Next move??

Question

Hey guys, I need some direction... I currently live in a big 2000 sqft townhouse centrally located to everything. I bought last year for $123k with a $255 monthly due. They're currently selling now for $160k. My house was built in 2006 so it's starting to need a few things like re-tile my master bath, new paint, faucets throughout, and there's a small leak in the AC. All else is perfect and I love my home. The townhomes in my neighborhood rent for 1400-1600/month, leaving me with approx. $300-400/month potential income.

My question to you all is should I sell and try and spare the potential costs of fixing up my house and use the profit for another residence? Or should I bite the bullet and fix everything? I have roughly $20k saved for my next investment but am not sure which direction I should take...

Robert Curls · Answer

Hi Nick

The duplex was a seller financed deal that I found through a wholesaler.  I met him at a local REIA meeting.  I send up with close to 20% down at the end of it, 5k went the the seller $9500 went to the wholeseller and I have a note for 45k @7%.    The reason why I went with the seller financing, even though I could have gotten a Lowe interest rate via conventional financing is the place is a dumpy little duplex.  I didn't want to have to go through the traditional appraisal process and deal with under wrighting.  The numbers work out even at 7%.

Opening an equity line  on your home is an option, but it depends on how much you could leverage, what are you going to do with the money, and how good of an investment are you buying.  I probably wouldn't do it to fund a down payment for another property that will be conventional financed because the lender will see th at you've been shopping for a mortgage.  If it were for a down payment on a seller financed deal, then maybe.  Or if it were to purchase a property out right then I would consider it.  I was looking at leveraging lending club for a ridiculously high interest rate to be able to purchase a house in Pasco county.  The thought was id buy it out right, then redo it into conventional financing after seasoning the property. The rent would have covered the payments but I just couldn't stomach the thought of paying that much interest.

It all comes down to your position on risk, some people are risk averse.  I like taking calculated risks, I've left six figure jobs twice to peruse my dreams, fortunately I have a wife that believes in me and that I will not harm our family in my ventures.    I'd be happy to hop on Skype or a call to chat and strategize if you'd like, just PM me.

Nick Dillaha · Answer

Hi, @Robert Curls! I've been looking for a potential investment property with my savings but I can't find anything worth buying at $100k (20% down) that I wouldnt need to put another 10k into it to make it profitable or even liveable for that matter... I have a really good loan now, fixed at 3.25% for 10 years. The "safe" thing would be to stay where I am and continue to save for something better.

Would you suggest pulling equity from my current residence to finance another rental? Also, if you don't mind me asking, how were you able to finance your duplex? Did you need to do any creative financing?

Robert Curls · Answer

Hi Nick,

If you sold your townhouse for $160K, you'd probably have to pay a realtor 5% in commissions (if not 6%) which equates to $8K, closing costs would probably ring in around 5% as well (another $8K so you'd walk away with approximately $21K (this is if the buyer doesn't make you do any repairs first or force you to give any concessions).  Depending on how long you've lived in the home, you may also have to pay capital gains taxes.

It sounds like you live in a nice part of Ft Myers, and in a very affordable place.  Why not continue to live in the townhouse and use your 20K to buy a cash flowing rental?

I'm in a similar position, we rented our old home and bring in $350 over the mortgage payment.  However everything in our home had been updated and I knew that I wouldn't have large repair costs for 5-6 years.  We also don't have any HOA or possibilities of special assessments.  The plan here is to sell it within 5 years, this should allow for appreciation in the market, and allow me not to pay capital gains taxes.  We're a year in on it now and I've had to replace the electrical panel (thanks insurance company) and had a small flood which required about $500 of new flooring.  Contrast this to a duplex that I own where the mortgage payment is $350 and it brings in $1100 in rent.