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Old 04-28-2011, 12:34 PM
cochice cochice is offline
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Default Questions with Investment/Plan - Feedback please?

I have been formulating a plan for my family and our living situation vs our financial security. This is spurred by the fact that we have a 5 person household 2 adults 3 kids under 11 and have decided to settle down in a permanent residence. This is a two part plan, one is a home for the family short term and long term, the other is to have an investment in place that will pay me about 10%, I have other investments but none in Real Estate, and want to diversify my portfolio with some real estate options.

The Plan:
Move into an apartment 899/mth for 3 months
Buy a 3 bedroom condo in our area for about 100-120K, the idea is we will live here for less than a year and move into a bigger place. I could then rent the place out for low end 1100/mth, high end 1400/mth giving me pretax return of about 10 percent. I could sell the place for what I paid for it at the least in 6-8 years as the market is still bottomed out for the condos here.

Two questions:
1) Would this be a sound investment (I'm certain of the rent levels as I've been renting in the area for 4 yrs).
2) Should I pay cash for the property, I think I should since this will be an investment I want to maximize my return, and not fund an investment with debt, but I also want to buy a larger home to meet the families needs which I will need to finance and don't want to have a mortgage on the books when I do.
note: The cash purchase option will almost deplete my cash reserve, but leave me with enough for an emergency fund of 3 months of expenses. It would take me about 8-10 months to save enough for a 20% down payment on a larger place.
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Old 04-28-2011, 03:20 PM
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DavidBibby DavidBibby is offline
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Default Re: Questions with Investment/Plan - Feedback please?

Cochice,

This sounds like an excellent plan to me. I would definitely buy the condo with cash. This minimizes your risk considerably if for some strange circumstance that you cannot find a tenant.

I'm fortunate to have good tenants myself... but I have a mortgage on the rental property too, so if the wind changes I am very vulnerable to circumstance. Right now I'm working on paying that property off as quick as possible. If you buy with cash you won't be in those potential dangers.

Hope this helps...
David
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Old 04-28-2011, 04:46 PM
littleroc littleroc is offline
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Default Re: Questions with Investment/Plan - Feedback please?

David,

What do you owe on your primary residence? How much did you put down on the rental. I plan on owning rentals someday and am just trying to educate myself.

thanks
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Old 04-29-2011, 09:27 AM
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DavidBibby DavidBibby is offline
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Default Re: Questions with Investment/Plan - Feedback please?

Quote:
Originally Posted by littleroc View Post
David,

What do you owe on your primary residence? How much did you put down on the rental. I plan on owning rentals someday and am just trying to educate myself.

thanks
How I came about the rental is a different story altogether... it was the house my family and I lived in before we moved.

When we decided to move and get a new house... we knew that our old home would not sell... so we rented it out instead. The rent each month just barely pays for the mortage and repairs so I can say that we're slowly coming out of a hole with it.

Right now both of my houses are upside down. I'm at peace with all of this because it is beyond my control. As long as my tenants keep paying they can stay there for as long as they like. They can leave at any time and if I'm not able to pay for the rental anymore... I'll let it go.

Someday I will be a cash investor for rental properties, but today is not that day.

Hope this helps...
David
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Old 04-29-2011, 11:46 AM
littleroc littleroc is offline
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Default Re: Questions with Investment/Plan - Feedback please?

Gotcha, I'm just trying to ask questions, because I'm slowly working on a plan to buy flip houses and rentals someday. Right now we are working on paying down our 80/20 mortgage so that we get rid of a good chunk, so it puts in a better position to manage 2 mortgages. My plan is to save up the 20% needed along with 20k liquid for the purpose of renovations and take a small loan of say 80k on it. I want to make sure I'm minimizing risk as much as possible without going all out and buying with cash only. We can easily afford our current mortgage but by eliminating the 20, we will have an even smaller payment, plus mortgaging 80k is only like $400 a month plus tax. Does this sound reasonable? It may take 4 years to happen though, which I don't mind.
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Old 04-29-2011, 04:05 PM
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DavidBibby DavidBibby is offline
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Default Re: Questions with Investment/Plan - Feedback please?

littleroc,

If you can afford to carry two mortgages and have no tenants in your home... then you are in better shape than I am. That said.. the plan sounds reasonable. I think the mortgage on 80k is a little more like $600/month if you include homeowners insurance. Even if you require that your tenants have renters insurance.. I believe you'll still need your own policy to cover the house itself.

As long as you can minimize the risk to the best of your ability, you can start out on the positive side getting your tenants in the rental and not be vulnerable to the whims of your tenants.

In my case... if my tenants were to leave and I could not get anyone else in there for the same price... I would not be able to sustain things for very long.

Good luck to you!
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