Opinions and best way to go about this??

I was talking with my mother about the idea of renting out the place she owns right now and buying a condo to live in. She seems be in the perfect financial situation to do it. With my limited understanding here’s how I see it but I am looking for your ideas and also to correct me.

She currently has a townhouse with about $90000 left on the mortgage. With mortgage and taxes and insurance she pays just around $950 a month. She originally paid in the late 80’s $125000 for it. Similar townhouses in the neigborhood are now going for about $250000-300000. From talking to renters in the neigborhood they are paying around $1800 a month or so for almost identical townhouses. My mother has about $90000 or so in other cash and assets with about half of that tied up in an annuity. That $90000 total of course does not include the equity in the house which is based the current prices about $150000-170000. So I suggested she rent out the house pocketing around 800 a month and using the equity in the house to buy herself a condo. She would then be able to use the equity as a down payment on the condo for say $100000. And if she buys a condo for around $220000 she have a mortgage payment only a little higher then she is paying now and still have roughly $800 month positive cashflow from the house. Now here is where I am am a confused. I’m not sure how she would draw on that equity in the current house to use as a downpayment and if she did would that raise the mortgage on the current house? Also not sure if that is the best route to take. What would be the best way to pull all of this off. Would she also need to get the current house appraised for its current value and if so could that cause her taxes and homeowners insurance to go up? Oh and forgot to mention we are in a NYC suburb.

I believe in the Power Option Mortgage or the Pick-A-Payment Loan to lower your monthly payments and to get as much of your equity out of your home as possible. You mom seems to be a very smart lady and has set herself up to enjoy her later years.

With the Power Option Mortgage or any refinance she would have to get an appraisal the taxes are based on the homes assessed value so her taxes will increase, however, with the lower mortgage amount and rental payments she can offset some of these costs.

Your mother is a saver so this loan would provide her an opportunity to decrease her monthly expenses dramatically and increase her tax right off. If she wants to increase her savings, she could "invest the difference in the mortgage in an equity life index insurance policy for you (I don’t know the age of your mother) but this equity index savings vehicle pays stock market like returns without stock market risks and is safe. You can accumulate enough cash in this equity policy to pay the house off sooner than with traditional mortgages

I agree, the pick your payments loans are awesome, especially to create cashflow for other investments. She could do a cash-out re-fi into one of those on her current house and probably lower her rate. Yes, the amount of the mortgage would increase by however much cash she takes out to use as a down payment on her new condo. Payment may or may not increase depending on the difference in interest rates and how much cash she takes out, plus if she uses one of the pick a payment loans, she has some options.

They are all a little differrent, but the general idea is this: 4 payment options every month: 1-Neg-am (usually 1-2%), 2-Interest only, 3-Standard 30yr, 4-15yr. If she just pays interest only, she won’t be paying down her principal amount down, but if the area continues to appreciate well, she’ll gain equity anyways.

So, take the cash that she gets out of her current home’s re-fi and use it as a nice down payment on her new home.

Get a good mortgage broker to do both deals and have him/her work out all the details and help you and mom figure out exactly what will work best for her.

With that much equity, I don’t see how that property couldn’t cash flow. She could even use some of the equity to get a second rental, in addition to her new home.

I appreciate your responses. Thats probably the way we would go then, at least thats how I would do it. I told her about it and she wants to see what the lender has to say about it though. She is so unsure about the whole thing but I got her curious when I first told her about the idea. Lets see if she is willing to take the plunge. I want to get the ball rolling on REI myself. Maybe flipping. I already got a preapproval from Ameriquest for 300000 but I am going to talk to another lender tomorrow since I don’t particularly trust Ameriquest given all the recent news about their shadiness.

Is she ready to be a landlord? Why rent it when she can sell it for high dollar? The rent is kinda low compared to what it sells for. Infact why even bother moving when a condo (apartment) are so expensive? If it was my mother I would not want to set her up like that. I love my mother, I would never put the burden off being a landlord and living in a cruddy condo. Doom to failure.

Main reason she desires to move is she really doesn’t like the neighborhood anymore. Its gotten kinda crazy with alot of kids and sort noisy but its still a decent area and one of the few areas aside from condo complexes that are still under $300000. Alot of people have been sellling them because most people who have been in the neighborhood 5 years or more have massive equity in them now and the buyers who are buying them seem to like the alternative to a condo in that they have a small backyard and driveway to do with as they please. Its actually a semiattached house, not really a townhouse. She really doesn’t want to have to maintain the outside of the property anymore either. The other reason was to try and build some money. She doesn’t make that much at her job and without digging into her savings she can pay the bills but not much more. Doesn’t leave much extra and she keeps saying she want to be able to leave money to us in the future and does not want to drain her savings. I thought renting would give her the needed cashflow and also help build more equity be having two places. I don’t think she wants to be a landlord but I would take care of that end for her.

