Author Topic: What about Now? (Cheap Investment Property)  (Read 2958 times)

OneCoolCat

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What about Now? (Cheap Investment Property)
« on: February 24, 2015, 10:57:21 PM »
So most people told me I need to hold off on buying an investment property until I have enough to cover 20% down, closing costs, and still have an emergency fund.  Part of the problem was that I wanted my investment property to be something I wouldn't mind living in rather than putting rental income first.  What about a small 3/2 property that's walking distance to a local college and has an asking price of 55k?  Its not something I would want to live in but I figure it should fetch $800-900 a month easy in rent.  My wife and I have 20k saved up and this should be more than enough to throw 20% down, cover closing, and most repairs.  Downside is that its almost march so tenants would be hard to come by until the fall semester, but we could afford the mortgage no problem.
« Last Edit: February 24, 2015, 10:58:52 PM by OneCoolCat »

ohana

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Re: What about Now? (Cheap Investment Property)
« Reply #1 on: February 25, 2015, 07:03:26 AM »
Sounds like you need to figure out how much risk you are willing to take on.  That'll be different for everyone.  If you have 20k targeted just for this investment, then you have well over the 20% down payment, plus your closing costs.  You would have something like 5k left for any improvements you need to make (which are likely for a place going for 55k, I'll bet, especially if college students have been living in it previously).  But I'm not sure there's any emergency fund.  And if that's your overall emergency fund (as in, if your car dies or you get sick or you lose your job), then you really don't have any cushion, so it will be a great risk.  It sounds like a great opportunity though!  I'll be interested in knowing what you decide to do!

FrugalFisherman10

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Re: What about Now? (Cheap Investment Property)
« Reply #2 on: February 25, 2015, 07:10:34 AM »
Is your goal to retire early?
Will you max out both you and your wife's 401k and IRAs this year?

If the answer to the first one is yes, then common advice around here would be you need to answer the second one with a "yes" as well. If that is the case, then maybe you can get in to the details of the property (location, comparables, numbers, etc.) with the more Real estate minded forum-goers here. Hopefully they will chime in.

My first impression is that a 3/2 for 55k sounds like it needs a LOT of work, especially if it's in a college town where prices are normally a bit inflated.  Is this a true college town, with students living and going to school? Or is it a community college/commuter school?
Also, taking out a mortgage on a property that cheap sounds a little odd - by that I mean, I think the competing offers that come in would likely be more cash-heavy investors that would just buy it in cash.

Maybe those seem like obvious questions you've already addressed - just trying to be helpful in the case that you haven't.

Best of luck

OneCoolCat

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Re: What about Now? (Cheap Investment Property)
« Reply #3 on: February 25, 2015, 08:37:47 PM »
Both 401ks and IRAs are being maxed.  We have a little over $1,400 each month left over after maxing our retirement accounts.

Goal is to be FI early, maybe let the wife work less.
« Last Edit: February 25, 2015, 08:41:03 PM by OneCoolCat »

MrsCoolCat

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Re: What about Now? (Cheap Investment Property)
« Reply #4 on: February 25, 2015, 09:07:33 PM »
Small town... definitely smaller than where I'm from. I actually did some research and they are expecting growth with new jobs being generated with the opening of a warehouse nearby and the nearby city is starting to have direct flights from/into NY. Well, at least things are happening slowly but surely. Also, in my logical thinking with everything else going up in price (inflation) I would hope if we can't rent it out that it'll be worth more granted no Hurricane Andrew comes through. Yep, Floridian here, and I'm also worried about repairs. Also, there's no way I'm moving there as much as I don't like it here. There is not the answer.

Bobberth

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Re: What about Now? (Cheap Investment Property)
« Reply #5 on: February 26, 2015, 01:09:50 PM »
Can you get a mortgage on a $55k property?  Lots of banks require a minimum of $50k loan but there are programs that will go lower.  Do you know of them?  Can you get a loan on the house?  If the water pipes or furnace was stolen, the house is considered 'uninhabitable' and you can't get a traditional loan and have to pay cash or an alternative loan.  Do you have a lease and know what to put in a lease?  How are you going to screen tenants?  What is your rental criteria?  Is this something you want to do?  Everybody wants the income to come in but is a rental BUSINESS (yes it's a business and not an investment) something that you want to allocate your time, capital and effort toward?

I'm a big fan of rental property but there is a lot of prep work to consider before you take the plunge and before I can really suggest you get involved or not.

clarkfan1979

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Re: What about Now? (Cheap Investment Property)
« Reply #6 on: March 03, 2015, 06:18:56 AM »
Can you get a mortgage on a $55k property?  Lots of banks require a minimum of $50k loan but there are programs that will go lower.  Do you know of them?  Can you get a loan on the house?  If the water pipes or furnace was stolen, the house is considered 'uninhabitable' and you can't get a traditional loan and have to pay cash or an alternative loan.  Do you have a lease and know what to put in a lease?  How are you going to screen tenants?  What is your rental criteria?  Is this something you want to do?  Everybody wants the income to come in but is a rental BUSINESS (yes it's a business and not an investment) something that you want to allocate your time, capital and effort toward?

I'm a big fan of rental property but there is a lot of prep work to consider before you take the plunge and before I can really suggest you get involved or not.

If the house is "uninhabitable" you can still get a loan. You have to get estimates for the repair and bring that amount of cash to the table for closing. If the furnace is missing you would need an extra 2-3K in cash at closing. If there are many repairs needed then the seller might only accept cash offers because they have a good idea that it won't qualify for financing.