All Forum Posts by: Nicholas DeGaetani

What should I do - buy my next primary residence and rent out my townhouse for a year at about a $500-$700/month loss (based on comps) or sell the townhouse when I buy the next primary residence and buy a cashflowing rental property? A few of the Pros and Cons I've noted...

Pros:

1) Tax incentives (home office, travel mileage, marketing, capex, etc.) to lower capital gains.

2) Potential 12 more months of equity build up yields more cash from sale in future (12+ months).

3) After 12 months, may obtain "landlord status" to consider 100% of monthly rental income (i.e. ~$2,300) towards DTI ratio

Cons:

1) Lower monthly savings rate by about $500-$700/month. Any Capex from appliance/hvac replacement further lowers monthly savings rate. In turn, this would increase the time to buy next rental property.

2) Negative monthly cashflow of $500-$700/month.

3) DTI ratio when buying 2rd property (2nd rental may be negatively impacted/reduced by $1,000.

Note: I've been eager to get started since 2012 but life (marriage, baby, etc.) have slowed plans down. So I don't want to rent this property out just to get into the rental game.

Questions:

1) Based on the Pros and Cons, what would you do?

2) Does anyone have a CPA with rental experience who they recommend?

3) Has anyone used a Solo 401(k) (i.e. self-directed IRA) before? If so, can you recommend one brokerage companies over another?

Thanks in advance and Happy New Year!

Nick

I found a home at the right price but needs a total cosmetic makeover. I found out from the realtor that it had been under contract and the inspection revealed in so many words:

-there is an underground storage tank (I'm assuming underground here)

-"water intrusion" around window and exterior wall. It also stated there was "potential for organic growth". Home inspectors are not allowed to use the word "mold" because they are not specialists in that field. However, given water intrusion combined with potential for organic growth, I would assume that's where the inspector was going with that.

Can someone who's been through this scenario comment on things to look out for? I'm trying to frame what I'm up against in terms of cost, risk of mold, and level of effort. Obviously without having a specialist come look at it that's a difficult question, so what do the worst and best case scenarios look like? 

 Drew,

Thanks for the quick response and perspective on the 2 mortgage options. To clarify, the mortgage terms are 30 yr and roughly the same interest rate (+/-.25%).

You last sentence is impactful on my desired outcome, which is buying and holding the PR, then turning the property into a rental. Like you say, if the loans had the same rate, term, then the key difference is the jump start in equity in scenario 2 over the lower downpayment or intial output of scenario 1.

I've been looking into what it takes to purchase the second property down the road, whether REI or the next PR, and heard that owner equity no longer plays a role in determining whether you can qualify for the next mortgage. It looks like DTI ratio has to be at 45%.

If this is true, then my strategy is to hold onto as much cash as possible in order to afford the 2nd property, and rent the first. If this strategy holds any water then I'm happy. If not, I'm back to the drawing board.

Thanks again for the thoughtful conversation.

Nick 

In searching for financing options that set me up to purchase a PR to rent later OR purchase a REI later, 2 viable options right now are:

-0% down, with no PMI, but with fees of 1.75%, 1% and normal closing costs

-FHA 3.5% down witht PMI and normal closing costs

If my goal is to put as little more down to save cash for the future purchase of another property, how do I determine which financing option will help me keep the most money in my pocket while allowing me to afford the REI property down the road?

Thanks in advance!

Dennis,

Thanks for your response.  My goal is to purchase a single family home in the Alexandria or Fairfax/Vienna area:

-as a primary residence

-requires minor to moderate rehab

-that I can turn into a rental in 1 year and cover expenses

-and I can save some of my cash for a second property to turn into PR

I'm recently married so I've got to bring my wife along on this journey...

Hey guys and gals,

I'm looking for recommendations for a Banker/Lender/Mortgage Broker in Northern VA with whom you have worked with and can recommend.

Thanks in advance.

-Nick

Hi,

I'm looking to establish a relationship with a REI agent in the northern VA area. Does anyone have any recommendations for someone with referrals?

Thanks,

Nick

Thanks Patel - I'll keep this information in mind as we consider financing options.

Hi, I'm planning to buy my first home and while I'd love for it to be my first rental property, my wife is more interested in finding something we can live in. So I'm trying to develop my strategy for living in the first property for a year, then purchase the first rental property or transition to something else and rent the first one out.

My questions are focused on securing funds for the second property, be it rental or primary residence. Besides taking out a home equity line on the first property, how can I confidently secure money (besides the obvious saving $) for the 2nd property? 

Would the 2nd property, be it rental or primary residence, have to be financed with 20% (plus closing costs, etc.)?

Can anyone offer good v. bad reasons for purchasing your first rental property instead of something for yourself to live in? Based on location, costs of renting/owning vary and this is true in northern Virginia where renting is more expensive.

Thanks in advance for your comments!

-Nick