Guy with little english seeking for a help

joshua · Joined: 25 Jul 2006 Posts: 13

Hello!

My name is Joshua, I am Polish. Sorry for my English. I found this forum very interesting and some people are really knows what they do. I currently live near LA so decide to ask you guys a question here that I won’t probably ask anyone offline.

I own a home which has the equity of $350,000.00 (I bought this house for $480,000.00 some time ago, now I did the appraisal it shows that my house worth $850,000.00)
I have $300,000.00 in saving account and $75,000.00 in cash the total of $375,000.00

I am planning to buy a town home as an investment property for $800,000.00 with zero down payment. What is your suggestion? What would you do? Do you think is a good time to invest in to real estate now or I should wait until October – November?

Best regards,

Joshua.

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Joshua,

Welcome to the forums! Overall you did just fine ;) Understandable, probably better than 1/2 the people that I read online!

The first thing that I'd want to address is the amount of the investment. An $800,000 price tag with no money down is a pretty hefty investment not just for you, but for the lender as well. Can you support this investment with your income? If so, what do you want to accomplish? Are you trying to get an increase in the value, or are you trying to make money monthly?

It's fairly uncommon to have 100% financing on investment properties to begin with, with the $800,000 price tag it's even more exposure, even more risk. I'm not saying it's impossible, but it would be difficult for sure.

To answer the questions you posed, it depends. We really need to know what your motivation is for investing before we can give our opinions. I mean, I wouldn't invest in an $800,000 property, but that's because it would be extremely likely that I would default. (I don't have a $350,000 annual income....yet!) That being said, if the appreciation of the market supported it, and I had the funds available, I'd consider it.

You really need to check into the specific area you are looking at purchasing, the appreciation value of those specific houses (BRs, Baths, Sq', location, etc.) that you are looking at, and then make a decision. We can't simply say 'Yeah, I'd buy an $800k house and call it good.' You know what I mean?

joshua · Joined: 25 Jul 2006 Posts: 13

Haplo wrote: Joshua,

Welcome to the forums! Overall you did just fine ;) Understandable, probably better than 1/2 the people that I read online!

Thank you for understanding!

The first thing that I'd want to address is the amount of the investment. An $800,000 price tag with no money down is a pretty hefty investment not just for you, but for the lender as well. Can you support this investment with your income? If so, what do you want to accomplish? Are you trying to get an increase in the value, or are you trying to make money monthly?

I would like to get an increase in the value.

It's fairly uncommon to have 100% financing on investment properties to begin with, with the $800,000 price tag it's even more exposure, even more risk. I'm not saying it's impossible, but it would be difficult for sure.

I Agree!

To answer the questions you posed, it depends. We really need to know what your motivation is for investing before we can give our opinions. I mean, I wouldn't invest in an $800,000 property, but that's because it would be extremely likely that I would default. (I don't have a $350,000 annual income....yet!) That being said, if the appreciation of the market supported it, and I had the funds available, I'd consider it.

Who knows how the market will be tomorow, we all hoping for the best.

You really need to check into the specific area you are looking at purchasing, the appreciation value of those specific houses (BRs, Baths, Sq', location, etc.) that you are looking at, and then make a decision. We can't simply say 'Yeah, I'd buy an $800k house and call it good.' You know what I mean?

I understand.

Mr. Haplo,

Thank you very much for helping me. Here is my idea what exactly I would like to do. I am making $60,000.00 a year but I really feel secure with some saving I have.

1. I have a equity in my existing house about $350,000.00 that I don’t want to use. My first question is, should I refinance my house and put this money on my CD account with 4.85% interest or live it where they are right now?
2. I have $300,000.00 on my saving CD account, so this money I don’t want to touch until I really need them. So I keep them for emergency.

So the money I want to gamble with is $75,000.00 that I have in cash. So the idea is, I will continue to live in my existing house that I can really afford it.
Now, the second property I would like to buy is for investment, so I can allow other people to live there and pay me $2,000.00 rent per month, then I have to come up with other $3,000.00 Now this amount of $3,000.00 I can use out of my $75,000.00 with this I can stay alive for 2 years with no problem, they same time I really hopping that my investment property will gain some money over time. And who knows what is going to be after 2 years from now. I hope you understand what I ma trying to say.

