Foreclosure

[Gin1984]

I just found a foreclosure listed in my area for half of the value.  We have experience being landlords through our current place (a duplex).  We were considering buying the duplex and fixing it up and then renting half of it out (we would live in the other side).  We can afford it, but if we do not get tenants, the cost will eat into our monthly retirement savings.  Also, the down payment would come from money set aside for my husband's unpaid student loans which are set to come due in November 2014 and have a 6.8% interest rate.  However, I have access to unsubsidized student loans at 5.5% (I think), but they come with a 1% origination fee.  We would use the cash to buy the property and then, get the student loans in my name and slowly pay them off (from the profit above and beyond the retirement savings). 

[MsSindy]

So, what's your question?  Should you do it?  You really haven't provided enough information to make a good determination.  Do you have the funds necessary to make the upgrades that most FC will need?  Do you have repair and maintenance monies set aside, in addition to a down payment?  Is this an area that you plan to stay in for a long while.... or would you be looking to eventually rent out your half and move....and if so, are you moving local or elsewhere?

Another thing to consider - is it located in a place that will attract quality tenants for the price?  This is important because you will be sharing a wall with them.

Really, it comes down to risk - are you willing to have outstanding SL in addition to a mortgage?  You would need to project best case and worse case scenarios (tenant stops paying rent and you have to evict, and they do damage), and make a decision if it is worth it to you.

[fragglebock]

It seems like you have a stable, long-term plan for FI (or at least retirement), but you're window-shopping real estate and eyeballing that pile of cash with an itchy trigger finger.

You're looking unevenly at the best and worst case scenarios.  Best case, great tenant and more retirement savings from profits!  Yay!  Worst case, no tenant and lowered retirement savings.  Boo!

But we all know that's not the worst case scenario.  Bad tenants, major repairs, liens... Worst case, you've lost that pile of cash and cannot afford to plug the hole your income is pouring out of.

You're also underestimating the benefit of staying on the present course.  You are already landlords and have steady retirement contributions.

What's so bad about using the pile of cash to pay off the student loan?  That's the reason you saved the money, right?

If it makes you feel better, don't pay it all off at once - keep some cash liquid to make the window-shopping more fun.

[soccerluvof4]

Agree with MsSindy alot more information is needed. Why is it for half the value even though a foreclosure. What is the rent history in the area..etc...

[Louisville]

Why did the cash pile up if it was earmarked for paying the student loan? Why didn't you just pay the student loan? I understand that it wasn't due, but that doesn't mean you couldn't start smacking it and getting that juicy 6.8% "return".

[Gin1984]

Why did the cash pile up if it was earmarked for paying the student loan? Why didn't you just pay the student loan? I understand that it wasn't due, but that doesn't mean you couldn't start smacking it and getting that juicy 6.8% "return".

It is at zero percent until six months after my DH graduates.  It sits earning a small amount of interest and acts as a secondary EF because, now, graduate students cannot get subsidized student loans.

[Westoftown]

Never go into debt to buy real estate, especially when it sound like you are already in debt.  Trust Dave Ramsey on that one.