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phisigs79

By phisigs79,
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phisigs79 Oracle Reefer

phisigs79

Ok well after 4 years of being underwater in our home we have decided to rent it out and take advantage of the low prices in todays market to help us get out of our house and move to a single family. The thinking is to buy the second property with equity and have both houses appreciate over time to get out from under our townhouse quicker. Sooooo... I will be selling off all my livestock and probably just the tank so i can make the repairs i need to make my townhouse rentable (since its in wall a viewable from three sides). My family and I excited about our opportunity to move and look forward to a new tank hopefully larger. Now just need to find a house :biggrin: We will still be in the same area more than likely.

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Coral Hind Neptune Reefer

Coral Hind

I am not a finance guy but I am thinking of doing the same thing. Have you sat down with a lender yet? I would think unless you have a large amount saved up to pay down the purchase price your available loan amount will probably not be what you need because of your existing mortage. Are the other places around you renting for enough to cover the mortgage payment?

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phisigs79 Oracle Reefer

phisigs79

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I did sit with a lender and this is what i am doing. I am buying a property thats $200 cheaper a month and my rent will fall $600 short. So I will have to pay about $400 with HOA dues. I am currently $125k underwater in my home. If I purchase a new home with equity and home prices improve which is a pretty good chance, I have two properties to increase in value. When i hit a break even point i will cash out my positive equity in my new home and pay down my current house and either sell it or refinance it and keep renting it. If i dont i will be stuck in my townhouse for 10+ years before the value returns. I work for a home builder and if you have the avaialable cash for the downpayment and take the risk its the way to go. Interest rates are about to increase so its factoring in our decision. With FHA you only have to put 3.5% down on the house and as long as your monthly payments (debt) isnt over 50% of your gross monthly pay your loan should go through. You also need to make sure you have a cash reserve to take on the risk of renting as well. If you have all that it kind of a no brainer but its no for the faint hearted. With all risk there is reward. I just don't see how prices can go down any further.

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Brian Ward Oracle Reefer

Brian Ward

I am not a finance guy but I am thinking of doing the same thing. Have you sat down with a lender yet? I would think unless you have a large amount saved up to pay down the purchase price your available loan amount will probably not be what you need because of your existing mortage. Are the other places around you renting for enough to cover the mortgage payment?

 

I know a little about finance, and I'm learning more every semester. Chris, I'm sure you've worked it out, but some things to consider if you haven't already:

When you say "buy a house with equity" you mean purchase a house that you're not upside-down in so you can more fully realize gains in the market? Because if you're $125k in your existing house, you have no equity there to borrow against.

 

By putting only 3.5% down on a place, you will have virtually no equity at this point and will not be able to secure an equity loan on the property, so you must have a large cash reserve. You will also be paying PMI, so be sure to budget that in (I believe it's running 6% of your monthly payment?).

 

If the property is $200k, you're looking at $7k down, possibly plus closing costs, but you can probably get $7k in closing costs from the seller, so that's a benefit, but with the risk on the rental - probably looking at 3mos before you put in a tenant, repairs, etc. I would have $700 - $800/mo budgeted to cover costs on the property. I wouldn't do it with less than $20k in the bank to spare - so $30k - $40k total.

 

If you're Debt to Income ratio is approaching 50%, you typically do not get a very good rate - prime + 1% or 2% would not be unusual. Of course the rates in 10 years will probably be quite a bit higher. I would actually be surprised to see that loan go through right now. The best rates are reserved for people with Debt to Income below 30% and credit scores about 700 - and that's calculated on total debt, you have to include car loans, school loans, credit cards, etc.

 

I agree, the upside outlook is quite a bit better than where you're at now, but it's definitely a risky move. Be sure you fully understand everything and look at worst-case projections to be sure you can cover the costs somehow. Take a hard look at your townhouse and start budgeting for all those little projects you've been putting off - roof, gutters, hot water heater, dripping sinks, running toilets, etc.

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phisigs79 Oracle Reefer

phisigs79

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I am already pre approved for a loan at 5% without any points. I have two small car loans and thats it. Is it risky? Yeah it is but i am willing to take the risk.

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onux20 Grandmaster Reefer

onux20

If you are selling the skimmer PM me the price.

