Signed a Contract...should I back out?

Question

I am a new investor and I signed a contract in Lehi Utah for a new build.

The townhome is 321k for 3 bed, 2.5 bath, and unfinished basement. I am feeling sick about the decision it feels like so much money! My estimated monthly will be $1500. I’m single, I teach school and make about 3k a month, and am thinking about grad school.  I’m wondering if I’m firing too early and should wait.

I have 5 more days before I can get my earnest money fully refunded.

Can anyone relate to my anxiety??

Brady Schvaneveldt · Answer

@Doug Pintarch 3000 is my net. I could rent it out to roommates.

3% down would be 10000

5% down is closer to 16000

I have about 35k in savings, but also looking to go to grad school next year.

Kim Knox · Answer

I think most everyone gets nervous, you are not alone.

A great way to make money outside of your profession is related to the tax exclusion of gain that may be applicable for owner-occupied homes. Scroll down to  "Does Your Home Sale Qualify for the Exclusion of Gain" to see what i am talking about.  This is a beautiful gift from the government! https://www.irs.gov/publications/p523#en_US_2019_publink100073096 A 50% debt to income ratio is typically not worthy of getting a home loan, so that sparks my curiosity.  Ask yourself about how much money you currently pay in rent.  If it is near $1500, it might be smart to move forward. Also, If you have 3 bedrooms, you could potentially rent out a room to a fellow grad student or two.

Good luck!

Doug Pintarch · Answer

Did you drain all your savings for the downpayment?   When will the build be complete and ready for you to move in?

That's a large chunk of your monthly income to go to that mortgage, if your $3000 number is gross income.

Blake Drennan · Answer

@Brady Schvaneveldt in general, Utah rentals are hard to cash flow, but I think a lot of investors brush that off with hopes of appreciation. In your situation, renting out the other rooms would be a great way to get your monthly payment down to much less than renting a 1 bedroom apartment.

Another thing to consider is the HOA. A lot of newer Utah townhouse communities have a pool and clubhouse, which translates to a $150+ monthly HOA fee that will eat into cash flow.. not to mention the rules they sometimes impose on certain communities around how many units can be rentals.

There are some townhomes in west American Fork (basically Lehi, right on the border) that you can get a similarly priced, newly built property with 4 bedrooms and 3 full bathrooms. At that basis, you would be able to get another roommate into your house and generate more cash flow. They also rent out for $1800+/mo if you decide to move out and rent to a single tenant, or I’ve seen people get $2000+/mo in rent if they rent out the rooms individually. The community HOA has a lower $100/mo fee, and there are no restrictions on how many units can be rentals.

Brady Schvaneveldt · Answer

@Kim Knox thank you! I’ll look into that!

Brady Schvaneveldt · Answer

@Steve Morris I’d live in it for a year or so renting to roommates and bring in about 1100 with about 440 to pay on my own.

If I were to get married within the next year and find someone I’d have 1540 plus utilities to pay.

Steve Morris · Answer

What can you rent it for?  If your CFBT is better than 5% of gross, I'd be OK.

If you're buying it to live in, at DTI of 50%, how'd you qualify?  I wouldn't do it.

Signed a Contract...should I back out?

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