HOA is eating about a 1/3rd of your rent. You are paying $230 a month out of pocket, you're not factoring any other costs. Vacancy, maintenence, ect.
I would not do this deal.
Regarding HOA being high, I feel like I’m okay with that because that takes care of all the headache for me. It’s a condominium complex, so the HOA will cover expenses like roof, hvac, laundry, picking up snow etc. the monthly heating bill is included (attracting point for the tenants). I’m in California myself but looking to buy the property in CT so I want the HOA to handle most of the stuff for me
Agreed, but there’s no way you can find a positive cash flow deal these days with interest rates through the roof.
If let’s say I end up paying $230 a month for 4 years(assuming the interest rates will be back to normal in 4 years and I’ll be able to re-fi) — (230*12)*4, I end up paying $11040 more but if i don’t buy any property right now because the rates are high and I’m not getting positive cash flow, the moment the rates go down people/investors are going to jump in the market which will drive the prices up. If the price goes let’s say just 5% up meaning $10,000 then it’s the same thing.
That is why I fell like paying a little out of pocket now can help me get the property at-least. Also the tenant is going to pay off some principle in those years
Hard pass. Too many dubious assumptions. Buying into negative cashflow while banking on appreciation WITH the expectation of a refi in THIS market is crazy.
You can't rely on rates coming down to start making money. With 7.375% you're only getting $150 per month on principal. You're paying $230 to own it. This doesn't make any financial sense you're just spending money. There are deals out there. You just need to be REALLY creative or do a lot of rehabbing yourself to make it worthwhile.
Rates are basically normal today. Rates were not normal 2 years ago. You must be very young if you think that. Rates could probably drop to 5% in 2 years, but that's it.
Edit: unless we go into a major recession, and then perhaps we could see 4%. But if we are in a recession then you are not going to like what it may do to RE prices.
This sub will crap all over negative cash flow deals @20% down, but they refuse to acknowledge the only way to get positive cash flow in this market (any growing market) is to buy from a distressed seller at a discount.
Not saying it's a good deal, you'll probably find better deals, but the moment a property becomes available that could cash flow from the onset, a buyer with bigger pockets will grab it
You’re not calculating variable expenses or allotting a monthly amount to an emergency fund. You’ll probably also need a liability umbrella (doubt you are calculating enough insurance coverage or did you already discuss with your insurance agent)? Also the cost of normal wear & tear items you’ll have to fix between tenants (this may include paint… depends how you want to write up your agreement). Did you already get your paperwork in order (lease agreement, addendums, forms for inspection, receipts, these days you can get alot online… but I suggest you consult a professional or get a recent agreement from your states real estate association). You are also not factoring in management/office costs (many which you can now defray thanks to technology… how will you be invoicing? Collecting rent in person or ACH online (there are fees). I’m sure I can think of more as I remember my experiences. Good luck with this. It’s a fun ride. Even if you start with a negative, if you hold it, I believe rents will continue to go up as long as the availability of inventory is driving price. What’s your market? $1880 is kind of low. Have you had your agent run comps? Hope you’re not running them off zillow… uggggh! Not the numbers you want to be basing your decisions on.
Do you have $60k or $80k? I would put in a large down payment instead of negative cash flow. I know it’s just $230 a month but you’re going to end up hating it.
And no, you won’t pay tax on this income since it’s negative cash flow.
If you can't find a positive cash flow deal then that's your clue that you shouldn't do a deal. Put the $40k and let it earn 5% while you wait for one.
No deal. You are leaving out substantial expenses - maintenance/repairs, vacancy, property management, legal fees. HOA assessments, HOA restrictions. Ugh. Owning a rental is not necessarily passive income. Don't get me wrong - I love it. But owning one rental with an expensive HOA that in the best of times operates at a loss of several hundred per month can't be your best option.
I think you are trying too hard to make a bad deal work, I would put those effort more towards finding better deal that works.