Best regards,

Joshua.

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Joshua,

I think you're taking an immense risk, and I would caution you against what you could be potentially doing.

There is a potential you could see some benefit from it. Simply because of the appreciation in the market, you could out-grow the $3,000 monthly loss.

That being said, you are forgetting that you are not only losing $3,000. You're also losing the potential money that it could make in it's own investment. So you need to compare that. You have to make sure you're using an accurate figure for the monthly payment. $5k? Does that include taxes and insurance? Are you assuming an interest only payment, a short term ARM? How long do the houses in that bracket take to sell in that market currently, and what is your contingency plan should you not be able to sell the house and not have someone to rent it, if the money runs out?

More importantly than any of that however is the fact that you're going to have to convince someone that you can afford a home with a $60,000 salary that costs *more* than you're monthly income. In addition of course to your current home. There are two ways you could potentially do this. One of them is to use a stated loan, and lie your way through the application. This is fraud, and you can go to jail for a long time. The second is a no documentation loan. This would cost you more money, and your monthly payment would be astronomical.

Overall, with a $60,000 annual income, I would say take your money and invest it elsewhere.

chow · Posted: Tue Jul 25, 2006 12:18 pm Post subject:

When you buy real estate as an investment you want to make money off the rent-not lose money! We figure the break even point-bare minimum- is 125% of the mortgage payment, taxes and insurance.

So, if your mortgage payment is $2000.00. Your real estate taxes, and insurance is $1000.00 a month then your total real estate expense would be $3000.00 (if there are homeowners association dues-include them.) Then your break even point on this is $3,750.00 for rent if it is an investment property. (you have to figure in fixing something- renter leaves, takes you a few months to find renters) You never buy real estate to rent-then lose more than you take in. NO NO!

A good friend of mine has relocated out to the LA area as a MI underwriter. Her company, the insurance company who insures loans-is cautioning them to watch the high loan to value transactions due to a forcasted slow in real estate gains. Your local real estate sales figures are usually posted by area from the sales figures. Just google "real estate market figures" and see what comes up.

joshua · Joined: 25 Jul 2006 Posts: 13

Haplo wrote: Joshua,

I think you're taking an immense risk, and I would caution you against what you could be potentially doing.

There is a potential you could see some benefit from it. Simply because of the appreciation in the market, you could out-grow the $3,000 monthly loss.

That being said, you are forgetting that you are not only losing $3,000. You're also losing the potential money that it could make in it's own investment. So you need to compare that. You have to make sure you're using an accurate figure for the monthly payment. $5k? Does that include taxes and insurance? Are you assuming an interest only payment, a short term ARM? How long do the houses in that bracket take to sell in that market currently, and what is your contingency plan should you not be able to sell the house and not have someone to rent it, if the money runs out?

More importantly than any of that however is the fact that you're going to have to convince someone that you can afford a home with a $60,000 salary that costs *more* than you're monthly income. In addition of course to your current home. There are two ways you could potentially do this. One of them is to use a stated loan, and lie your way through the application. This is fraud, and you can go to jail for a long time. The second is a no documentation loan. This would cost you more money, and your monthly payment would be astronomical.

Overall, with a $60,000 annual income, I would say take your money and invest it elsewhere.

Mr. Haplo,

Thank you for answering my question again.
The loan I'm looking for is 80/20 with the interest rate 6.65% fixed for 5 years on the first and 8% on the second which I can payoff any time. I am planning to make payments with interest only, so $5000 includes all interest, insurance and property taxes. So If I can rent this property to someone for $2000 per month then I have to come up with $3000 out of my pocket. But $1500 out of $5000 will be my tax return. So I will be losing $1500 only. Hopefully this property will appreciation and cover my loss. I agree with everything you say, but I don't know any other ways to invest, also I want to take some real estate related classes in the college so I can learn some techniques. Thank you again for helping me with my problem.

