Deal Analysis New Construction V. Older

[Candice Cervantes]

Hi there, I’d be so appreciative of people’s thoughts on my current situation. I’m torn on which would be a better option for me. 

I’m looking at two properties about the same price, both around $360k.

prop 1: new construction townhouse, HOA of $100, private outdoor patio, 1060 sf, 2 bedroom + 2.5 baths. All new appliances, no garage, lvp floors + carpet upstairs. Finishes are modern and attractive. Most enticing is it is located on a very well established street with a wall score of 92 - lots of restaurants, bars, shops and a park nearby. I'd put 5% down (35k to close) with a totally mo of $2600. I'd attempt to refinance to bring down payment. After living in it for 1-2 yrs, I believe I can rent for 2600-2850. Unable to estimate appreciation potential because it's brand new and no room to add on or make improvements, but over time I do think some appreciation due to prime location. At most my guess would be $450-$600k max in 5+ years.

Prop 2: older single family house 2 bed 1 bath about 1100 sf.  5% down and monthly payment around 2500. In need of at least $80k renovation. Potential for an adu via basement or garage for additional renovation costs. Location is residential with a park a short drive or long walk away. Area is probably a B- to C. Neighboring houses aren’t well kept. Large backyard. More potential for appreciation, maybe 500-600k in 5+ years, but large up front investment. Potential to refinance when the time is right. 

I’m limited to my house price while my partner is getting his masters and doesn’t have a full time income. We plan for this property to be for investment and rent out in the future when buying something larger. Im torn between something that is turn key with encouraging rent potential v something old that needs a lot of work but can become 2 units, however not the best neighborhoods.

Lastly, but very important-  If in either scenario price jumps to $380k with 15% down does this become not as profitable? My other option is to wait until my partner is done with school and we buy that bigger property we can invest more into if we don’t buy something now 

Thank you!!!

[Bruce Woodruff]

I would always go with a property like Prop 2. Many more options and possibilities...and no HOA!

The big question is this - is this 'marginal' area going to 

a) stay where it is? 

b) get worse? 

c) perhaps begin to gentrify?

I always looked for properties that were in areas about to 'gentrify'......that combined with a little renovating is an awesome way to get a multiple equity boost....

This is a literal no-brainer to me......as long as the area is not going to go downhill....