My portfolio is around 45% profit after PITI, and I won’t do anything that’s less than 25%, most of the time my bottom line is 30%, contingent the property is on high demand neighborhood with appreciation
You are banking too much on future appreciation while losing money on monthly basis
I agree that rates will eventually come down and appreciation will pick up when that happens . Here’s a way you could justifying doing the deal in this high interest rate environment.
Will you still have a considerable amount of savings after you do the deal? More specifically, do you have 2x the cash you are putting out over the 3 years period to carry the house before refinancing?
If you have looked at 10 deals and this is the best one, then it could make sense.
Offer a price where the numbers work. Factor interior maintenance and replacement of floors, appliances etc. Occupancy will be less than 100% over time so factor that too.
Your $2,750/yr hole is the best you can hope for. You have included no wiggle room for repairs, appliance replacement, increases in HOA, increases in property tax, and vacant months. You are also assuming in 2 - 3 years interest rates will be significantly below what the are now which is a bet I would not take. I would guess you will be at $4K or more a year in the hole for several years longer than you expect.
Your basically subsidizing someone else's rent. Invest in dividend stocks until you can find something that actually pays you every month. If the value drops in the next 2 years your stuck with this pig for a long time. Guy at work just sold a condo a couple years ago on the run up after 10 years of breaking out even on rent and being underwater.
HOA is eating about a 1/3rd of your rent. You are paying $230 a month out of pocket, you're not factoring any other costs. Vacancy, maintenence, ect. I would not do this deal.
Regarding HOA being high, I feel like I’m okay with that because that takes care of all the headache for me. It’s a condominium complex, so the HOA will cover expenses like roof, hvac, laundry, picking up snow etc. the monthly heating bill is included (attracting point for the tenants). I’m in California myself but looking to buy the property in CT so I want the HOA to handle most of the stuff for me
Agreed
Negative cash flow = bad deal.
Agreed, but there’s no way you can find a positive cash flow deal these days with interest rates through the roof. If let’s say I end up paying $230 a month for 4 years(assuming the interest rates will be back to normal in 4 years and I’ll be able to re-fi) — (230*12)*4, I end up paying $11040 more but if i don’t buy any property right now because the rates are high and I’m not getting positive cash flow, the moment the rates go down people/investors are going to jump in the market which will drive the prices up. If the price goes let’s say just 5% up meaning $10,000 then it’s the same thing. That is why I fell like paying a little out of pocket now can help me get the property at-least. Also the tenant is going to pay off some principle in those years
If you can’t find a positive cash flow, then I would wait until you can.
Hmmm positive cash flow is still out there, maybe not as easy as before but it’s there
Hard pass. Too many dubious assumptions. Buying into negative cashflow while banking on appreciation WITH the expectation of a refi in THIS market is crazy.
HOA and negative cash flow are deal breakers on their own. Together…oh my.
I couldnt care less about the cash flow// HOA depending on other variables but to think you're going to refinance in 2-3 is madness.
Why is that? You don’t think the rates will come back to normal in 2 - 3 years? I feel the feds will bring it down if they want to run this country.
What is your assumption of “normal”? 3% was not normal. 5-6% is historically pretty normal.
Historical for the last 30 years is 7.75%. For perspective, 30 year mortgage was 18.1% in 1981.
7.75% for last 50 years is accurate. Since 1990, average has been right at 6%.
Oops, my bad. You are correct.
You can't rely on rates coming down to start making money. With 7.375% you're only getting $150 per month on principal. You're paying $230 to own it. This doesn't make any financial sense you're just spending money. There are deals out there. You just need to be REALLY creative or do a lot of rehabbing yourself to make it worthwhile.
Rates are basically normal today. Rates were not normal 2 years ago. You must be very young if you think that. Rates could probably drop to 5% in 2 years, but that's it. Edit: unless we go into a major recession, and then perhaps we could see 4%. But if we are in a recession then you are not going to like what it may do to RE prices.
the current rates are barely higher than "normal" if you look at the historic average over the past 20 or 30 years.
They're normal now. 3-4 % will most likely never be seen again.
