Which Is A Better Deal?
I have an option to purchase 2 condo's for 225,000(as in total for both) they rent for 1050 each, hoa is 250 a month .The possibility for appreciation is very good in this area. The second option is a condo that just came on the market for $96,500, $18,000 below fmv it rents for $850, $70 hoa. I can only afford either or, not all 3. I'm not sure if I should put 20% down to make nice cash flow of 150ish or should put as little down as possible and watch equity grow? I appreciate any input.[ Edited by mcq72 on Date 04/03/2004 ]
Not sure I understand. You say that you can only afford one is it because the rents/expenses don't cover the payment or you don't have the down money.
a) If the rents don't cover the rents/expenses do you really want to buy either? You will have to take money out of your pocket each and every month and if something goes wrong (a water heater takes a dump etc.) that’s more money you have to take out of your pocket.
b) If on the other hand you don’t feel that you have the money for the down payment. There are ways to come up with down money and if you are buying at the right price and it is in deed a good deal the down money could be taken out of the property.
Terry
I only have about 25-30k to put down so therefore I couldn't do all 3. The cash flow on the 2 condo's would be +150 each. The cash flow on the one condo would be about 150 as well but it's 18,000 below fmv.
$150 (+) Month? Is this with a maintenance fee for yourself (pay yourself first, after all you will have to manage it or pay someone to do so), a property maintenance allowance, vacancy allowance, etc.? If so this might be a good property use the property analysis tool from this web site to check it out. Once you have one property you should be able to get the down money for the next w/o problem.
Terry
[ Edited by TLHynicker on Date 04/04/2004 ]
Just wondering if you used the property analysis tool and if the property was a good deal or not?
Terry
Ok without cranking up excell here's my read on the numbers
Option one (122,500 for each unit)
12,000 per year rent
-3,000 home owners association
= 9,000 annual net. or a net rent multiplyer of 13 and change or a cap rate of .075
Option two (96,500 for the unit
10,200 per year rent
- 840 hoa
=9,360 annual net or a net rent multiplyer of almost 10 or a cap rate of .10 (somebody please check my math)
therefore deal two is much better than deal one. Neither deal is a huge winner (I try to get net mulitpliers of 7or less cap rates of .13 or more. However this also assumes you have no maintence costs other than the HOA and that is unlikely. In addition since option #2's hoa is so much less it is likely that they do less maintence or supply less service. Leaving you to pick up the slack.
Bottom line, walk from both deals you can do better. Unless you are convinced that the appreciation bubble has a lot of life left in it.
You have a very good opportunity where you are. You are in a hot market due to frustrated Califonians moving to the area for affordable housing. This is helping accelerate appreciation in your area. If you could do some creative financing to make all 3 deals work,in a couple of years you could probably sell all 3 for a nice profit.
Commercialking I think has the correct idea but I didn’t want to be the one to say it. If you have $25,000 to invest in it and you do it on just one property making $150/mo free & clear that’s only about 7% return. But if you can do like MichaelChandler suggest, get creative and use say only $10,000/property your return increases to approx 18% and then you could get both properties and still have $5,000 to get another property
Terry
how hard is it to get a loan with so little down my fair issac is 750?
P.S the proformanator said it was close ,but as long as I keep the vacancy low and manage it myself it was a go.[ Edited by mcq72 on Date 04/08/2004 ]
the way i see it you really are not getting what i would expect as a good deal..i always shoot for 20% cash on cash if holding more than a year or two..that said you can get a 100% non-owner occ from any number of lenders with that score and than you would be making good cash flow and no out of pocket
I'm wondering how much higher the rate would be though at 100%. I had 30 year locked at 6.25% with 20,000 down
*sigh*
I'll get you a 50% cash on cash return on that money. I've got a track record in stocks at about 150% per year. Only bad thing is that I don't have more money to throw at the damn things. Fully invested on margin if you know what you're doing is the way to go.
In all honesty that's why I got into RE tho. I'm trying to lock up properties with little or no money out of my pocket. This way I can theoretically control an unlimited number of properties. 20% is ALOT to put down on a property. For residential I would say you are crazy. Why not get into as many properties as you can for that money. Even on a commercial property I'd only look to put 10% down. That's what is great about this world, everyone is different. Whichever route you choose I wish you luck.
Ryan J. Schnabel