PROSPECT: INVEST vs. RESIDENTIAL

[SELLITNOW]

I have a prospect/investor (wanna be) couple who wants to purchase a duplex or townhouse for rental property. Their loan officer has approved them for up to $100,000 for a purchase. It would be their first time buying property for the spouse whose name is on the loan.

However, the loan officer wants them to consider getting their own home, to live in instead of rental property. The loan officer has told them that they can get up to $200,000 for a residence, if they repair a couple of minor things on their Cred. Rept. (Still only talking about the one spouse)

The couple wants my advice on which is better - sell their current home and buy a new one with the $200,000 loan
or
stay in the current home and purchase the rental property.

I think they should stay in the current home only if they are "comfortable" staying there as a place to live. Obviously, the rental property would make them money.

Any other advisories I should consider before giving them a thoughtful response?

[judyo]

I would have never thought of purchasing rental property without having owned and lived in my own home first. Being a home owner before a landlord gives you a lot of experience.

They might be earning some income with the rental property but only if they don't have any problems or surprises with the tenants or the property they purchase.

I guess they have to make this decision themselves and learn.

[SELLITNOW]

Well they are currently homeowners. However, the home is only in one of the spouse's names . . .

[kevinhuntley]

Put her on and go for it. Just make sure the one you sell them is in a good rental area and they should have no problem keeping it rented. they will appreciate you more in a few years when they have made a good investment.

[SELLITNOW]

Put her on? Put the wife on the current home - or just have her getthe loan for the rental property?

[kevinhuntley]

I would just leave the current loan alone if the numbers are good. Put her on the new rental and have the two properties. they are your clients so you want to make sure there comfortable with that, but I would go investment. Its a great time to buy right now. You guys have properties for the 100,000 range, gosh that would be nice.

[Ryocheck]

I would think that buying the rental property in addition to their home would be their best move unless of course they need to upgrade their current living situation. But if they are comfortable where they are at, they should buy a rental. They can always upgrade their house later. But like Kevin said, make sure it is in a good area.

[relievemystress]

I would suggest them to stay in the current home and purchase the rental property.

[SLP-NYCT]

Here's a thought: She has never owned a Home? If not, she should look at a First Time Home Loan program. Could get a sweet rate. Move in for a few months, fix the place a little and then move back out and rent it. She won't qualify for a First Time buyer program once she is on a mortgage. Might as well take advantage of it now.

This of course would be conditional on the fact that they are good in their current home for at least another 5 years.

Some flags in your post though:

• Can Get up to
• If they repair
• Minor Credit Repair

Not one of these are minor! In times past, yes minor. Today...No Way! Sounds like they have not been Pre Approved only qualified.
Sounds like they are being mislead by a savvy lender.
Most lenders today have their belts so tight that you need to be next to perfect.

Find out what their goals are.

• Getting Married?
• Kids?
• Job Changes/Retirement
• Rental Management

Owning Rental property is very lucrative, but people forget it is a business. And as with any business there is inherit risks. I just took over a property that had a tenant in there for 8 months without paying rent. It took a lengthy court hearing to get them out. It took another $3,000 to repair and clean the property. Are your clients able to survive a worse case scenario? Like with all business, you need to plan for the worst case scenario. I know very few people who can carry a mortgage for 8 months without income. Can they? My client owns three other properties. This one put the landlord in the hospital because of the stress he had to endure while going through this ordeal.

So make sure they are fully aware that Rental Property is a business, must be approached as such and has all the risks and rewards a business has. Rental property will require more down than a primary home. Do they have this extra deposit?

Who will manage the rental property? Will they manage it themselves? If so, are they prepared to get mid night phone calls about a clogged tub or toilet? No heat? Storm Damage? Are they aware of the legal issues of co mingling Security Deposits?

A lot of questions that only they can answer. We can not answer if for them.