Best regards,

Joshua.

joshua · Joined: 25 Jul 2006 Posts: 13

chow wrote: When you buy real estate as an investment you want to make money off the rent-not lose money! We figure the break even point-bare minimum- is 125% of the mortgage payment, taxes and insurance.

So, if your mortgage payment is $2000.00. Your real estate taxes, and insurance is $1000.00 a month then your total real estate expense would be $3000.00 (if there are homeowners association dues-include them.) Then your break even point on this is $3,750.00 for rent if it is an investment property. (you have to figure in fixing something- renter leaves, takes you a few months to find renters) You never buy real estate to rent-then lose more than you take in. NO NO!

A good friend of mine has relocated out to the LA area as a MI underwriter. Her company, the insurance company who insures loans-is cautioning them to watch the high loan to value transactions due to a forcasted slow in real estate gains. Your local real estate sales figures are usually posted by area from the sales figures. Just google "real estate market figures" and see what comes up.

Dear Kathy,

I did a search in Google for "real estate market figures" and I found many interesting but scary articles. My point is if I can't make payments on my investment property I will sell my home and still gain from it. I was thinking to switch from single residential home to townhouse anyway so I think now is a good time to buy if you want to avoid multiple offers. I understand that you guys are the pros in what you are doing but I still hope that real estate will grow. Right now people in many parts of Europe paying $1000 or more per square foot and we are still in $400's - 500's
I hope we can catch up with them. Thanks for the answer. I really enjoy being on this forum. God bless you for helping dummies like me.

Best regards,

Joshua.

chow · Posted: Tue Jul 25, 2006 2:13 pm Post subject:

Sell high-buy Low.

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

The bottom line to remember Joshua is that we're mortgage professionals, and from our perspective, this doesn't make any sense at all. There are many other ways to invest your money so that it sees just as much potential as a booming housing market, you just have to know where to look.

The key to not losing your money is to make sure that you're limiting your risk. I don't mean keep it to zero, but the closer to zero the better. That doesn't mean to keep to things like CD's and savings accounts, because that won't get you anywhere. It simply means to invest in areas that make sense. There are plenty of times that purchasing a home that you won't make as much in rent off of makes sense. That being said, you literally will not be able to purchase a home with an 80/20 investment at a 6.65/8.0 rate interest only, with a $60,000 income. I normally don't deal in absolutes, but this is one area that I can say that it simply won't happen. That part above where I mentioned limiting risk? There is no reason for any invester to take on 100% risk in the home when they know that your monthly DTI is going to be 150% or greater. If they don't know that (no-doc for example) they usually won't allow you to go to 100% and they usually will require you to have a higher rate.

chow · Posted: Tue Jul 25, 2006 2:31 pm Post subject:

I'm on vacation, so my moderator brain is telling me to throw diplomacy out the window, along with 20 years of contacts, advice-some common sense- and lending knowledge....

I just can't resist one question before I grant your leap of faith a good investment.

ARE YOU FREAKING CRAZY?

After having asked that, and having done many a hard money deal with "Uncle Guido" a time or two a year-

Even Uncle Guido wouldn't do this deal, and I actually own the screen name of "Uncle Guido" on a mortgage board!

joshua · Joined: 25 Jul 2006 Posts: 13

Thank you guys for your help. I will be a regular visitor on this forum to find some more answers in the future.

Best regards,

Joshua.

David · Joined: 19 May 2004 Posts: 754 Location: Atlanta, GA

joshua wrote: Thank you guys for your help. I will be a regular visitor on this forum to find some more answers in the future.

Best regards,

Joshua.

Thanks, Joshua. It seems like we are starting to grow a little, and your participation really helps, so I hope you will drop by again soon.

joshua · Joined: 25 Jul 2006 Posts: 13

David wrote: joshua wrote: Thank you guys for your help. I will be a regular visitor on this forum to find some more answers in the future.

Best regards,

Joshua.

Thanks, Joshua. It seems like we are starting to grow a little, and your participation really helps, so I hope you will drop by again soon.

Dear David,

From now I will be your regular visitor on this forum, even if I have nothing to say I will read other people postings.
Thanks again.

Best Regards,

Joshua.