Help me accomplish a goal. (am I missing something?)

[JSD]

I bought a condo last year for $130,000, the bank appraised it at $170,000 and the city assessed it at $105,000. I thought "Great, I have equity and I'm not paying a ton in taxes". Now there is just one problem, I hate where I live and Lowell is no place to raise a family. I'm set to get married this March
I'm on the market for a new place with the idea of getting a foreclosed "as is" 2 or 3 unit home on the cheap in a local suburb. I plan on doing most of the work myself with the help of my buddies who are primarily made up of union carpenters and tradesmen. I finally found what I'm looking for in a nice neighborhood and I'm pretty excited about the potential.

There are a couple of things I don't like about it:

- It has a septic tank. Does that save you on taxes? It should...
- Gas but also electric heat. I heard bad things about electric heat

Should these even be major concerns?

This home I'm looking at was sold 4 years ago for $350,000 and I'm in position to get it for $130,000. My current rate on my condo in Lowell is 5.6% and with rates projected to go down this week I will look to refi and pull out $20,000 for a down payment on the new home. This will bring my mortgage, fee's and taxes in Lowell to a combined $1050 to $1100 a month. similar Condos owners around me are getting $1300 - $1400 a month in rent. I'll be able to at least break even. After I rent my place out in Lowell me and my girl will be moving into my parents house while we renovate the unit my girl and I plan on living in the new place. When that's completed we'll move in and live, work and begin investing into the other unit to make it suitable to rent out. 5 years from that point I hope to have my place in Lowell rented, the second unit in the new house rented and to be in a position to rent out the other unit to move onto another nicer house.

Is this solid game plan? am I missing something?

[CelticsWhat35]

Sounds like a pretty good plan, but do you really think you'll be able to cover the mortgage and condo fee for your place in Lowell with the rent your receive?

I'm in kind of a similar situation.  I own a condo, but am willing to buy a house if the right one comes along.  If I do find a house, I'll have to take the hit on my condo, but I figure, if I can save $30-$50K on a house, it's worth taking a $10K hit on the condo.  And I don't think I'd be able to get someone to rent my place to have it cover enough of the expenses to justify waiting until the market turns.

[Redz]

The rental plan seems like a good idea financially for the long haul, but I can tell you that being a landlord can be a complete headache.  One bad tenant can make for some major problems.  A good tenant is like gold.

Good luck with the move though.  Sounds like an exciting time for you.

[JSD]

Sounds like a pretty good plan, but do you really think you'll be able to cover the mortgage and condo fee for your place in Lowell with the rent your receive?

I'm in kind of a similar situation.  I own a condo, but am willing to buy a house if the right one comes along.  If I do find a house, I'll have to take the hit on my condo, but I figure, if I can save $30-$50K on a house, it's worth taking a $10K hit on the condo.  And I don't think I'd be able to get someone to rent my place to have it cover enough of the expenses to justify waiting until the market turns.

Well I found a curve ball when considering PMI... I'm avoiding it right now but if I pull that kind of money out of my condo in Lowell I might be required to take that on.

my mortgage, fee's and taxes in Lowell to a combined $1050 to $1100 a month. similar Condos owners around me are getting $1300 - $1400 a month in rent. I'll be able to at least break even.

[nickagneta]

Find a good tenant and do extremely thorough background checks on who you will be renting to. If with both mortgages and the refurbishing costs and just everyday living costs you seem to be running close, I wouldn't do it.

All it would take is for that one bad tenant to not pay you the rent you are dependent on for making both mortgages for a couple or few months and then you have to go through the eviction process that is costly and suddenly you've messed up your credit.

It is a good plan but have an account set aside to cover a good six months of back rent not received just in case something bad happens with the tenant. Don't go into it playing the numbers real tight as being a landlord can be quite expensive. Also talk to an accountant to see what the extra benefits and downfalls being a landlord can bring on the financial side. The accountant would probably best be able to help you for getting the most for your dollar while keeping as much of your money as possible.

[JSD]

Find a good tenant and do extremely thorough background checks on who you will be renting to. If with both mortgages and the refurbishing costs and just everyday living costs you seem to be running close, I wouldn't do it.

All it would take is for that one bad tenant to not pay you the rent you are dependent on for making both mortgages for a couple or few months and then you have to go through the eviction process that is costly and suddenly you've messed up your credit.It is a good plan but have an account set aside to cover a good six months of back rent not received just in case something bad happens with the tenant. Don't go into it playing the numbers real tight as being a landlord can be quite expensive. Also talk to an accountant to see what the extra benefits and downfalls being a landlord can bring on the financial side. The accountant would probably best be able to help you for getting the most for your dollar while keeping as much of your money as possible.

