There's a column in the NY Times Real Estate section that is always amusing, called "The Hunt." They tell the home-hunting stories of a variety of people, with photos of the places that didn't work out and the final home sweet home they ended up with. The people profiled are a diverse bunch, but sometimes I think they have a preference for sweet young couples from out of state who come to New York with more stars in their eyes than dollars in their pockets, and want to rent large, sunny apartments in Manhattan for under $2,000.
This week's subjects sort of fit that mold, though they seemed a lot more realistic in their expectations than some. But here's the part of the article that stopped me:
The Coopers definitely wanted to buy a place. The two, who met in 2003 while working for a company that ran after-school programs, already owned one home: a four-bedroom house in Dublin, Calif., near San Francisco, that they bought for $530,000 when they married a year and a half ago. They are happy with it as an investment. (They now rent it out for $1,800 a month.)
Does that sound like the kind of investment someone should be happy about? If they financed 80% of the price, they'd have to have an interest rate of less than 3.25% for their mortgage payment to be covered by that rent. I don't think they could have gotten that kind of interest rate without taking an ARM with a pretty short initial term, so their monthly payments are bound to go up soon. (I'd guess their rate is actually higher than that, so they are already losing money every month and it will only get worse.) If their payments are less because they put more than 20% down, I'm still not sure the ROI would be worthwhile. I suppose they are getting some tax benefits by deducting the mortgage interest, or depreciation of the property, but would that be enough to break even? I don't know the whole story, of course, but I'm not sure what else could possibly make that house a "good investment" in today's market!