Buying First Home - Northern Virginia?

Question

Hi,

I needed some feed back regarding purchasing a townhouse in south riding for 420,000? Do you guys think this is a good investment? I currently have 30K as a down payment saved up and I plan on renting the property however, I don't think it will generate any cash flow. However, if the rent covers the house payments then after a few years my mother/brother can move in and start to make payments on the property. Or do you guys think its a better idea to find a significantly cheaper property in Stafford, VA or Manassas, VA and rent that out? Also I currently don't have any debt and make average salary of an engineer/consultant.

Please provide any feed back.

Best Regards,

Joe Facenda · Answer

Please have a straightforward and honest discussion with your Realtor and lender.  Yes, you can get a loan with 3.5% down.  They are probably talking about a FHA loan.  But these loans are strictly for owner occupants.  There is no restriction on renting the home later but at the time of purchase it MUST be owner occupied.  As part of the loan process, you will be asked to state  (on a federal form) that your intent is to move into the home.  If you say no, you don't get the loan.  So it must be owner occupied.

And by the way, with $30,000 available, most people would not use a FHA loan.  Only if the more liberal qualifying ratios are needed would one use FHA with that much cash.

As to which community to buy into for rental purposes, unless you find an owner financing situation, you will be limited to properties at $150,000 or less so you can put down 20% and get an investor loan.  Your agent can run some options for you and they will be either smaller condos close in or other types of housing much further out.

it should be easy for your agent to show you your monthly payment in comparison to rentals in the area.

Hope that helps

Moe Rehman · Answer

Hi @Jessica Swingle

Thanks for the feedback. My mother/brother currently live in a townhome in Fairfax Virginia and we wanted to purchase a bigger house for the family. My brother will be done with college in a two years and will be able to take over with the mortgage. As a result I wanted to rent the property out until then and ensure the per month mortgage is covered. In addition, I currently have no expenses and I travel extensively for work and can stay in corporate apartments and travel back on the weekends so I don’t have a need for a house for myself. Are there certain areas that you recommend that I look into Jessica to help me generate cash flow as this seems to be the better route then purchasing the property in South Riding?

@Joe Facenda - I greatly appreciate your feedback. The townhouse is not priced below market value. For me currently at this point, my main goal is to maximize my ROI. I think at this stage it would not be a wise investment for me to purchase the property in south riding since I will not be generating any cash flow. In addition Joe, I was informed by my real estate agent that since I’m a First Time homebuyer, I’m only required to put down a 3.5 percent down payment and I was pre approved for a 400K loan. Since our current area is so expensive, what areas would you recommend that I look at to purchase properties and rent them out? My long term goal is to build a portfolio that allows me to generate 80,000K a year.

Best Regards

Nkiruka Okeke · Answer

Cash flow is safer

Russell Brazil · Answer

It is a moot point. You will not be able to get a mortgage on the property as an investment property with that low of a down payment. You will need 20% down.

Joe Facenda · Answer

Ali,

Are you buying a personal home for your family or a rental investment?  It sounds like your goals are not clearly defined.

I have been a Realtor in this market for over 25 years so I am certainly familiar with the area you considering.  Obviously, since we are on Bigger Pockets, I work with many investors.  And, of course, I do owner occupied transaction with other clients.  I will say, South Riding has not been an area where my investors have found the best returns.  On the other hand, it is a wonderful place to live.  So which is more important - a great community to call home or maximize ROI?  Or is this townhome priced way below market?

Without knowing the specifics, I am 99% certain that $30,000 down on a $420,000 will result in a negative cash flow situation.  Also, while there are certainly creative financing options, I am not aware of a traditional lender who does an investment loan for less than 20% down let alone less than 10% down.

Can there be a middle ground?  Yes.  I had a client several years back who built a very nice  portfolio by buying a property as a principal residence, living there for 2 years or so and then buying another while keeping the prior one as a rental.  He did this over 8 years and those investments turned out quite well.

However, you really need to plan worst case.  Our area is one of the strongest in the country and I am comfortable saying that in 10 years, the townhome will be worth more than today and rents will be higher.  But next year or the year after or even 3 to 4 years out, who knows?

Hope this helps.

Jessica Swingle · Answer

Hi @Ali Rehman ~ It sounds like your situation involves more than just numbers.

Is there a reason your Mom/brother would wait 2 years before moving in? Is that your main motivation for looking at this particular property or is your main priority cash flow?

I sold a townhouse to a couple a few years who purchased a townhouse in Reston for similar reasons. The property didn't cash flow ~ however, their parents were planning to move to town in a few years to be closer to the grandkids (so even though they rented the townhouse for awhile to market-rate tenants, they had a motivation for paying more in purchase price ~ they wanted their parents to live near them in Vienna).

Anything in the 400K+ range is usually an appreciation play and you won't be purchasing for cash flow.

I'd have to know more about your end goal to make a solid recommendation on whether it's a good idea or not.

Buying First Home - Northern Virginia?

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