Investment Property vs. Car Pay-off

[swanson719]

I have the option of buying a HUD owned investment property for $39,150 and paying 20% down of $7,830 or paying off my car immediately. However, I have an additional $5,000 in savings that I can place on the car, and within 2 months have the car paid off. I would still have my emergency fund either way as well as my Roth contributions. To me this is a no - brainer of buying the house. Any one to play devils advocate? The house is in good condition, with the minor repairs (paint, plumbing fixtures) to be fixed with the escrow.

[srblanco7]

Guess it depends on the rest of your financial situation - income, savings, other debt obligations etc... If you're willing to post, people could provide constructive feedback.

[swanson719]

We have $12,500 in savings. Make $3500 a month. Owe $7800 on the car, which we had been planning on paying off with savings. We would have to put $7200 down, which would leave $5300 in savings. Another $800 for appliances and listing it as a rental. So $4500 in savings. We spend $1600 a month for bills, including groceries and fuel, and $200 a month on entertainment, so $1800 a month and save $1700. So my argument is that if we put $3000 onto the car, left $1500 in savings, and then over the next 3 months we would pay off the car, and be able to have savings back up to $2200 counting income from the rental property. The mortgage on the rental would be $300 a month, with it renting for $650. So then it would take 5 months from the car being paid off to be back to where we are now with our savings. A total of 8 months - so November. And we would have an income bearing rental property. My wife and I disagree on this, because she wants to pay off the car now and buy the rental property this fall when it wouldn't affect our savings situation, rather than drop down and re-build. I disagree on the premise that the market has to recover, and this is a gem to find to begin with. We would have it financed at 6.75% if that makes any difference, with the closing costs of $800 rolled into the loan, financing a total of $29,600 on a 30 year note, with the full intention of paying it off as if it were a car. I hate debt, but debt can also be an opportunity. The interest rate on the car is 7.1%, the interest rate on my current mortgage is 5.0%.

[momof1in150]

Have you talked to a mortgage broker about this? The reason I am asking is because at our last staff meeting we were told by a broker that to purchase investment property the minimums have changes significantly:

- 3 months mortgage payments for all properties banked
- 20% equity in personal residence
- 25% down payment

[snafu]

As stated, you need to get your financing approved as a 1st step if you plan to buy an income property. I don't know what the market is in your area and presume you know you can negotiate the asking price and realtor commissions.

Are you sure you want to be a landlord? Do you have the time and personality to devote to this business. Have you reviewed the tax implications? If a renter failed/late to pay rent can you cover the mortgage and expenses for the 3 months it can take to get the tennant removed?

I wish you luck. You will meet people who seem normal on the surface but are truly weird.

[swanson719]

I spoke with 6 different banks and all of them only required 20% down. None of the banks asked for equity in personal property, though that would be a hassle given the current market. We still have equity, but not 25%. HUD will pay the realty commissions, and we offered 20% below the asking price. Bank of America issued a pre-approval letter. My parents had rental properties, so I know the hassle that can go into that. And we have the money to cover 3 months of the mortgage and expenses if the tenant defaulted.