Investing Advice

General Real Estate Investing
1

Hi,

I am new to real estate investing and have a situation that I would like advice on. My father is currently in an underwater house with a mortgage much higher than the value. Mortgage at 172K and value around 100K. He recently received several hundred thousand dollars and we would like to buy some income producing properties. He would also like to move out of this house into something smaller as he is now a widow. The loan is also an interest only at 6% so the principle is not moving.

The question is what to do with this current underwater house keeping mind that we want to do real estate investing.

There are two options we thought of:

  1. Pay down the mortgage (About 90K) and then refinance it and rent it out. I estimate the it could generate $300 per month after expenses.

  2. Rent the property out as is and take a few hundred in loses per month and then use the 90K as down payments on a few new properties hoping those outperform over time the one that is losing. Not sure if there are tax benefits here taking a loss on this as well.

Any advice or other options would be greatly appreciated.

Thanks,
Keith

2

I would take the $100k and buy into a partnership that is buying into a mulitfamily apartment complex.

There are only 2 strategies when you are buying apartments. Yield play and value play. A yield play is when you buy into a performing apartment that yields a percentage back on your investment. A value is when you buy a property that has been managed poorly and so has a problem at a discount. You then remedy that problem and once the income is back to where it should be you refinance the property based on the new higher value to get the initial investment back out and then it cash flows. You then have the cash and the cashflow. I would do the yield play as many times as I could until I have the cash flow up to where I want and then handle the personal housing situation as I will.

3

Thank you for the response.

So the thought is to put that money to work instead of dumping it into that property?

Also, we were thinking of buying small 3br single family homes to rent to generate income over the long term.

Would this work as well? We weren’t planning on buying apartments.

4

Hi Keith,

First of all, I’m sorry to hear about your father’s situation. That can be so STRESSFUL!

If I were in his shoes, this would be my plan. Look at buying several cash flow properties. With that amount of cash, he should be able to get at least 4. This could serve as a source of income or as a source to pay down the mortgage on his primary residence.

Next I would have him consult a Reverse Mortgage Specialist to see if there is any special programs for a home underwater. (BE CAREFUL!! Reverse mortgages can be great under the right circumstances.)

As per the other post, apartments can be great investments. If you father is up to being active with his investments this would be a great way to go. If you are just starting out, you may find this tough without a lot of experience.

I hope this helps.

Kind regards,

Jess

5

Hi Jess,

Thank you for you input. It helps a lot. We’ll have to figure out whether to go with single cash flow properties or go with a multi-unit one.

Thanks again,
Keith

6

Cash is king! I would under no circumstances pay down the underwater house. We are in the best buying opportunity of our lifetimes so do not waste that on paying off bad debt. He should use that money to claim his future with free and clear properties and use the excess cash flow to offset the losses on his underwater house.