I have an accepted offer on my very first property and I am looking for some feedback from more seasoned investors. The property is a 1br per side duplex (going to be owner occupied) in a trendy neighborhood. It's an old home but it's in great shape. The property appraised at around 155k and was listed for 140k. Accepted offer was 136k. With 10k down on an FHA loan, I'm looking at between $900-1000 mortgage including taxes, pmi, etc. I feel like that is pretty expensive but the mortgage people tell me that I don't qualify for a traditional loan (due to lack of credit history) and that I can likely refinance in a few years and cut a couple hundred dollars off the mortgage.
The owner has both sides rented out at $600/mo, which I thought was pretty low considering 1br apartments nearby are renting for $800. The owner also said that they hadn't raised rent in 4 years. I am confident I can get at MINIMUM $650 for the side that I'm not occupying, perhaps even more if I were to rent out the two car garage.
I realize that this doesn't meet the 2% rule etc. and I'm not trying to hit an absolute home run here with my first property but I don't want this to be a total whiff either. Keep in mind that I am also looking at this through the lens of someone who is going to be living in the home as well, not purely from an investing standpoint. My plan is to live here for 1-2 years while I save for my next property and hold onto this one as a long term rental. Do you think this is a solid first property. Thanks in advance for your responses!
It doesn't sound that profitable to me. Unless you pay more rent than the tennant next door.
sorry meant to say because you will pay more than the tenant next door.
I would look at it this way. If your cash outflow is still less than what it would have been had you not acquired the property and you rented someplace to live, then it probably wasn't a bad deal given that you would be building equity over time anyways. Of course, this is not completely apples to apples as you committed the down payment, but you can discount the monthly savings going out several years and compare that to your down payment and it would be far greater.
This comes with a caveat that had you waited and screened more properties, you may have gotten a better deal in which the math made more sense. But remember each month you are renting, you will always be cash flow negative without any equity buildup.
You don't have alot of room, and the MI payments are not helping on your FHA loan. It is better than just buying a SFR though. How long will it take you to reach the 80/20 LTV to eliminate the MI/FHA loan and go conventional? just ball parking numbers but if you get your PITI payment closer to $700 a month and rent the other side at 650-700 you can live in your side free or very little and prepare for expenses i.e. $0 cash flow with free rent less your downpayment and CC for about $30K.
Since you are in contract you have much to consider during your walk period. You can risk feeding it and hoping for appreciation to reach 80/20 LTV (78% with some FHA) then refi. Keep in mind the refi will cost another 2-4K depending.
Alex I think it sounds like a decent first deal, and you have to look at it a little different since it will be partially owner occupied. If your mortgage ends up being $950 and you can rent the other side for $750, you end up living for $200/month. As part of your "return", take what you would normally be paying for rent and subtract your new $200 mortgage payment from that, that is essentially your return.
You are buying a property and saving yourself $600-700/month in rent, basically the same as buying a non-owner occupied and clearing $600-700/month after expenses. All the while you are building equity in this property and can take that rent savings and start saving up for another down payment on your next deal.
PMI on 30 yr FHA loans no longer expire at 80% LTV. With less than 5% down, PMI lasts the entire 30 years. With a down payment of 5% or more, PMI lasts 11 years.
It seems that you may be OK for now, but you may face difficulties once you leave the property and rent out your unit. Without refinancing to remove PMI and /or raising rent, I'd be a bit cautious that it will cash flow.
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