Interesting investment opportunity, but how to finance it?

[Chootar Laal]

we bought a rowhouse (single family) last year. now the place next door to us is converted into 2 condos and both are up for sale. we dont want to buy both, just 1 of them.

since its right next door to us, can it qualify as a 2nd home? proximity issues? if not, then an investment? as an investment, what are the requirements? 20% down?

any other options? its my first real estate investment purchase other than our primary home that we bought last year.

[Jon Holdman]

Before you do this, please do some reading. Here and elsewhere.

This is a terrible rental, even by some of the more optimistic measures.

P&I = Principle and Interest. The payment on your loan.
PITI = Principle, Interest, Taxes and Insurance. The payment you actually make to the mortgage company. That usually include the P&I payment along with the escrow amounts for taxes and insurance.

A very simple analysis of this property looks like this:

Price: $340K
Down payment: $85K (25%)
Loan: $255K
Rate: 5.5% (typical investment property rate right now)
Term: 30 years
P&I payment: $1,447.86
Rent: $2,400
Expenses, capital, vacancy: $1,200
Net operating income: $1,200
Cash flow: =$247.86 a month

So, you will have $85,000 invested and will be losing $247.86 a month. Many months will be OK, since you PITI is probably about $1800 and the rent is $2,400. But you'll have maintenance, property management (though you could earn this for yourself by manging the propery), and other charges. Sometime it will be vacant. Sometimes (like last night for me), you'll have to plunk down a few hundred or a few grand for some big item. Overall, you're losing $3000 a year on this property.

Now, perhaps there some other play. Like holding a few years and then selling at a higher price. But as a rental to generate cash flow, this is a loser.