Author Topic: To buy, or not to buy, that is the question.  (Read 564 times)

noknow

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To buy, or not to buy, that is the question.
« on: July 24, 2018, 12:21:23 AM »
Parents are selling the house in a couple years for retirement and I'm think about buying it from them.
I have no debts, make ~100k/year, with a NW of ~100k.

The house is in downtown Denver and my parent want to at least sell it for ~$500k. I think this would be an excellent rental property. 4 bedrooms and 2 baths, the house is an pretty good condition, I grew up in it. My Dad would love to manage the property and do repairs since he enjoys that stuff.

So given my current financial situation, I'm obviously short. Is it possible to take out a loan and have the tenants pay the monthly? Since it's not a mortgage, would it be a private loan? Would I even be eligible?

I learned that the house doesn't have permits for the two additional rooms, would this be a problem?

waltworks

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Re: To buy, or not to buy, that is the question.
« Reply #1 on: July 24, 2018, 02:21:12 PM »
First, give us the numbers to see if it's actually an "excellent" rental. Does it meet the 1% rule?

If you have a $100k income, you can probably qualify for a mortgage just putting down 10% without too much trouble. Why not just buy it from the parents the normal way, using a mortgage?

-W

patchyfacialhair

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Re: To buy, or not to buy, that is the question.
« Reply #2 on: July 25, 2018, 10:54:47 AM »
So this is a single family home in Denver? Would you live in it and have roommates pay your rent per room, or would you rent it out to a single tenant?

How much down payment will you be able to bring to the table?

All that impacts whether or not it's worth it. It probably won't be worth it as a rental to a single tenant, but could very well be worth it if you live in one room and rent out the other three.

For example: 10% down = $50k
Mortgage of $450k, 4.5%, 30 years, P&I is $2280.
Add taxes: $5k per year?
Add insurance: $2k per year?
Add PMI assuming only 10% down: $1500 per year?

Total payment before utilities and maintenance is approximately: $3000 per month (probably an overestimate, but it's best to do that)

Maintenance should be budgeted around 1% of property value per year, so call it about $3400/month inclusive of maintenance.

If you lived in one unit and rented out the other 3 bedrooms for $1200/month each, you'd have no housing expense yourself. But, that's highly unlikely unless the house is in ridiculously awesome shape and huge, but the price tag doesn't indicate that.

You'd more likely get $800/room or less leaving you with about $1k a month or more for you to cover, and all roommates split utilities.

Should you want to rent it out you'd probably want to add an expected vacancy loss of of month per year to that $3400 total payment, so you're probably needing to rent it out for at the very least $4k per month, but closer to $5k to actually make money as an investment.

affordablehousing

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Re: To buy, or not to buy, that is the question.
« Reply #3 on: July 25, 2018, 11:54:09 AM »
I think the question is simpler, is the price they're asking a good deal? Can you buy a comparable house for more or less than what they are asking? If it's underpriced (and you're getting more value than the seller, your parents) go for it, if not, buy a different place. The question of financing it, conventional mortgage or seller financing (your parent's making you pay them monthly) makes no difference just compare the interest rate and fees.