Author Topic: Invest or buy this property?  (Read 416 times)

Silrossi46

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Invest or buy this property?
« on: March 23, 2020, 03:37:39 PM »
I have an opportunity to buy a single family residence.  The residence will be available now or it will be available a year from now.  I am purchasing it outright with no mortgage. It has to be done this way as it is a family member.  I have secured a 3% 30 year fixed cash out on my personal single family residence that was owned outright. 300k loan property value of 580k.  No other debts.

My question is as I look at things unfold in the world and the markets I am starting to ponder whether I should invest this money now and purchase later hoping for a nice recovery on an investment of 300k in the market.  I would invest it in vtsax. I would appreciate any thoughts anyone may have on this. 

Current picture = secure government position with 5 years to go till fire.  No debt. 

Regular investments to vanguard vtsax monthly in after tax account. 
Regular investments to 457b account maxed at 26,000. ( I am 50 this year).

The home will be used as a rental and I would probably refi the rental after owning it to leverage better write offs rather than on my single family residence. 

So invest the 300k or purchase the home now?   Thoughts ??


six-car-habit

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Re: Invest or buy this property?
« Reply #1 on: March 24, 2020, 12:57:22 AM »
 How long is your relative willing to wait for you to commit to the purchase, before they put it on the open market/ list it with a realtor ?

 It seems you have convinced yourself that it is ok to borrow the money against your paid-off house, in order to become a landlord thru purchasing this home. Are you convinced the rental will be cash flow positive right from the start. I'd be wary at starting down this path at 50 yrs old
 Will the house need any work before it is ready for renters ?   Are you in a state with a current "lock-down" order, where maybe a contractor could not start work if needed, or get supplies ?

  If the home were not available [ relative was going to live there forever ] would you still have had the idea to borrow against your home at 3% to invest in the market. ?
  What if the market drops another 20% or 30%, in this year, and does not recover before April 2021 , will you wish you had put the money into the rental instead...

  Why does buying it from a family member mean that you can't get a mortgage from a bank / credit union - to buy the house from them ??   What do they care if the money comes from your re-fi lender or another lender .  Is their a potential problem with the appraisal / inspection / back taxes / hiding selling price ?  I understand the % rate on cash-out re-fi is probably cheaper than the rate you'd pay on a rental, but you are talking of getting it onto an "investment / rental" loan somewhere down the road anyhow.... plus I personally would be loathe to have a paid off  primary house become a not paid off house.

Papa bear

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Re: Invest or buy this property?
« Reply #2 on: March 24, 2020, 08:50:41 AM »
What are the rental numbers? This is a poor exercise without anything meaningful on your potential property.  Look at how to run a case study on investment property.

If this place rents for 5k a month? Go for it.  If you think itís going to rent for 2500 or less, youíre nuts to buy it. Put your money in the market. 

Obviously there are a ton of other variables.  But we donít have anything to go with here. 

Iím a real estate guy and Iím taking my cash and putting it in the market now.  No real estate deals in my investment areas can touch the potential upside I think will happen with equities at this point in time.


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frugaliknowit

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Re: Invest or buy this property?
« Reply #3 on: March 24, 2020, 12:09:47 PM »
Not a tax person, so please don't sue me, consult your tax adviser.

I BELIEVE, if you take out a mortgage against a rental property, the interest is a direct expense against the income (schedule E).  $100,000 rental income-$20,000 interest expense=$80,000 profit (not including other expenses).

If you cash out/refi a house:  First of all, I am not even sure it's tax deductible.  If it is, there are hurdles before it becomes written off against your income.

On top of that, to give you an intelligent opinion, we would need to see all of the numbers which would be a pro-forma income projection.