Author Topic: town home evaluation  (Read 514 times)

teacherwithamustache

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town home evaluation
« on: July 26, 2019, 10:16:04 PM »
$60,000 Sale Price (Estate Sale)
$125,000 Market Value

$1300 Rent Revenue
150 Ins Month
300 Property Tax Month
600 year HOA
PM fees 130 a month (10%)

Will finance by taking equity out of my house and refinancing my house.  Go from 1450 a month on a 30 yr to 1780 a month for 15 year and get 60K. New Rate 3.125, closing cost 3k

Net Outcome:  I owe 160K for 425K worth of real estate.

I am thinking this is a no brainer.  Only real questions are if I am financing this correctly.  I have 65K semi liquid but am glad not to have to touch any of it, but would feel comfortable paying up to 20K.  Stock Market Investments 500K, Pension Present Value 800K.  Retire in 11 years with pension.


Jon Bon

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Re: town home evaluation
« Reply #1 on: July 27, 2019, 11:50:42 AM »
Not sure what your asking here.

Sure if your numbers are legit it makes sense. Go for it.

However how are you getting a house at a 50% discount from market rate? I feel like there is missing information.

Also you have 65k in what exactly? paying 3k in closing costs is a ton of money to only borrow 60 IMO. I would also consider thinking about this as a flip rather then a rental.





teacherwithamustache

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Re: town home evaluation
« Reply #2 on: July 27, 2019, 01:22:22 PM »
I am asking for any advice or red flags on this deal.

We got it for 60K because it is an estate sale.  Grandma said in her will any of her grand kids can buy the house for 60K.  We are the only ones in the family that can afford the 60k.

I have 65k in checking and savings.  3k closing cost also covers our refi.  We are pulling 60k of equity and doing a refi.  Is 3k in closing cost still a lot?

Another Reader

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Re: town home evaluation
« Reply #3 on: July 27, 2019, 02:29:10 PM »
Did grandma put any stipulations on what you could do with the property?

Jon Bon

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Re: town home evaluation
« Reply #4 on: July 27, 2019, 05:11:44 PM »
3,000/60,000 = 5% of the entire loan! I mean I get that it is a small loan so some things cant be helped (appraisals etc). But it is something to consider for sure.  You are paying $3k for the privilege of borrowing money.

Ok so this is family members house got it. Issues to be concerned with are:

1. Tax implications, is this considered a (125-60) 65k gift from grandma to you? Would it be considered taxable?
2. Relatives. So grandma basically is giving you 65k, do you have to pay some of this windfall off to your relatives? Good chance they will see it as "the rich getting richer"
3. Property tax, not sure about your area but that might cause the auditor to start sniffing around due to the low sales price.


I might consider buying it cash, then refinancing if needed.  My guess is you are a conservative investor which is of course fine. Going down to 5k in cash is a bit scary but investments always involve some level of risk. I assume by your handle you have a pretty safe job.

It would be a fine rental in the fact you would be cash flow positive.... BUT what everyone tends to ignore is the opportunity cost. You have tons equity day one. So say you make $8000 on it per year. Nothing to sneeze at but your paying cash you only get a 6.4% return, and financing the 60 puts you at a better cash on cash return but still lots of opportunity cost there.

Is there a sentimental attachment to grandmas house? Is flipping out of the question? Or even better living in it for 2 years and then selling to avoid all the capital gains tax. My experience with grandmas house is 5k of paint, a few new fixtures and appliances can go a long way.

TLDR version: Yes buy it, but there might be some negative externalities from the below market rate. I still want more info but understand if you dont want to share.

teacherwithamustache

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Re: town home evaluation
« Reply #5 on: July 27, 2019, 09:11:25 PM »
All the cousins had a chance to buy and they passed.  Nothing in the will about what we can do with it.  We also do not want to move into the townhome.  The family house got sold 10 years ago when grandpa passed.  Grandma moved to this townhome to be near her friends.  Not to be greedy but the other cousins got more money.  We are literally the only ones in family with kids.  Our kids got the family share of grandmas estate.  All of my siblings and cousins got a nice chunk of change (and still can not afford the 60K to buy the house which is another story but whatever).  Dont think there is going to be any resentment.  They are happy to cash out their inherited IRA. Face slap face slap.  Grandma fixed the house up nice.  It is literally the nicest townhome on the block.

I have already told wife I am going to have to hire someone to do taxes this year and too expect a high tax bill.  Inheritance, kids inheritance, house refi, started a second small business, sep ira, roth ira, it will be crazy. 

So far... consider paying cash, and check the closing cost to see if cheaper.  Dont think wife will go for liquidating our cash to pay for it.  I believe once she sees how little work and the extra cash coming in she will be ok with buying a couple of more investment properties.  We will see.

calimom

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Re: town home evaluation
« Reply #6 on: July 27, 2019, 09:21:56 PM »
I'd pay cash to avoid the fees involved and the additional monthly cost on your primary residence. The numbers work as a rental, so take the next year or so to rebuild your EF from the projected rents. If you have secure jobs and a credit card with a decent limit, it should work fine.

Have you checked to see if the CC&Rs have any stipulation about rentals in the the complex? Sometimes a problem, sometimes not.