Howdy anm0270:

Getting the property appraised will have no affect on the taxes or insurance. They are in no way connected to the appraisal district in your area. On the other hand taxes may go up if the appraisal district does raise the value of the property when they revalue the whole county every year. Also if the value has risen that much you may want to increase the insurance coverage or buy a replacement coverage type policy.

Just thought I would try yo help answer the last part of your question.

I too might just sell the attached home and perhaps buy a property with more cash flow if you can find it. If there are no better alternatives you may just want to refinance. If you can lower the rate and raise the loan amount and pull out enough cash that may be the ideal thing to do.


You said NYC suburb, what state is she in? NJ,NY,CT? Since this is a Semi, and it looks like she is going to get good $$$ for it if she sells, these are the second (condos being first) the depriciate the fastest in a down market. I would sell and find a cheaper home farther away from the city. Does she work in the city?

If she is in New Jersey, the taxes are done by each township, some towns reaccess more often than others. Some towns do it every 10-15 years, or until the county gets after them.

She is in Rockland County N.Y. which is 30 minutes north of Manhattan.

I like DANS idea,
Here are a few ideas … I’m sorta with Dan. Sell for $275K. Payoff the 90K. Take the 185K out in the country where land is cheaper. Buy 2 lots beside each other. Build 2 homes. Live in one & Rent one out or better yet do owner financing at a little higher interest rate thus paying more of her expenses every month with the added extra interest. Also she could get a $10,000 down payment financing someone with shaky credit but with a good job for a period of say 1 year (not hard to find). The worst thing that can happen is the person you are financing quits paying and you get the house back to re-sell yet again for another $10K down payment going right into your bank account, plus say the guy only pays for two years, you get the house back and isn’t it now worth more after 2 years? Of course it is! Hasn’t he paid you for two years? Sure he has! So even if the person you are financing goes out, you are up thousands of dollars. One distinct advantage of owner financing over renting is…you don’t have to keep fixing it up everytime you get a new renter, because they are buying the property and they are responsible for the upkeep of the home… which means they will probley maintain the home better, since they are buying the house. You are making good money at every event, even if a bad event happens, GOOD FOR YOU…you just made more money! The beauty of this is with the owner living next door you sorta know the people and know whats going on. They are more apt to take better care of the property knowing the owner lives next door! Another advantage is… if you should get the house back and ever need to work on the house…its right next door! Another thing you could do is if you live next door, you could tack on a small grounds keeping fee which would mean they would pay for half of your yard care…like cutting grass, this way you know things are being kept looking nice and you are getting a discount on your services while eliminating MOMs grounds maintenance worries. Another huge advantage of owning connecting properties is … When houses are vacant they are more apt to be vandalized. Living next door is a great way to keep an eye on it so you don’t have to ride by the home everyday while its empty. Plus if things do go bad for the people you are financing … like the bread winner in the family gets laid off or something you will know about it. And the best part is … you might be able to help them out somehow by offering assistance in some way. One of the rewards in this business is helping people out when you can…even if you don’t make a dime or it cost you something. Its all up to you!

Build 2 homes for 185K, when they are finished…worth 263K or more. Alot of times you can find builders that will pre-sale lots at a good discount, the more you buy the better the price. She might even be able to find a new developement going up right now , where she could buy 2 homes side by side at a good pre construction price. Somethimes this can be good because you already have everything ready to go and the houses are ready in 2 - 3 months. By the way…this can also work with condo’s.
No finding a good builder…architect…framer and all that junk. You can see the builders work right there before you buy your houses. Also some builders have their own financing capabilities, if you run you plans by them they might accomidate your mother with a home to live in until hers are finished. Nothing like having a house sold before you start it.

Sell the townhouse … get the 185K or lets just use 160K incase she had to sell it for less. Take her 160K and find a lender to match that 160K at 18% interest per year. You now have a total of $320K. Build 2 or 3 homes as we described before. The $320K investment would be worth $420K to $480K depending on how much houses are running in the area and how fast they appreciate as the homes are being built. And supply and demand of course. Why is the APR INVESTOR happy? Cause he just made $29,000 off his $160,000. For doing nothing but putting up the 160K.
Yes, I’m sure he’s worring about getting paid but tell him he can go to the properties anytime he wants to, just to ease his mind … or better yet maybe go with him and talk to the supers…showing him you have things going on and his money is safe. If you are experienced in these types things and all your cards fall into place you could build two homes every 6 months or 4 per year, that way you are optimizing the return on every investment dollar before it comes payable back to the investor with the same 18% rate…acuatally if you did this, it would effectively be doubling the amount being built or in other words making that interest rate 9% APR by splitting the 18% because the money is being used twice in a year instead of once. 2 for one equals 50% savings, divide 18% by 2 = 9%.

