Close To First Deal (good Or Bad Choice???)
OK, I put an offer in for a two bedroom condo apartment in a 6 family building (similar to a townhouse). Offer likely to be accepted.
Here are the facts:
Jersey City NJ
Two bedroom apartment, purchase price of $135,000. 750 Square feet
Top floor, completely renovated apartment with new kitchen, bath,track lighting, new floors & new paint. So no major renovations or work needed (provided inspection checks out).
Monthly common charge of $125
Taxes of $1,000 per year.
Similar units rent for between $1,000 - $1,200 a month.
I want to put down as little as possible, probably 10% & maybe do an 80/20% to avoid PMI.
My FICO score is around 610 - 630 & yearly income of $45,000.
Issues:
Neighborhood not so great. It seems decent in the day time, but I would be scared to walk alone at night.
How does one obtain homeowners insurance on a nonowner occupied condo arrangement??
Would finding tenants be a problem (anyone who knows the area??)
Thanks for all your help.
Have you ever been a landlord, Nick?
You are going to plunk down 10% of $135,000, and finance the rest. PITI, plus HOA could be about $1,000 per month. In hopes of getting $1200 per month in rent?
In theory, that might work. But what happens when the rent check is late... bounces, or doesn't come at all?
Jersey City real estate could and should appreciate in value.... and if this is a risk that you can afford, go for it. But, if you can't afford to have an interruption in rental income for more than 3 or 4 months... why do it?
With your credit score, it will be diffficult for you to get 80/20 for an investment property. Not many lenders will lend over 80 % CLTV 2nd mortgage for an investment property with even 700 score anyway. Are you going to debt load to get a fully documented loan? If not, you will need to get a stated loan, your interest rate will be considerably higher and you will have to put down more money.
I agree with the post before me, it will be extreamly tight. Even PI will be at least $800 per month plus the other expenses that you mentioned and more.
Do you have a mortgage broker? First of all, you need to get preapproval, see what kind of loan you can get. Knowing how much actually you will need to pay out every month, you should be able to make a decision whether this is a good deal or not. To me, it does not sound like a good one.
Good luck.
<IMG SRC="images/forum/smilies/icon_wink.gif"> [ Edited by SmileyFace on Date 11/16/2003 ]
I pulled something different from the post...location location location! These are the three most important things in real estate investing. Be confident that you can rent the property. If you are going to rely on top of the market rents in a risky location, you may have problems.
Also you said that you made an offer that is likely going to be accepted. This means that you are offering too much! Use the 100:10:3:1 rule: Look at (on paper or in person) 100 properties, make an offer on 10, get 3 accepted, and buy 1.
This being said, mortgage alone would be $808 for a 30yr, 7% loan. Add an estimated $338/mo (3% of 135,000) for property tax and $125/mo for the common fee, you are already at $1271. This isn't even all of your expenses.
Some people can make money renting single family residences but I do not since I have yet to find one that could cash flow in my area. A lease/option somtimes can.
I may be biased here in my opinions but I would say to run your numbers over and over again. ACTION is key here so I commend you for that. You can't make go anywhere without taking a step. Be prepared to fail, however! You will make mistakes.
Winners are not afraid of losing. But losers are. Failure is a part of the process of success. People who avoid failure also avoid success. --Robert Kiyosaki
However...with the right knowlege and doing your best to make sure the numbers work, you can hopefully make more money than you lose.
GOOD LUCK!!![ Edited by myfrogger on Date 11/17/2003 ]
IF you make money off of this deal it will only be AFTER:
#1. You own it for a few years (at least) and sell it.
#2. You own if for several years, rents go up to $1500 or so (while your mortgage/expenses stay the same)
and #3: You'll most likely loose money for several years.
Did you consider in your calculation:
-Insurance?
-Capital Improvements?
-Vacancy Expense?
-Management Fee?
-Other utilities (Water, sewer, garbage)?
-Bad debt?
-Maintenance expenses?
-Closing costs?
If you've fallen in love with this house and MUST have it for emotional reasons, then go for it....just realize you'll loose money off of it for a long time.
A good rule of thumb is that your rent must cover all expenses and give you at least 20% cash flow over time. The min you should be able to get in rent is 1% of the purchase price, so if you pay 135k then your base rent should be at least 1350 per month, and in most cases should be 1500 to cover unseen expenses.
I would walk away from this one if you can, the cash flow is just not there, and you will be out of pocket several thousand a year.
I do not like condos. Look at a duplex possibly same area. You should be able to make a few hundred a month with a duplex and still get appreciation. During a boom even the worst areas appreciate just not as fast. I am basically a slum lord here in Austin. I only buy when the rent is double the PITI.
Ted Jr
Just one question, why do you want this deal? My thoughts are your first deal should be a slam dunk, no second thoughts about value, mortgage structure, down payments, ect.. Think long and hard about this deal, I think the reason you are not sure is because you see all the risk and dont see the reward. Good luck