New home question

[Tua Lino]

Few weeks ago I closed on a townhome worth 524,000. My interest rate is 7.1% so my mortgage is $1000 more than what this property can rent for right now now. My plan was to buy this and live in it for a bit, but then eventually rented out as my first investment property.  any advice here on how I can get my mortgage down or any tips in general ?

[Charles Carillo]

@Tua Lino

You are not required to own a property that doesn't have cash flow. You can sell it when you move out. If you are $1,000 per month underwater, you probably need interest rates to drop 2%+ to decrease your mortgage by $1,000 monthly. I am not sure if this is realistic. I would probably sell and invest my capital elsewhere.

[Nathan Gesner]

Quote from @Tua Lino:

This is probably not a good investment. If you hold it long enough, it will increase in value through appreciation and you can sell it for a higher price. Unfortunately, you will pay a high price to keep it while waiting for appreciation and it may not pay off in the end.

If you want to invest for profit, you need to learn how to analyze property. Not every property is a wise investment.

Here's a guide that describes what good cash flow looks like and how to analyze a property.

https://www.biggerpockets.com/blog/rental-property-cash-flow...

[Sam Levin]

Hi Tua. Don't fret, here's lots of potential in that townhouse as long as you can comfortably hold on to it. I've purchased properties before as a residence, that were in negative cash flow initially, which are doing great now. Rents pretty much always go up here, with the exception of the last to years where they've been flat and even softening in some cases. We manage a bunch of townhomes for clients and we are now for the first time having to do slight reductions on turnovers. The silver lining to that is that, because rents increases have been suppressed for a while, there should be some upward pressure on them to snap back up after home prices start to rise again, which is effectively happening now because rates finally went down. There's a price/rent lag because leases are typically for a year so there's the delayed effect of old leases playing out before upward pressure on rents does it's thing.

With that said, there's also your ability to refinance out of that rate and improve the rentability of it that way. Keep in mind that your refi options change dramatically once you do move out because you will loose the option to use a homeowner's refi and the much better rate that provides. If I had been talking to you before the closing I would have recommended that you choose the 2-1 buy down, which would lower your rate by 2% ($500/mo) in the first year and 1% ($250/mo) in year two. That ship has sailed now but you should keep the 2-1 buy down in mind as a possible tool for future purchases. It's ideal for the current/recent market conditions where everyone is projecting rate reductions in the near term.

Your current rate is so high that you are already arguably in a worthwhile position to refi but you may have to wait on that for the first 6 months or 1 year of your loan. That will likely be an even better time to refi anyway. If you have any other questions feel free to reach out to me directly. I'm happy to help!

[Jonathan Greene]

Your best bet right now is to live in it and enjoy it as your primary. When you are ready to move, then you can decide what to do with it, but I wouldn't plan on a one-year stay. What you bought wasn't an investment property because why would you invest in something that would net you minus 1k a month. Since you can't turn around and sell it for the same price most likely (everyone would wonder why you are selling so quickly), use it and enjoy it and see what happens.