LOL. The real conversation has begun!

 

Interested in your corals. I saw your tank last year and you had some NICE stuff! :)

Ron

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tygger Grandmaster Reefer

tygger

I've also been thinking about this. Prices have dropped considerably from 3yrs ago when I bought my place and now I would only be able to cover about 70% of the mortgage if I rented my place out.

 

When you said you're 125k underwater, does that mean the value of your house has dropped by 125k or you owe 125k?

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phisigs79 Oracle Reefer

phisigs79

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No i need to put a list together and will start a new thread

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Incredible Corals Oracle Reefer

Incredible Corals

Good luck with everything. My wife and I wanted to do the same thing because we are currently under water as well. I was told by several people that no one will give us a loan because of the risk of our current home. Our credit is excellent and we are only 40k under water. I was told it was just too much of a risk and for any lender to take in this economy. It really sucks being stuck in a home that we only planned on being in for a few years. But at least we are all still alive and healthy. :)

 

My plan is to just keeping putting upgrades into the house so I can at least enjoy our place and increase the value at the same time.

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phisigs79 Oracle Reefer

phisigs79

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I dont beleive that is correct. You should try and contact another lender. The only issue would be not being able to get approved for the amount you want to spend.

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DaveS Oracle Reefer

DaveS

Basically this is about doubling down. Chris is a smart guy so if the risk is palatable for him, I wish him all the best. He's probably got better odds on this than on black.

 

If anyone needs a good loan guy, LMK. I just did two re-fi's this year and he got me very good rates. He's local and the rates were than I saw online.

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lanman Oracle Reefer

lanman

Basically this is about doubling down. Chris is a smart guy so if the risk is palatable for him, I wish him all the best. He's probably got better odds on this than on black.

 

 

Doubling down - good description! That really is deep underwater. Most people that far under would just walk away from it. You must have purchased very close to the peak of value - really bad luck. But even WORSE luck is that you aren't really happy with the place. If you were living in your 'dream house', then you could just keep on making your payments until you were afloat again. I agree that the odds are in your favor, Chris. Risky, but fairly low risk, barring sudden job losses or anything like that. Best of luck!

 

bob

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phisigs79 Oracle Reefer

phisigs79

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If I lose my job I am in the same boat no matter if I have one or two houses long term. My wife and I both have good job security. I am being taylored to replace my CFO and my wife is being taylored to replace the next person in her position to retire. I thought about walking away but this is the best way without risking my credit. If worst come to worst I would be in the same boat if i walked away from my current house. By the way I bought in April of 2006 which was two months before the crash. I'm an accountant so I know cash flow and would only take the risk if I was confident it would work plus I work for a home builder and know the market more than the average person. I also have access to preforeclosure lists and the resources to buy houses at auction (my uncle is in hard money lending-so I have access to cash deals). So the plan is like i said to find a home with equity in it. This isnt a situation that would work for alot of people, you have to have the resourses which thankfully I have. Also have a cousin thats a broker and listing my rental for free and is my agent at no cost.

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lanman Oracle Reefer

lanman

Well - all those advantages reduces the risk even further. :) I think you picked a winner idea.

 

My son bought his house when we THOUGHT the bottom was near. It STILL dropped a little - but he has his head above water because he got a good deal on the house. I sold my 'slum rental' near the peak. But the real winner was a friend of mine who sold her house for $1.2 million - - about one WEEK before things started to crash, and moved to Ohio. I SO pity the people that bought her place; which is probably worth about $700K now. <shudder>

 

Of course - I bought my house 25 years ago - so it's been up and down twice since then. Someday when it's UP, I'll sell it and move outside the inflation zone; like Florida, where you can get a very nice 2-bedroom condo for $65,000.

 

bob

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bshriver Reefer

bshriver

Florida prices skyrocketed worse than any during the boom and then crashed.

 

I rent a handful of properties. The good news now is that rents are going up again and you can actually find renters with goo credit now. Five years ago everyone with even decent credit was buying, not renting

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  • 2 weeks later...
phisigs79 Oracle Reefer

phisigs79

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Made a offer on a house yesterday. If anyone is interested in swinging by this weekend for a pre-sale opportunity to see what i have let me know.

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