To buy or not to buy real estate?

I have the opportunity to buy a 4 year old condo worth just shy of 100K for 75K plus closing costs essentially paid. It is in a relatively stable market with no sharp spikes up or down (during the boom 15% increase was normal for condos). The deal is on the table and I'm just a little nervous, first time buying for investment purposes.

Brand new condos in that neighborhood sell for around 85K with one less bedroom and about 400 sq ft. less (new condo costs about $75 sq ft).

It will cost about 2K to fix it up. I can easily rent it for the cost of the mortgage plus get about 20K in equity immediately.

Why are you getting such a good deal? That's usually a heads up about something. Have you checked out the condo association? If they are professional and efficient, good. If not, uh oh. Are the neighbors a problem? There is usually a % of renters allowed in a condo complex. Will that be a problem or are they expecting you to live there? Owners behave differently than renters. How will you be managing your rental? Will you be able to adequately check references before letting anyone move in. Is the neighborhood good? That will determine the quality of renters you have to deal with to some extent. How will you handle it if the place is trashed or just seriously dirty? Will you be able to afford vacancies? Are you tough enough to evict?

Answer those questions - you'll have your answer

You should be able to rent it for more than the mortgage! You need to think about taxes, insurance, condo fees and maintenance on the condo, the rent needs to cover all the above! Plus you need to be able to pay the mortgage on your own, in case the renters don't pay you! You will also need cash for an attorney if they don't pay you, and would be a good idea to have one write up the rental agreement for you to avoid any problems! Are you good at fixing things? If not, you will need someone to do the repairs for you, an extra expense!

If you're buying as an investment, make sure you're up to the challenge. Are you prepared for all the hassles of dealing with tenants? Your property being destroyed, people not paying rent on time, having legal issues, getting called at 4 am because the heats not working, and then finding out you need a new furnace, to the tune of $3,000. It's not as easy as it seems, trust me. If you do buy it, find out what other similar ones are selling for, and have it inspected by a certified and licensed home inspector before you buy it.

as a rule of thumb, an investment property should pay for itself within 7 years...just covering the mortage and repairs is not enough....look aorund, take your time, maybe look at some 2 family homes that generate more money, and be prepared to spend a lot of your free time dealing with being a landlord...it's not easy for certain, or everyone would do it. I've been a RE broker for 20 years and most people that buy investment property have no clue what they are getting into. think it through...it's a huge decision.

Sounds like it's worth the risk. My first investment purchase was a big step as well. Now have three.

Go with the gut on this one...the next will be much easier.

The best thing to do is ask someone who is in real-estate in your area. Usually they are so busy with their own stuff they won't squeeze you out of your good deal. Plus they want to make good impressions on possible future clients so they will give you lots of help. They can also paint a better picture of your area of what renting condos and such is like, and if you wanted to resell after a remodel, what you might get out of it.

For the area I come from that would be above average price.

That's excellent! Go for it. If you can afford it, use a realtor to rent it out. I have a rental property that I don't make much on and therefore can't get a realtor and it's a pain in the a$$ to deal with the tenant. Good luck, sounds like a great deal!

sounds good! go for it!

Sounds like a good enough deal, just make sure you have taken in all your considerations - taxes, insurance, hoa's, maintenance and if your renting it out instead of flipping...make sure your stable for a low renters slum should one occur.

great time to buy bad time to sell

Buy, real estate is for long term. Even if the prices fluctuate, you still come out a winner. You may try and bring the price down a little more, it does not hurt to try, after all its the buyers
market. By the way, which area is it. Its mostly California and other expensive areas that will suffer more correction probably not your area.

Sound good. The only risk is that real estate values will continue you fall as the country moves into a recession.

It really depends on where you are and how the market is. From what you have said it seems that things are on the upswing which is not the case for most people. I used to write mortgages but I am now a full time mom so I would be more than happy to talk about the loan with you, I have the experience without trying to sell you anything :) The best thing you mentioned is what homes are selling for in the area. That is what the appraisal will be based on, current market value, what homes have sold for in that area within the past 6 months to a year. Count on the $2K in costs to fix it up to atleast double... they always do. The carrying costs you will have to pay when you are fixing it and for anytime it may sit empty. $20K in equity would be nice if that is what you can actually get for it. STAY AWAY FROM NEGATIVE AMORTIZATION LOANS!!! Those are the loans that are getting everyone in trouble. It is a low interest rate for a short period of time. For example your interest rate would be 1% but you should be paying 7% so the left over 6% gets added on in the back end and will eat away at that equity. Don't be afraid from a longer term ARM (adjustable rate mortgage) On average people change their financing every 3-5 years so the likelyhood of getting a 30 year and paying it for the full 30 years and never refinancing is slim to none. INTEREST ONLY loans are great for investment properties and people that work on commission. Interest only loans are not the same as the Neg. Am. loans that I described above. The beauty of the interest only is that say your payment is $700 per month interst only and you pay $1000. for a month, that additional $300 will go against the principal and your required monthly payment would go down the next month because it will be interest on a lower principal amount. Then you could chip away at the payment and if the home is empty for a few months you could make the lower interest only payment. At least that is the way it was with the company I worked for. Don't get into a prepayment penalty and stay away from brokers. A broker is just the middle man, so they will charge you to find the loan, they don't actually fund it themselves. They find the bank to fund it for you. So you would be paying the broker to do the work you could do yourself. Also they don't always know all the ins and outs that the banker would know. I have heard so many stories of people working with brokers and they got to the closing table and the payment was higher because the broker only quoted the base payment and didn't include the insurance and taxes. Or closing costs were higher because they didn't include taxes and prepaid items.
The good news is that rates are very low right now but keep in mind that the interest rate on a investment property will be higher than a rate on a primary residence. It is all about risk when it comes to the rate. Credit, income, debt to income ratio, credit history, etc. Good luck

decide to buy or not to buy

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