First time townhome purchase

[maginvizIZ]

Hello everyone!

I'll try not to blab....

Background:
Salary: $58,000,
Investments: $80,000 ($50,000 in individual account; meaning potential down payment)
Looking for a house in the $200-$250K range...


Question #1: Mortgage rates.  Where to find the best rates?

I am prequalified for a 3.375% 30  year fixed at a local credit union (macu.com).  They offer $500 in closing costs and a free appraisal...

I hear others are getting 3.25% interest rates... I tried lendingtree.com but the best they offered was 3.625%.  Quicken loans now will not stop calling me :(


Question #2: 5% or 20% down payment?

Am I thinking this right... If i Pay 20% down I would save on mortgage interest (3.375%) and PMI (they quoted me that it would be $1320 per year.. That additional 15% is saving 3.52% of PMI; making that 15% additional down payment saving a total of 6.895%?  Even typing this up makes me think a guaranteed 7% return is worth it?

[waltworks]

Post a bit more info. Why are you trying to buy a place that's ~5x your annual salary? What will your housing costs be as a percentage of your take-home pay, versus whatever they are now?

Avoid PMI at all costs.

The bank will want you to show that you have a certain amount (generally 6 months) of mortgage payments in reserve in some liquid, easily tapped (ie checking account) place after putting your 20% down and paying all your closing costs. Do you have that?

-W

[maginvizIZ]

I live in Salt Lake City Utah. In Davis county; 3/2 houses are going for $250-$300. For townhomes, they go for $200-$225k.

Renting a 3/2 townhome goes around $1450-$1550. I have heard of this 2% rule ($1550/.02 = $77,500... The purchase price I should pay? HA! ), but here in Utah that is absolute bullshit. I would jump on any deal that gets me 1%.


I can attach an excel sheet I've been working on when I get home from work. Jumping one from townhome section to another.. I get an average of .6%... I can get .7% in a little more run down area.

Hey quoted it would be $1250 a month for my mortgage. My take home is $1200 every 2 weeks. I panicked when I calculated the mortgage is nearly 50% of my income... But then I remembered I scheduled 25% of my income to go to my 401K.


I'll add to this comment after work.

[waltworks]

1 and 2% rule stuff is for investing in residential real estate. Not for buying a place to live. Which are you trying to do?

Fire up the NYT rent vs buy calculator here, if you are looking for a place to live:
http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

If you are looking for an investment, forget it. The fact that you can't hit the 1% rule locally means...drumroll... you shouldn't invest in local real estate.

I sold both my SLC rentals last year. Market values are way out of whack with rents.

-Walt

[maginvizIZ]

The plan is to buy a townhome for 5 years (getting roommates to help pay); then buy a SFH and rent out the townhome forever.  So while its not an investment.... It is.

That calculator is pretty sweet!

Thats cool you had 2 SLC rentals!  So clearly you're the person I need to talk to.

While market values may be out of whack with rents... Am I wrong to put into consideration appreciation along with the cash flow?  For example; a condo in rose park sells for $150k that could pump $1200 a month in rent.  A condo in farmington goes for $200k; but could get $1500 a month.  So while farmington (.75%) isn't getting as good of a cash flow than SLC (.8%).  Farmington is expected to appreciate by 4.4% (using zillow; I get it isn't perfect, but its something I can go off of), while SLC is getting 2.7%.


Farmington
Rent: $1500 * 12 = $18,000
Appreciation: $200000 * 4.4% = $8,800
($18,000 + $8,800) / $200k = 13.4% ROI

SLC
Rent: $1200 * 12 = $14,400
Appreciation: $150,000 * 2.7% = $4050
($14,400 + $4,050) / $150k = 12.3% ROI

I know I'm missing a shit ton of items like expenses... But isn't  appreciation a factor?

Thoughts?

[waltworks]

Time to sit down and read a BUNCH of the threads here, or go to your local library and pick up some books on RE investing.

Appreciation is great. But tapping that money requires:
-Paying transaction costs that will eat 6-10% of your *gross*.
-Paying capital gains taxes on any profit you do make.
-Carrying costs while marketing/negotiating.

Ignore the Zillow appreciation estimates. Historically, in the US, housing basically appreciates with inflation. You might do much better, you might do much worse.

In any case, why buy a place in SLC when you could do better elsewhere (or in another investment class entirely)?

-W

[maginvizIZ]

Random, but what a cool reminder for myself.

It's been 2 years since this discussion, I never ended up buying a home....My net worth increased by $100k ($50 per year! Holy shit!).

As for those 2 townhomes I was looking at...

Farmington townhomes appreciated ~$50k :|

SLC townhomes appreciated ~40k :| ... Wah Wahh.

For Farmington home:  Had I put 3.5% down via FHA = $7k... Then sold ($50 - 6% of $250k / $7000 = 500% ROI over 2 years?
For SLC home: Had I put 3.5% via FHA = $5.25k... Then sold ($40 - 6% of 190k / 5250 = 545% ROI over 2 years.

The Zillow estimates of appreciation were horribly wrong.


.... Sad I passed up on these deals.  But I guess we are 2 years closer to a recession!  Please crash so I can get into rental properties!

[Rewdoalb]

Would you have sold after 2 years? Or expected a continued rise in price and held on?

Interesting to observe, either way.

[Cwadda]

Random, but what a cool reminder for myself.

It's been 2 years since this discussion, I never ended up buying a home....My net worth increased by $100k ($50 per year! Holy shit!).

As for those 2 townhomes I was looking at...

Farmington townhomes appreciated ~$50k :|

SLC townhomes appreciated ~40k :| ... Wah Wahh.

For Farmington home:  Had I put 3.5% down via FHA = $7k... Then sold ($50 - 6% of $250k / $7000 = 500% ROI over 2 years?
For SLC home: Had I put 3.5% via FHA = $5.25k... Then sold ($40 - 6% of 190k / 5250 = 545% ROI over 2 years.

The Zillow estimates of appreciation were horribly wrong.


.... Sad I passed up on these deals.  But I guess we are 2 years closer to a recession!  Please crash so I can get into rental properties!

Napkin math gives you a 500%+ ROI, but realistically you haven't factored in the $ that would be used for improvements, maintenance, repairs, and every other cost with owning a home. The $40k and $50k appreciation numbers are more optimistic than one would assume.

Still, interesting. Glad you posted a few years later.

[Dicey]

I didn't notice the date. I read the loan rates and my head was screaming, "What?? Take it, take it!"

FWIW, sfh over townhome almost always wins.