.

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    Default Re: Buying a 2nd home

    Quote Originally Posted by Melonie View Post
    ^^^ re hyperinflation versus fixed rate mortgages, your point is absolutely true. However, that point does NOT apply to variable rate mortgages.
    I was reading a book about hyperinflation a while back... I may have posted a link here. timing becomes even more critical during such a situation, and indeed if you have a variable rate mortgage then I'm willing to bet that the bank will be continuously compounding so you won't be able to win (eg. you go "tommorrow I will get paid double what I get today and will pay off my home loan!" But before you get to the bank, they've already added more than that in interest, so you're always 1 step behind)

    Quote Originally Posted by Melonie View Post
    'shut off' from access to affordable new mortgages, or faced with interest rates that have enough 'spread' versus Fed Funds / LIBOR rates to actually cover expected future bankruptcy losses. If this is indeed the case, then the potential pool of 'qualified' home buyers will shrink, and along with it the market prices for real estate will shrink as well !
    This happened in the banking sector last year. It hurts. Translating to a consumer point of view, imagine that you paid outrageous daily interest on your credit card (no 30 days interest free), received next to no interest on your bank savings account, and the cost of living still kept going up. What do you do???

    Anyway, back on topic, my 2 cents would be to be careful getting into additional debt until the world economy stabilises a titch and we all know if we're going to get paid tommorrow.
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    Default Re: Buying a 2nd home

    Others can advise on the financials, my concern would be the 'house keeping habits' / living style - are you neat as they are? Will they leave a mess that you have to clean up before you can comfortably relax when you get there on a Friday night? Who fixes things that get broken? Is your decorating taste the same? If you're all similar it can work. Have you vacationed together for a week? That might give you a clue…

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