Putting it all out there....

[Charlsi Kelley]

Good morning! 

Does real estate strategizing keep anyone else up at night!? 

I am going to lay all of my chips out for the world to see here....I need some feedback before taking the leap:

The place we are under contract for: MLS #5377681 (3030 Wilson Ct Unit 3 Denver, CO 80205) A high end town home, 2 bed/2bath, 2 car garage, rooftop deck, Kitchenaid appliances, Mahogany hardwood floors, the works!

We locked in over a year ago at 360k, same unit type sold in jan for 385k and broker says if there are any units left at time of completion, they will list for 410-415k. We literally beat out 90 other people in line waiting to make an offer on our place- so I feel good about that! 

So obviously it is winning in terms of appreciation and equity- however- our concern is cash flow. We think our mortgage will be about 2200 considering we can only afford to put 5%-8% down right now. We feel we could rent it out after 1 year for minimum 2800 per month. It is brand new, and likely won't require any major repairs in the near future, and rental market is strong so I don't foresee any long vacancy stretches.

Another idea I had was utilizing a creative investment strategy to get to that 20% downpayment in order to shrink our mortgage payments for that first year so that we can continue saving as much as we do now with our cheap rent. I was thinking of finding someone to lend us 50k with the understanding that after 1 year, when we cash-out refi- we will pay them back 60k. Is this something that would be attractive to lenders? Is this even legal?

Any advice would be much appreciated! 

-Charlsi

[Chris Lopez]

@Charlsi Kelley

Was your original intention to buy it as a primary residence or to rent it out from day one?

Assuming your original intent was for a primary residence, you're now mixing personal needs (we all need a place to live) with investing. There's a lot more gray area because it brings in your personal finances, needs, etc, which don't translate into an investment calculator.

The rental market is strong, but some of the higher end stuff is softening up. No doubt you'll be able to rent, but perhaps not at the price you expected. 

Have you checked the rules in the HOA about renting it out?

I personally like the more modest places for investments. When people or the economy have hard times, they still need a place to live. Are they going to rent a 3k high end townhome or a modest, "it'll do place" for $1900?

Looking at the listing - is the HOA fee really just $100/mo? That seems very inexpensive for a new, high end townhome. If it is, awesome!

Also, I see the taxes are TBD - any indications of what they may be?

As far as borrowing money to make a 20% down payment, I'm not of the legality of it. Perhaps @Jared Bouzek can chime in. He's given me good advice in the past.

From a personal finance perspective, I don't like the idea. You're betting on appreciation which is a risky bet! That's how a lot of people got into trouble 10 years ago.

Couple things to think about at 1AM while you're strategizing:

- I'm going to email you over the spreadsheet analysis tool that I use. Run the numbers on your townhome.

- Run a scenario of house hacking. Perhaps buying a modest duplex and renting out one side while living in the other or a house with a mother-in law suite or house that you rent on air bnb. I'm pretty sure those will make you more money. That's balancing personal/family with investing. You have to weight it out.

- I'm going to send you a course by Joe Massey on "How to Build a Portfolio of 10 Denver Rental Properties" that uses a house hacking example to leverage building an entire portfolio. It's an awesome course because he uses very real numbers (~70k salary, modest savings, etc). It passes the reality test!

Chris