Considering apartment purchase - need help convincing wife!

[Coley Mitchell]

Hello,

This is officially my second post on here since joining last week (first post was a new member intro) and part of the reason why I joined... to get advice on a purchase I've been considering.

Here is my situation. I currently own a condo in Savannah that I purchased in 2006 as my primary residence. I owe $138K at 4.125% interest following a refi last Nov. It rents for $1190. After prop management fees, poa dues, and mortgage payments, I lose about $120 a month. Sounds bad, but I use to lose about $480 before the refi... I place is worth anywhere from $80-$110K. Only comps have been short sales and some foreclosures (it is a 340 unit property)... the Zillow Zestimate says about $110K.

Anyway, there is unit available right now that I think I could get for $70k. My property manager, whom I know well and trust, thinks she could rent it for $1075. Running the numbers on a 30 year conventional (PITI and PMI) with the same interest rate I have on my other property with a 20% downpayment, it looks like I would net about $350 a month, earning around a 20% return on my money.

The kicker is that I would have to get a rental waiver on the unit as the POA only allows for 45% the units to be rented at any given time (and there is a wait list). For the record, I was told the same thing when I moved and rented my unit last time (without obtaining a waiver first) and once it was brought to my attention a well written letter took care of it. I'm still waiting to hear back on whether or not the unit has a waiver already, but I would assume not.

Assuming I could make that happen somehow, do you think this would be a good purchase if my goal was to try and rent it for a year then cash out? I would put all profit back into the mortgage to pay it down as quickly as possible in a year's time. Would also provide a decent ta benefit. We would like to buy a house next year and I thought this might be a good way to possibly double our money in a year or so to help with downpayment.

Too much speculation here??? Advice welcome.

-C

[Matt Devincenzo]

Two potential problems I see with this.

1. If your rental income from the first unit hasn't been on you tax returns for 2 years, they won't consider the rental income in consideration for buying a new house for you and the Mrs. Now if your personal income is high enough to qualify for all three loans simultaneously and not consider the incoming rent then this shouldn't be an issue.

2. The other is you say you want to cash out in a year, that might not work as well. You said double your money (I'm assuming approximately 17K which is your down payment closing cost and fees). In order to double your money you'd need to sell for about 93K to cover 6% commission and still net 34K at closing. So if you're only betting on appreciation for that then you'd be looking for 25% appreciation YoY which isn't likely.

If the assumption is that you can buy since it's distressed and sell higher next year then maybe you can realize the gain you need with some updates. But if everything else in the building is a SS or foreclosure, then those are your comps unless your unit is way nicer and it may still be hard to sell.

Not trying to discourage you just making sure you take an objective look at it. If you plan to hold long(er) term then I'd be less worried about the resale aspect in 2 since you have more time for things to adjust and maybe help by joining the board to influence the values for the positive.