Real Estate Opportunity, Yea or Nay

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  #1  
Old 11-09-18, 08:51 AM
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Real Estate Opportunity, Yea or Nay

I live on a lake, have about 100 feet of shoreline. You can ski on it, it's well stocked. People ice fish in the winter and it's secluded but real close to a state highway. There are probably about 100 homes that are lake front and rarely do they go up for sale because the properties are usually offered to tthe children of the owners first and rarely do they decline. I didn't. The lake is midway between two large metro areas and 20 minutes from an international airport so it is a very convenient place to live.

Quite unexpectedly our neighbors put their beautiful house (2800 sqft stone brick 2 level ranch) up for sale (by owner). They're elderly and could not longer take care of it. It also has about 100 feet of shore line and has THE best view of the lake. I don't have a neighbor on the other side of me. Mortgage would be about $1k a month and well within my budget.

The owners are holding off on any offers and have given me first dibs. I am seriously considering the purchase because I could use a little extra space for storage, I could never have to worry about unpleasant neighbors, and I could rent it and get some extra income while being right there to monitor its condition. Based on history the home has the potential to appreciate $150k over the next 30 years.

Would like to hear some opinions.

thanks
syb
 
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  #2  
Old 11-09-18, 08:54 AM
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Sounds like it would make a great vacation rental.
 
  #3  
Old 11-09-18, 09:34 AM
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Originally Posted by sybaris
I am seriously considering the purchase because
I could use a little extra space for storage,
I could never have to worry about unpleasant neighbors, and
I could rent it and get some extra income while being right there to monitor its condition.

Mortgage would be about $1k a month and well within my budget.
Based on history the home has the potential to appreciate $150k over the next 30 years.
Well, good news, if you're going to start with investment property, this is the sort of situation you want, a property you are familiar with and are able to take care of.

As for bad news, not much, but you want to consider a few things -
First, talk to a local real estate attorney- there are lots of "first time" issues that you might want
some help with.

Is the mortgage amount based on owner-occupied rates?
Don't forget, you're now an investor, that can be a big difference in credit score and interest rate.
You might end up with a financial incentive for renting your current house, and purchasing the other as a primary residence.

Consider a LLC to hold the deed and check into umbrella insurance.

Ask about a lease-purchase, some sellers want to avoid a big tax hit in the year of the sale, purchasing over time can be more cost effective for the buyer.
 
  #4  
Old 11-09-18, 09:55 AM
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Interest rate for an investment will be about 1% more on average, so not a huge deal. Plus, if you consistently rent it out, the renters are paying the mortgage (and then some) anyway, so not a deal breaker. If you like the home better, I say purchase it as your primary and convert your existing house to a rental. Out of curiosity, is $1,000/month PITI, and at what rate did you figure that amount?

FSBO can be tricky if you don't know what you're doing. And most realtors likely won't deal with the homeowners. If you can manage, you will save thousands (obviously).
 
  #5  
Old 11-09-18, 10:06 AM
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Originally Posted by sybaris
". . . I could never have to worry about unpleasant neighbors . . ."
Of course, you will be inheriting whatever Neighbors the subject property has on the other side of it . . . . who'll now become your Neighbors.

You'll always have some Neighbors unless you own the whole World !
 
  #6  
Old 11-09-18, 10:06 AM
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Yes, PITI. 5.25%

In this area insurance and property taxes are very low.
 
  #7  
Old 11-09-18, 10:10 AM
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True but the property would be in betwenn me and them and I can't even see them from my home. Regardless, they're pleasant people and keep to themselves.
 
  #8  
Old 11-09-18, 10:24 AM
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5.25% is pretty good for an investment property. What is the maximum LTV for this particular lender? Last I checked, my lender wouldn't allow more than 78% LTV without PMI. Lenders obviously have their own rules. If you can manage it, you could consider a 15 year fixed and get a better interest rate. I'd only do this if you feel comfortable paying two mortgages for up to 6 months, and of course if the rent you will be charging will cover the entire mortgage (and then some).
 
  #9  
Old 11-09-18, 02:40 PM
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The rule of thumb for an investment property to be a good financial idea is you must be able to collect at least 1% of your purchase price in rent every month of the year.

Also, many who are not involved in real estate believe it to be a passive income source but it is an active one, so make sure you have the time to commit.
 
  #10  
Old 11-09-18, 04:15 PM
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You could use it for an air B and B property since you live so close. Rarely do you loose on property.
 
  #11  
Old 12-23-18, 09:43 AM
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Update

i was gifted an advance on my inheritance for the down payment on this property. Not a big deal. We filled out the required gift paperwork and waited to close. Then the bank says, "Nope, FNMA says you can't use gift money for a conventional loan down payment on an investment property". I looked it up and verified it.

So now the bank says the alternative is to use the gift money on a variable rate mortgage. The thing is it will add a bit to the the monthly payment and leave us vulnerable to any future interest rate increases.

Would like to hear any ideas on how to still use this gift money and still get the conventional loan. One method I thought of was since the bank only looks at 60 days of account history I could scrap the process with the current bank, wait until that gift money has sat there for 60+ days then start the loan process with another bank. I'd probably have to get another appraisal but i'm thinking the long term savings and risk protection might be worth it.

thoughts?

thanks
Syb
 
  #12  
Old 12-23-18, 07:10 PM
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A) Live there and rent out your house for as long as it takes to fit the residency requirement..

B) You and Parents co-purchase the property as a residence you own which is occupied by elderly/retired parents. Parents pay the down payment for themselves, then make a gift of the equity to you in a year or so.
 
  #13  
Old 12-23-18, 07:21 PM
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Take a loan out against your 401k to make the down payment, then pay back the 401k loan with the gift money.
 
  #14  
Old 01-05-19, 07:12 AM
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Thanks for all the responses. Closed on the house yesterday. Ended up with a better mortgage than the bank initially offered.
 
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