Investment Property - Financing/Mortgage Question

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Hello there,

New user here, and need help with the investment property financing. I am planning to buy a condo (300k) in Chicago mainly for investment purposes, the building has number of units owned/leased by investors and getting loan from Freddie/Fannie will be very difficult.

some other items for background purposes:
-My primary home is already paid-off and have no outstanding debt. 
-I have tenant already identified for the property which should show that I will be able to make the payment
-I am ready to make 20/30% downpayment if needed

What are my options in this scenario?
-Apply for Freddie/Fannie loan with the assumption that it might get denied?
-Take money out from home, and use that to buy the condo?
-Do it as a 2nd home, for which I should be able to get the loan, but then I cannot start the renting process immediately?

Thanks in advance, and please advise.

 

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Is it already over 50% rentals? If so then yes you won't qualify for freddie/fannie.
The tenant you identified won't help. The banks won't count that. You have to have established rental income for them to consider it AFAIK.


I'd probably do a cashout refi on my primary to finance it.

How much monthly rental amount are we looking at here?  With 20% down and 4% rate on investment property, you're looking at $1,150 P&I, then you have taxes, ins and condo assoc dues.

OP - why have you chosen this property among all others to invest in?

ach1199 said:   How much monthly rental amount are we looking at here?  With 20% down and 4% rate on investment property, you're looking at $1,150 P&I, then you have taxes, ins and condo assoc dues.
  Monthly rent is around 1800-2000, which should cover mortgage/taxes/condo-assoc. 

ach1199 said:   How much monthly rental amount are we looking at here?  With 20% down and 4% rate on investment property, you're looking at $1,150 P&I, then you have taxes, ins and condo assoc dues.
  bubble time!
Monthly rent is around 1800-2000, which should cover mortgage/taxes/condo-assoc. 
Yeah but what about profit?

solarUS said:   OP - why have you chosen this property among all others to invest in?
Nice area in the city, nice building and easy to rent out. Build equity and live there in future if desired.

Are there any other options for investment that I am not considering?  

solarUS said:   OP - why have you chosen this property among all others to invest in?
  I am an investor in chicagoland and the only reason to do this is for low cashflow and potential appreciation.  I invest differently but a lot of colleagues that have good jobs invest this way.  

fatuser789 said:   solarUS said:   OP - why have you chosen this property among all others to invest in?
Nice area in the city, nice building and easy to rent out. Build equity and live there in future if desired.

Are there any other options for investment that I am not considering?  


Why can't you find a condo that's in a building with mostly owner-occupants?

rascott said:   
fatuser789 said:   
solarUS said:   OP - why have you chosen this property among all others to invest in?
Nice area in the city, nice building and easy to rent out. Build equity and live there in future if desired.

Are there any other options for investment that I am not considering?  


Why can't you find a condo that's in a building with mostly owner-occupants?

  Most of the buildings would have rental caps and would have to be in line for renting it out...

sharpie130 said:   
solarUS said:   OP - why have you chosen this property among all others to invest in?
  I am an investor in chicagoland and the only reason to do this is for low cashflow and potential appreciation.  I invest differently but a lot of colleagues that have good jobs invest this way.  

I was just asking OP to describe the thought process because wise property selection should be the #1 concern, way before financing. OP claims to be a novice so I was trying to help steer the conversation in that direction.

plenty of people in OP's position in 2006-2008 who could have pumped the brakes on speculative investment and be doing much better.

solarUS said:   
sharpie130 said:   
solarUS said:   OP - why have you chosen this property among all others to invest in?
  I am an investor in chicagoland and the only reason to do this is for low cashflow and potential appreciation.  I invest differently but a lot of colleagues that have good jobs invest this way.  

I was just asking OP to describe the thought process because wise property selection should be the #1 concern, way before financing. OP claims to be a novice so I was trying to help steer the conversation in that direction.

plenty of people in OP's position in 2006-2008 who could have pumped the brakes on speculative investment and be doing much better.

  thanks everyone for the feedback, very informative. I am very mindful and conservative and wouldn't take any unnecessary risk that I cannot afford.

I would not expect a livable condo in Chicago area to meet or exceed the returns of an index fund. You would have to purchase it for below market price and improve it, or buy into a less desirable area where the cashflow is better. You should run the numbers to figure out your cap rate on this particular property, and the cash on cash return. You will need to know the rent, vacancy rate, costs like insurance, taxes and mortgage, expected maintenance, HOA and special assessments, and management fee if you are using a property manager. What do you figure your long term appreciation will be?

rufflesinc said:   
Yeah but what about profit?

I assume that profit comes from the following:
- House prices increasing (probably not substantial since we are hitting peaks)
- payments go to principal (which would be profit in the form of assets)
(At $2000 per month, I assume he is cash flow positive on this as well.)

From what I understand, though, there are better ROI opportunities out there. 

gnopgnip said:   I would not expect a livable condo in Chicago area to meet or exceed the returns of an index fund. 
  LOL "liveable" haha



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