Good points Nick, Tp. You're right, finding a good tenant is a must. But if I were to be unlucky in that department I would be in position as of right now to handle 3 months of paying two mortgages. What I thought about doing was putting aside $5,000 out of the $20,000 for "just in case" money and then putting $15,000 down on the house. Another thing to consider is the equity I'd gain going into this new investment. Not that I wouldn't want to avoid going down that road off the bat but in a worst case scenario i could explore it. I'm also anticipating some extra money coming in from our wedding that can be used toward the renovations and for savings. I have always lived within my means and when it comes down to it I would work a second job for this to happen.

Thanks for the input, I am nervous about the tenant situation. I've heard the horror stories and it could really tie my hands if I were faced with such an issue.

[JSD]

Sounds like a pretty good plan, but do you really think you'll be able to cover the mortgage and condo fee for your place in Lowell with the rent your receive?

I'm in kind of a similar situation.  I own a condo, but am willing to buy a house if the right one comes along.  If I do find a house, I'll have to take the hit on my condo, but I figure, if I can save $30-$50K on a house, it's worth taking a $10K hit on the condo.  And I don't think I'd be able to get someone to rent my place to have it cover enough of the expenses to justify waiting until the market turns.

Quick question... Where do you live? How many rooms? have you checked the to see how much similar condos are getting per month in your area? With all the foreclosures it is a renters market right now. If you could "ride it out" by renting out your condo while buying a new place it would be worth it in the end. As the market turns you would be in a situation where you'd gain equity and value on both investments. That would put you in a good position.

[Hoops]

A couple thoughts:

1. If you're going to rent a couple of units, you ought to make sure you have several months worth of cushion (I'd say 6 months at least) for payments on those rented units. It'll reduce a lot of stress and worry. If you can rearrange the financing up front, you might find a way to put $5-6K away as your cushion.

2. Do background checks and rental applications if you like, but make sure you interview the people in person before renting to them. Few things will be more helpful than looking a potential renter in the eye to determine whether they'll be a good renter or not. Trust your gut.

[Andy Jick]

if you're looking to purchase a home, spend the money and have it INSPECTED.  my wife and i shelled out around $400...but the company invested something like 4-5 hours into our place and they took pictures of EVERYTHING.  we sat down with them and they walked us through a tutorial they put together (we even got a copy on CD).  make sure they're accredited (and if you're working with a real estate agent, they'll know the good ones).

we just bought our first home (down in florida - suburb of tampa) and real estate is crazy here.  but we picked the PERFECT time to buy (we were lifelong renters).  the home we bought is in a golf course community and we got it for $200k.  The seller also paid for all closing costs and fees.  We qualified for a loan at 5.75 percent (30 year fixed).  The seller purchased the home just shy of 2 years ago for $275k...it's a 4 bedroom house with a screened lanai (big in florida) and we have full access to the pool, clubhouse, and a soon-to-be completed exercise facility.  a new school was just built this year 2 miles from our front door (we have 4 children, 3 of which are in elementary school).  the home is only 5 years old and we definitely got a steal.

just do your homework...hope it works out well for you!

[nickagneta]

if you're looking to purchase a home, spend the money and have it INSPECTED.  my wife and i shelled out around $400...but the company invested something like 4-5 hours into our place and they took pictures of EVERYTHING.  we sat down with them and they walked us through a tutorial they put together (we even got a copy on CD).  make sure they're accredited (and if you're working with a real estate agent, they'll know the good ones).

we just bought our first home (down in florida - suburb of tampa) and real estate is crazy here.  but we picked the PERFECT time to buy (we were lifelong renters).  the home we bought is in a golf course community and we got it for $200k.  The seller also paid for all closing costs and fees.  We qualified for a loan at 5.75 percent (30 year fixed).  The seller purchased the home just shy of 2 years ago for $275k...it's a 4 bedroom house with a screened lanai (big in florida) and we have full access to the pool, clubhouse, and a soon-to-be completed exercise facility.  a new school was just built this year 2 miles from our front door (we have 4 children, 3 of which are in elementary school).  the home is only 5 years old and we definitely got a steal.

just do your homework...hope it works out well for you!

Funny you mention that as I am looking into buying a home in that area soon too and plan to relocate there eventually. Tampa is loaded with unbelievable deals in the real estate market right now as they over built on spec for years and prices are falling like a rock in the whole area. I've been looking at some homes in Hillsborough County(Riverview and Brandon specifically) east of the flood plain that are incredible deals. Pretty much what you have described but with prices in the $150's to $170's.

[Andy Jick]

sounds good...PLENTY of deals.  we live in wesley chapel, which is in central pasco county.  just a thought: you might consider pasco county as opposed to hillsborough - the taxes are cheaper.  my wife works in tampa and her commute is around 20 minutes (give or take a few).  we go to brandon quite often, but a LOT of new shopping areas have been recently built in our area (the I-75 / rt. 54 and 56 areas - just north of where 75 and 275 come together).

also, i don't know what your situation is, but our real estate agent lives in brandon and was OUTSTANDING to work with - if you're interested PM me and i can give you some details...he hooked us up with our mortgage company as well and they did a super job too).