Author Topic: Newbie here, need some advice  (Read 1249 times)

NumberCruncher1

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Newbie here, need some advice
« on: September 11, 2014, 06:56:04 AM »
Hi everyone, long time lurker, but I've finally decided to post.

I have several questions regarding rental properties. I hear that banks will ask if you are looking to live in a place or use it as a rental property, and accordingly, will require you to put down 20% at a minimum if it will be a rental property. Can anyone back this up? Or does it tend to vary by bank?

I also wanted some help in evaluating a potential deal. I will refrain from giving out my location, but I'll give a high level view of the deal.

Price 170,000
Currently renting for 1,600/month
HOA Fees: 312/month
Prop Taxes: 1,600/year (will remain so for the next 5 years until abatement is finished, then will jump to 3,600/year)
Mortgage payment (not sure if I will be able to put down <20%)

Thanks

jnc

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Re: Newbie here, need some advice
« Reply #1 on: September 11, 2014, 07:38:54 AM »
From an investment perspective, it is not a great investment I am afraid.

Have you heard of the 1% rule. If the rent is $1,600 then the price should not be more than $160,000. Anyway 1% is the minimum I would say.
So unless the rent can be dramatically increased or the price much lowered, it does not offer a great return.

But the thing is, even if it did satisfy the 1% rule, that HOA of $312/mo will just destroy your returns. Stay away from HOAs if you can, both because of potential issues with the HOA itself and because of the fees.

Hope that helps.

NumberCruncher1

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Re: Newbie here, need some advice
« Reply #2 on: September 11, 2014, 08:12:59 AM »
Thanks for your input. The positives for this condo (2 bed 2 bath) are that its located right in the heart of downtown offering a perfect location for access to nightlife. It also has some great views. The city is reaching its capactiy (roughly 98% of the available apartments/condos are being rented out). So I anticipate a solid demand for rent going forward. By purchasing this, I would inherit a lease that is filled thru June of 2015 (another positive).

johnhenry

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Re: Newbie here, need some advice
« Reply #3 on: September 11, 2014, 08:21:07 AM »
Hi everyone, long time lurker, but I've finally decided to post.

I have several questions regarding rental properties. I hear that banks will ask if you are looking to live in a place or use it as a rental property, and accordingly, will require you to put down 20% at a minimum if it will be a rental property. Can anyone back this up? Or does it tend to vary by bank?

I also wanted some help in evaluating a potential deal. I will refrain from giving out my location, but I'll give a high level view of the deal.

Price 170,000
Currently renting for 1,600/month
HOA Fees: 312/month
Prop Taxes: 1,600/year (will remain so for the next 5 years until abatement is finished, then will jump to 3,600/year)
Mortgage payment (not sure if I will be able to put down <20%)

Thanks

Banks certainly do ask you to declare whether the property will be a residence or investment.  And the terms/rates for a primary residence are almost always more favorable.  With that said, it's not unethical IMO, or unheard of, for someone to secure a mortgage, live in a place and then turn it into a rental - on purpose.  Obviously not a strategy that is easy to employ for every RE investment deal, but it's how many first time landlords get into the business by accident anyway.

The terms offered/required does vary by bank.  I'd say for investment property, the normal range is 15% - 25%.  All the properties I've financed through banks/CUs have required either 15 or 20% down.  Except one weird scenario where I bought a place for about 80% of what it sold for 1-2 years earlier.  For some reason the CU was willing to loan me 20% of the value at the PVA office and didn't require an appraisal!!  I bought it for $600 down.  I don't expect to be presented with that option again.

I agree that this is not a stellar investment.  On the surface it looks close to meeting the 1% rule.  But as jnc said, the $312/mo HOA means the rent you keep is already below $1300/mo even before your taxes, insurance, and other expenses are factored.