Lets say you build 2 homes worth $227,500 each when they are finished. Sell 1 for $220,000 for a quick sell. Pay realtor and other fees leaves you with $207K. Pay off the 50% investor and his 18%APR which is $188K. You now have $19,000 and you own a home worth $227,500. WOW, you made 80K. Better yet if she could sell the townhouse for 185K she could do the above…leaving her 25K cash to find a place to live either renting or using it as a downpayment on a condo. With 50% ownership in a 450K Real Estate deal she shouldn’t have any problem getting a great rate on a condo loan, then she could just sell both homes for say 450K minus 188K back to the investor and she has a cool $262K and a great start on a condo. Even after paying taxes on the profits she would still have about $235K or more left even if selling at below retail. What a deal! This is how family businesses start out.
After that she could use the $235K to do the same thing but a little bigger, she could even pay you 50% of the profit to run the whole thing…working for your MOM. You both make 50 to 75K each per year if you repeat and the wealth then rolls in before you know it your making serious bucks! The biggest obsticle to making money in real estate is having the money and not having to borrow it to do your deals.

The sky is the limit the more capitol you have in the deal the more other investors are apt to jump in and then more want in. So say 160K investment could be marketed to get another 2-3-4 investors to join in at a good APR rate, everyone makes money and is happy campers, once they make great APR from you, they are usually ready to re-invest their whole amount again. If you leveraged 160K 5 times that would be 960K, you could make some serious income with that!

Ain’t problem solving fun!

Good Luck!

Just remember, the older your mother gets, the more conservative she should be with Investing. At her age, she should not be “betting the farm” on massive appreciation. Nothing is worse than reaching retirement and realizing you have nothing but Social Security (if you can even count on that). She should either stay where she is, or sell (cash out) and move to a cheaper location (and maybe pay cash, no mortgage, and have a few bucks in the bank). Maybe in the cheaper agea, she could buy a duplex and rent the other side out. Bring in extra cash a month, pays the taxes and other expenses. But than again, it depends if she wants to be a landlord or not.

My dad says at his age he doesn’t even buy green bananas anymore!

He kills me!

Your ideas sound interesting but I have a couple of issues that could present a problem with them. First you say sell the house and move out of the country. That will never happen. My mother would never leave the New York area much less leave the US altogether. She has lived here all her life and this is all she knows. Out of curiousity what country were you thinking about her moving to when you made that statement. Canada, the UK or…Costa Rica?. :slight_smile: Now assuming she stayed here and did what you described, housing prices around here are like this. Single family home in this area start at around $350000 with most going for well above that. Your basic small 2 or 3 bedroom Cape Cod on less then .25 of an acre goes for the mid 300’s and up. 2 BDRM Condos start at about $200000 with most beginning at closer to $250000. In Rockland County you really find get a single family home easily for less then $400000. Obviously we are talking about normal retail prices. a 2 family in a decent area around her if you could even find it could run in between 500-600k. Mortgage even with the rent cashflow would be to much for her. Appreciate the ideas though and you definitely got my wheels turning :slight_smile:


What Chex said was move out INTO the country (like rural areas, farms, trees, fields, open ares) NOT LEAVE the Country. Also I would not put my mother into a situation of building homes or anything drastic, too much crap goes wrong in construction.

Or even better yet, have her rent a Condo (apartmnet), sell the Semi and invest the 180K +/- into other “safe” investments where she can earn some sort of dividend on. That is an idea too.

Renting a condo makes no sense. Nice 2 BDRM condos in this area rent for over 1500 a month. She pays under a $1000 now with both mortgage and taxes. Not sure how that would be a good move. Also she has no equity building now. She is throwing money away at that point plus she cannot afford rents that high. She would end up having to supplement using about 800 a month from the 180k she gets from the sale. If she moved where its cheaper she is still throwing money away by renting isn’t she?

Actually paying 1,200 rent on a property that is worth 350K is a bargain. I would not call that “throwing away money”. (you have to compare cost of ownership with cost of renting) —this was hypotheticaly speaking —

But since your mom has a home, already has a mortgage payment that she can afford, sounds like she isn’t too happy with the neighborhood (for some reason or another), but staying put is only costing her mortgage, taxes and whatever maintenance she has to do to the place. Not a bad deal as it stands. If she wanted to move out that area and into a cheaper area, I could see her making money, but staying put in a “bubble” area and buying a condo (apartment) at a rediculous price does not sound smart to me. Since she has been there a while, has she refinanced lately? What is her current interest rate? If she is still paying a lot in interest (high interest) have her refi with a CONVENTIONAL mortgage (do not do Interest Only/ARMs/Nagative Armortz/ or any other weird junk lenders are selling suckers these days).

Not sure where you got $1200 a month, or 350k for that matter. I said a decent 2 BDRM condo costs over $1500 a month rent around here. Thats a condo that would cost 250-300k to buy.

Yes, she refinanced in 2003. It is a fixed rate, and is lower then the current rates, though I cannot remember what it is. It is a conventional mortgage though.