I am interested in buying a town home in northern Houston for 85k. I am an investor with virtually no depth and a job that pays 70-100k. Will it be a smart move to take an $80,000 loan to buy the town house, live in then later rent it out when I get into a position to buy my next investment?
Depends. What do you expect your profit to be, from your exhaustive research, after paying expenses and interest after year one? If there isn’t significant profit involved, it’s not worth buying.
Generally you make your profit when you buy, and realize the profit when you sell.
If you’re not buying at least 15% under retail, you’re essentially breaking even, if you have to sell within the next five years or so.
Whatever you live in is NOT an investment. It’s a liability. Don’t confuse the two.
Very few investors are able to put up enough down payment to overcome the 50% expense ratio that exists on your average rental. That is, if you assume 50% of the rents will go to expenses, the balance will go to debt service. Anything left over will be your cash flow. And the more debt service, the less cash flow, or worse.
You didn’t say what you were trying to accomplish by investing in this townhouse.
There’s many reasons to invest; immediate cash flow, long-term cash-flow, quick appreciation, forced appreciation, or long term appreciation and cash flow, or simply equity buildup. ???
Frankly, because townhouses are supervised by a homes association, you can lose a lot of control over your investment. You want to take into consideration the HOA’s interference in your management; the amount of litigation they’ve engaged in; the number of vacancies; the number units being rented (which may make financing impossible); the size of HOA fees; and what the fees cover. HOAs are not all managed well. You need to know how healthy it is. Are they raising fees to compensate for age and deferred maintenance, or making up for those not paying? Ask current owners what they’re experiencing with the HOA, and believe the worst.
I could say more, but the bottom line is you need know the purpose of your investment; buy as far under retail as possible; assume 50% expenses, and/or prepare to donate your personal time and money to management and maintenance.
Hope that helps.
I totally agree with you.It all depends upon, what profit you are expected from the investment.