First purchase, please double-check my numbers
Question: Would someone just double check me before I buy this (my first) rental property that these numbers make sense, please? I’ve been looking and looking for the right purchase and this seems like it but I’d like to run it by the experts here first.
The details: 3/2/2, faces a school. Good house in an ok area but needs some light repairs that I estimate around $2500-$3000. It’s currently rented at $1200/month but I think that is high. The tenants are moving out at the end of this month, too. It’s 1446 sq. ft.
Price: $105K Tax appraise: $121K Taxes: $3,128 Loan: ~8% 30 year fixed (no docs investment loan) Closing costs estimate: $3K
This seems like a really good deal to me. Would someone please confirm of deny this (and give reasons why either way so I can learn, too)?
Answer: The rent is not high. You need $1100 a month for the deal to make sense. Once you do some fix-ups and clean up the outside, you are likely to see the tax value jump a bit, and that will bring up your taxes. Also, make sure that the tax number you are quoting is at the commercial or investment rate, not the homestead rate. If not, you might get surprised.
The loan seems to be a bit expensive. Mortgage rates dipped a few days ago, and are floating around 6%. It would be nice if you could get that down a point or so. Do you have any options for taking home equity off of your current home? If so, consider tapping that to the max, then after doing your fix-up, getting a home equity loan on the rental to clear up your house. Or, if you are comfortable with debt, use the new home equity loan to buy your 2nd unit.
If you are not sure about the rental business, or might sell the house at some point in the future, maybe consider going with an ARM. I just saw 3/1 and 5/1 arms adverstised for under 5%, but again, these were residental loans, so I don’t know what the investor rates are. This would give you a low rate, with low servicing costs, and give you a decision point a few years down the line.
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