$115,000 in paid off condo, should I leverage or bad time?

Question

Looking for guidance, thank you in advance. These are turnkey rentals.

Condo #1: $115,000 equity, bought @ 106k last year. Rent: $1400, HOA: $300, Insurance/Tax: $144, Net Monthly: $956, Net Yearly: $11,472, ROI: $11,472 / $106,000 = 10.8%

Potential Condo #2: $115,000 purchase price, Rent: 1400, HOA: $260, Insurance/Tax: $150

DSCR Cash Out Refi on Condo #1: LTV 75%, $86,000 Loan Amount, 30 yr fixed, 7.5% rate, Monthly Payment: Around $650, Closing Costs: Around 8-10k, Total Cash Left: $76,000

Condo #1 After Refi: Money Left In: $28,750, Monthly Net w/ Payment: $306, ROI: $3600 / $28,750 = 12.5%

Cash In Hand: $76,000

DSCR Loan on Condo #2: $115,000 purchase price, 25% down: $28,750, after fees estimating $35,000 All In, $1400 Rent, $260 HOA, $150 Insurance/Tax, $650 Monthly Payment, Net Monthly: $330, Net Yearly $3960, ROI: $3960 / $35,000 = 11.3%

RESULT: Total Monthly Costs: $2160, Total Monthly Net: $630 ish, Yearly Net: $7,560, Total Cash Invested $65,000, Yearly ROI: 11.6% CASH LEFT OVER: $41,000

Could put the cash into a third condo or put into the S&P 500.

Looking for some guidance on whether or not I should pull the trigger for some context:

19 years old college student studying engineering (heavy courseload)

Living in Chicago, Condos are in Ohio (I have family and friends out there)

I work part time at a high end hibachi restaurant averaging $25-$30 an hour.

My rent + utilities with roommates is $750 with room mates.

The numbers work out, my main concern is whether or not Ill deal with large vacancy within the next 5 years, or a recession, and I have to cover the monthly costs on my own ($2,160) which is a lot and not sure if I would be able to keep that up for a long time if I am not working full time in the industry. I would have the safety net of $40,000+ sitting in an investment account, and Ill try to save as much as possible per month to counter any large vacancies in possible recession. The other option is to get DSCR loans with a LTV of 40-50%, monthly payment will be less but then I wont have much $ left over to put in stocks. I want to invest in stocks and also leverage debt. SO, what does everybody think, based on my age, scenario, the current economy / real estate market, what should I do? My father says I should just leave the condo alone and just try to build up a stock portfolio slowly. I currently have around $5000 in an investment account.

Andrew Zamboroski · Answer

Are condos warrantable? That can affect things from a loan perspective. We go down to 50k loan size on DSCR if you want a lower ltv or up to 80% on purchase if you are looking to leverage the max.

In general, you’re in a really good spot for starters, so congrats!

Aaron Zimmerman · Answer

I would look to keep the money in the condos unless you find a better use for it with a better projected return such as a property.

I think the stock market does not represent great value at the moment. In addition, I didn't see any costs for repairs or capex in the monthly cash flow, albeit you're in a condo so it's limited. I'd also make sure the HOAs you're in have adequate reserves or you may have special assessments

Ned Carey · Answer

@Burhan Senih as said at 19 years old you are doing great. Real estate is a long term game. Don't be in  so much of a hurry you do bad deals.

It is not a great time to buy but there are always good deals out there. I really didn't look at the specifics you proposed. The important thing is to make sure the money you borrow earns a higher return than you pay in interest. Also keep enough cash reserves if things turn bad.

Burhan Senih · Answer

Anybody have any DSCR lender recs?

Brian Cauldwell · Answer

If you are concerned about vacancies, having multiple properties may help alleviate this concern. The more properties you have should help offset the vacancies. If it were me, I would try to get to as many rental properties as you want as quickly as possible. So if leveraging the condo helps with that, I would do that. You could also do less leverage at around 65% LTV and get a rate in the mid 6's.

$115,000 in paid off condo, should I leverage or bad time?

Most Popular Reply