Buying a rental/investment property

[Lavender]

Hello folks,

I'd appreciate your thoughts/advice on a real estate foray I am considering.

We have 10 years left on our own mortgage (primary residence) at a low interest rate (3%, recent refi). My mother, currently in New Jersey, is thinking of moving to our neck of the woods (suburb of Houston, TX) due to a possible business move. She currently rents in NJ. As a single woman, 56 y/o, with relatively little retirement savings, she wants to live in a small (low sq-ft) property and build equity. I'm willing to help her with this (the reason she has not much saved is because she worked hard to bring up two kids as a single parent in a third-world country, and moved here only 4 years ago).

A property in our neighborhood, two blocks from the elementary school, is on the market, ~1100 sq ft, 3 br/2ba, spacious backyard, all tile and laminate, nicely kept, built in 1980. Asking price $103000 (down 4K from 2 weeks ago). My mother has enough for a 40% downpayment if she clears out her savings, or a 20% downpayment plus a cash cushion. If she ends up not living in it (due to the business deal not working out, or she deciding to live with us instead), it should fetch a rent of $1000-$1200 at least, and should be a very desirable rental, so close to the school in a great neighborhood. I have great credit (>750, probably close to 800)  and will cosign if needed. Property taxes are $2400/year, HOA about $250. Mortgage payments on a 15-year loan will be ~$600.

My questions are:
a) Should we go for this?
b) If so, how best to do it? Should my mother buy it, with me cosigning if needed, so she gets 'primary residence' benefits?
c) Should I try to negotiate the price down, and if so, to how much?
d) Anything else I need to factor in?

Thanks in advance for all your advice. I am a real estate noob, so bear with me if I didn't ask the right questions :)

[kolorado]

Right off the top of my head, have you checked with the HOA if the property actually can be a rental? They have rules about stuff like that.

[grantmeaname]

Why does she specifically want to build her net worth by home equity instead of just generally building her net worth? If you're open to living with her anyway, have you considered renting her a room for free and her starting to invest with the would-be-rent-money?

[Lavender]

Right off the top of my head, have you checked with the HOA if the property actually can be a rental? They have rules about stuff like that.

I didn't know that, thanks, will look into it.

Why does she specifically want to build her net worth by home equity instead of just generally building her net worth? If you're open to living with her anyway, have you considered renting her a room for free and her starting to invest with the would-be-rent-money?

Yes, of course I have :) It's my mother that 'doesn't want to be  a burden' (her words, not mine). Ideally, we would have her live with us and save all her money to invest, but she thinks otherwise. As to why home equity instead of investment, the answer is partially the above and partially my impression that for the limited number of years she has to build her net worth, real estate may be the best bet (when she is older and more amenable to moving in with us, this would guarantee her the best income stream?). Keep in mind that she is 56 y/o and only has about 50K saved, and also foresees significant expenses for the next few years (her earning years) due to family circumstances beyond her control, so may not be able to save aggressively to build her net worth.

Oh, and I will ALWAYS be there to pick up the slack, make any payments she can't, take care of rentals/maintenance etc. I owe her a lot.

[arebelspy]

it should fetch a rent of $1000-$1200 at least

That's a big range.  You need to run some rental comps and see what it'll really rent for.

You say the HOA is $250.  Is that annual or monthly?  If the latter, this is DOA.

[Lavender]

it should fetch a rent of $1000-$1200 at least

That's a big range.  You need to run some rental comps and see what it'll really rent for.

You say the HOA is $250.  Is that annual or monthly?  If the latter, this is DOA.

Zillow says $1220, range of $980 - $1400. How can I get a more accurate quote?

And, yes, HOA is annual, sorry I did not mention that earlier.

[arebelspy]

Zillow is usually high.  Rentometer is okay, but usually high as well.

Have a Realtor run some rental comps for you on the MLS so you can see what recent places in the area rented for.

[fiveoh]

it should fetch a rent of $1000-$1200 at least

That's a big range.  You need to run some rental comps and see what it'll really rent for.

You say the HOA is $250.  Is that annual or monthly?  If the latter, this is DOA.

Zillow says $1220, range of $980 - $1400. How can I get a more accurate quote?

And, yes, HOA is annual, sorry I did not mention that earlier.

HAR.com.  Search for your neighborhood and make sure you click on lease instead of buy.

[thor800]

Go to Craigslist and try to price out what other similar houses are renting for. Maybe even make a post and see what kind of response you get.

 In 15 years, when the mortgage is paid off, this property would generate about $10k after taxes, so if your mother has $100k in net worth - a 10% return looks pretty good especially if the fed holds interest rates low for a long time.

By then, she might want something smaller than a 3br house.

[hardworkingpenguin]

Go for it. But see if you can get 30 year. Obviously 15-year is a lot faster but do you really want to put your cash flow into something that earns 3%-4% (foregoing the interest needed to pay for the loan)? Set up a 30-year so there is excess cash flow which could be invested elsewhere to earn a higher percentage or accumulate it for other investment properties. Interest rates are at an all time low so it is better to lock into something for a long time. Of course, if you were to use the savings for other spending than I wouldn't recommend it :)