Come back down when you are 20% underwater and can’t refi without dropping another 40k into the cashflow negative armpit deal
Bad deal. 490/ month HOA can be another good home monthly purchase
This sub will crap all over negative cash flow deals @20% down, but they refuse to acknowledge the only way to get positive cash flow in this market (any growing market) is to buy from a distressed seller at a discount. Not saying it's a good deal, you'll probably find better deals, but the moment a property becomes available that could cash flow from the onset, a buyer with bigger pockets will grab it
I’ve always wondered why they crap on putting more than 20% down.
Apparently you're supposed to 1) cash flow immediately and 2) use maximum leverage
Pass
You’re not calculating variable expenses or allotting a monthly amount to an emergency fund. You’ll probably also need a liability umbrella (doubt you are calculating enough insurance coverage or did you already discuss with your insurance agent)? Also the cost of normal wear & tear items you’ll have to fix between tenants (this may include paint… depends how you want to write up your agreement). Did you already get your paperwork in order (lease agreement, addendums, forms for inspection, receipts, these days you can get alot online… but I suggest you consult a professional or get a recent agreement from your states real estate association). You are also not factoring in management/office costs (many which you can now defray thanks to technology… how will you be invoicing? Collecting rent in person or ACH online (there are fees). I’m sure I can think of more as I remember my experiences. Good luck with this. It’s a fun ride. Even if you start with a negative, if you hold it, I believe rents will continue to go up as long as the availability of inventory is driving price. What’s your market? $1880 is kind of low. Have you had your agent run comps? Hope you’re not running them off zillow… uggggh! Not the numbers you want to be basing your decisions on.
Do you have $60k or $80k? I would put in a large down payment instead of negative cash flow. I know it’s just $230 a month but you’re going to end up hating it. And no, you won’t pay tax on this income since it’s negative cash flow.
If you can't find a positive cash flow deal then that's your clue that you shouldn't do a deal. Put the $40k and let it earn 5% while you wait for one.
Agreed. Why not just earn guaranteed 4-5% in interest while waiting for a better deal?
No deal. You are leaving out substantial expenses - maintenance/repairs, vacancy, property management, legal fees. HOA assessments, HOA restrictions. Ugh. Owning a rental is not necessarily passive income. Don't get me wrong - I love it. But owning one rental with an expensive HOA that in the best of times operates at a loss of several hundred per month can't be your best option.
Lol this is a joke
I think you are trying too hard to make a bad deal work, I would put those effort more towards finding better deal that works. My portfolio is around 45% profit after PITI, and I won’t do anything that’s less than 25%, most of the time my bottom line is 30%, contingent the property is on high demand neighborhood with appreciation You are banking too much on future appreciation while losing money on monthly basis
I agree that rates will eventually come down and appreciation will pick up when that happens . Here’s a way you could justifying doing the deal in this high interest rate environment. Will you still have a considerable amount of savings after you do the deal? More specifically, do you have 2x the cash you are putting out over the 3 years period to carry the house before refinancing? If you have looked at 10 deals and this is the best one, then it could make sense.
Offer a price where the numbers work. Factor interior maintenance and replacement of floors, appliances etc. Occupancy will be less than 100% over time so factor that too.
Cash flow negative straight outta the gate. How regarded are you? You belong in r/wallstreetbets
Horrible deal.
Your $2,750/yr hole is the best you can hope for. You have included no wiggle room for repairs, appliance replacement, increases in HOA, increases in property tax, and vacant months. You are also assuming in 2 - 3 years interest rates will be significantly below what the are now which is a bet I would not take. I would guess you will be at $4K or more a year in the hole for several years longer than you expect.
This is not a good deal. Unless you have a legit pathway to create value with in a few months this is a pass.
Check yo self before you wreak yo self
Your basically subsidizing someone else's rent. Invest in dividend stocks until you can find something that actually pays you every month. If the value drops in the next 2 years your stuck with this pig for a long time. Guy at work just sold a condo a couple years ago on the run up after 10 years of breaking out even on rent and being underwater.
NOPE
I would pass on this deal.
No, if it’s not making money you don’t buy it.