WHAT SHOULD I DO ????

7 Replies

Hello Biggerpockets folks,

 I currently owner/occupy a condo which I purchased in 2007 at the peak...I am underwater and want to invest in RE. Should I rent it out and break even and purchase a sfh with fha and fix it up or stay and purchase a sfh and rent it ??????

I think this may be a case of tomatoes and orange cake.  

At first I thought it was a case of toMAYtoe toMAAtoe, then I thought it was apples and oranges, then I thought, if you want your cake and eat it too, there is a simple solution... Buy two cakes!!

Then I realized, it's all great advice so I put it all together!!

Ok, so I'm going off of 3 hours of sleep but the point is that it doesn't really matter which way you go as long as you take action.

You could buy with FHA and live in it, which would be less out of pocket but also less cashflow from the condo or you could stay in the condo and rent out the house which hopefully was at a better price so it cashflows better, (who's profits will go toward the paying of the condo) See? Tomatoes and orange cake!!

Now, you do have one more option of making your tomato-orangecake A-LA-MODE.

Why don't you buy a 2-4 unit, buy that with FHA and live in it? That way you can live in one side and rent out the other 1-3 units and also break even with the condo.

BAM!!!!

(Full disclaimer:  I'm not sure how appetizing tomato orangecake is, even with ice cream)

Aren't we getting close to the peak now? Prices are getting pretty high in the Minneapolis area now and rents are at an all time high.

Hi

I wouldn't say we are anywhere near the peak in Minneapolis.  We are just back up to the old peak.  You never know where the peak is until it starts going down.  At this point, rent is still rising, inventory is down, values are going up.  I buy multi family units and I'm still getting deals so I'd say we are not near the peak as I'm getting good cash flow on the properties I'm buying.  It would be different if the purchase price didn't allow for positive cash flow like back in 2007/2008 when people were buying strictly on speculation for appreciation and had negative cash flow.  That's a recipe for disaster.  I just put in a purchase agreement yesterday on another place in Minneapolis so there are still deals out there.

@Shawn Gibson you should contact a great mortgage lender in your area and see what your options are. It may be difficult to get another owner occ, low down money, when your current property is upside down.

One angle to consider is picking the rental based on the highest achievable Debt Coverage Ratio (DCR). Lenders will frequently accept 75% of rental revenue as income, so if your rental has a DCR of 1.25 or higher it will help keep the DTI ratio in balance for future financing. Personally, I want my rentals to have a DCR of around 2.0 to comfortably cash flow and then some.