Real Estate Investor · austin, TX · Member since 2014 · 57 posts · 7 votes
I don't know what property to buy:
Property A: Pros: In up and coming area. This area WILL appreciate significantly over the next 5-10 years. A great LT investment. Had remodeled bathrooms. Great location. Cons: will need new roof in 5-10 yrs. Needs all new floors (1500 sf), new kitchen. New HVAC. Popcorn ceilings have to go. Price 257K - mortgage is around 1700/mo. Rental comps are about 1500/1600ish.
Property B: Pros: Price 180K, which I love. Rental comps 1300-1400. Mortgage 1100. In less desirable area (not as much to do - mostly residential), but usually easier to find renters. HVAC and roof are new. Also has a beautiful view of a stream from the back porch. Cons: Probably won't appreciate as much as Property A due to location. Needs new flooring, kitchen, bathrooms, popcorn ceiling.
Ideally, I'd want something that will appreciate but also be able to rent out in 1-2 years after I move to my next property.
Chicago, IL · Member since 2015 · 298 posts · 261 votes
10y
As Jacqueline stated Prop A is cash flow negative and to me that is a non starter. Even if in 5 years you can gain significant equity, there is no way to know what will happen by then. What is appreciation slows down? It is akin to gambling and investors are not gamblers. Even if it appreciates, with the amount of cash you are paying just to keep it afloat you might end up just breaking even in the 5-10 years.
Prob B is also cash flow negative once you factor in maintenance and reserves. I personally would not buy it either especially given the fact that you said appreciation is much less likely.
That is my opinion based on the initial reading of what you wrote.
If you all don't like negative gearing you could not invest in Australia. Investors have based their whole strategies off negative gearing.
I like to gamble. GO A! Negative gearing ain't bad if you are for sure that it will appreciate. The fact you are from Austin I'm thinking your on decent pay and the property will go up.
Every investment has risk and rewards. If you going to live in for a while as well then go A, bigger tax write offs!
Also if you keep trying to look a for a deal as everyone here says you're going to be on the side line for a while. Take the plunge but learn to swim. Least your in unlike a whole bunch of tyre kickers
I would never invest in australia, at least right now. Just because other people do it, does not mean it is a smart move.
Why gamble when you don't have too? There is no sure bet with appreciation. No one can predict for sure what the market will do.
If the market goes down cash flow keeps coming in, but if the market goes down and you have no cash flow you are in trouble.
Investor · Santa Monica, CA · Member since 2014 · 17 posts · 7 votes
10y
Don't feel like you have to buy either. There are always other properties out there. Sometimes the best decision is to not buy.
It seems like you are going to live there for a few years before renting, but I'd personally still think of it as an investment property right now. Banking on future appreciation is a dangerous tactic.
Property A is negative cash flow right now.
Property B is too close for my comfort. Especially since it doesn't seem like any additional withholdings (example: safety net out of every month's rent to hold for future repairs) were included in the numbers your using to determine margin between market rent vs the mortgage.
Just be very sure of your numbers before pulling the trigger.
Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes
10y
@Daniella Ortiz Like a lot of people here, I would never buy an "investment" property where mortgage is more than rent. However, if it is going to be your primary residence (which it sounds like it is), I suppose that is a different matter. Just make sure that you can live with your choice. Nothing is certain, everything involves risk. You are not 100% sure that a certain area will in fact appreciate, because it hasn't happened yet. Let's say, hypothetically, there is a 1-50% chance that it doesn't appreciate, would you still be okay with your investment? Also, you don't HAVE to buy A OR B. You can choose to continue searching and buy a better deal than either of these.
I like how Aus is mentioned here. Aus and NZ... I hope I have enough cash to buy when the market eventually dips.
Real Estate Investor · austin, TX · Member since 2014 · 57 posts · 7 votes
10y
Update.
I offered 2k over asking for property A. Someone outbid me with 100% cash offer...holy cow!
I offered full price for property B. Just needs a few cosmetic upgrades and I think it's rentable. Location not as good, but I'll just buy another house next year. Will keep ya'll posted.
Question: If I want to buy a second home as an investment property before 12 mos, do my mortgage rates fluctuate ? How does it effect the mortgage rate if it's not considered my homestead? Should I just live in each house for 12 months before buying my next investment? I'd like to buy 2 homes per year, but idk if it's possible...
Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
10y
@Daniella Ortiz Residential loans for investment (non-owner occupy) will have higher down payment requirements (20-25%) and slightly higher interest rates.
I assume that since you are asking about waiting 12months, you are thinking about getting another owner occupant loan, and move into the new property. If that is the case, some loans (depends on what you get) will require you live in your existing house for 12months after you close on the loan (with some exceptions like job relocation).
If you have less than 2 years tax records for rental income, most banks will not allow you to count the rental income in your income requirements. Not sure if this will effect you, but it could (affects your income to debt ratio).
Investor - buy and hold. · Cedar Park, TEXAS (TX) · Member since 2015 · 95 posts · 7 votes
10y
Dan - please write back on your decision. I'd like to know how folks thought process works in the given situation. I personally, wouldn't get into -ve C.F properties.
Investor · West Suffield, CT · Member since 2013 · 106 posts · 42 votes
10y
I agree with many others. Neither of these are a good investment. Find a property where you can actually make money every month once you're out of there to help fund future investments or help pay your next mortgage or rent. If you don't, you'll likely be kicking yourself down the line.