Investment Q--Condo, Townhouse, Or?

[navisavi]

Hello,

Thanks in advance for those who reply.

Here's the scenario--I'm very blessed and fortunate to be in avery comfortable place financially right now-I'm in my mid to late 20's and doing well with my career thus far. (50k in 401k, 100k in stock market, 30k in savings,401k is maxing out every pay check, no CC debt--only House, Car, and 1 student loan do I have for debt. I could pay all this off but all my rates on car, house, and SL are really low--4%) I would rather make my money work for me and invest in things than pay off student loan--everyones got em, or my house--I don't plan to live here more than 5-8 years. I have 50k that I want to put towards a rental property. I realize there's a lot of conservative investors on here that would bring up to pay my student loans first(I owe 20k 3.5% rate) or pay my car off (also owe 20k with 4% rate) However, my personal philosophy is rather than pay off those items where the rates are relatively low, is invest with the market being so low for a bigger payoff later in life.

My question is this:

Does it make more sense to pay cash for a condo--lots of short sales and condo's in good areas where I live going for 50k-60k. Have rent money being pure profit each month. I look at it as investing 50k returning 10% every month (if I rent for 500 a month, that would be 7200 a year)--that is a good return on 50k investment.

or should I put 50k towards a town house (selling for roughly 150k-50k down--financing 100k). I would have a mortgage but would possibly be easier to rent--target families as well with a townhome. More so, in 4-5 years may have more equity than you would with a condo and could maybe sell for 180k-200k. So I could potentially make 2-300 in profit from rent for 5 years but then flip and sell down the road for larger gain than you would a condo.

Or, purchase land, buy into a franchise/business, buy a classic car--lots of other options out there to do with 50k right now....

Thanks for all who reply

[cooliemae]

Does it make more sense to pay cash for a condo--lots of short sales and condo's in good areas where I live going for 50k-60k. Have rent money being pure profit each month. I look at it as investing 50k returning 10% every month (if I rent for 500 a month, that would be 7200 a year)--that is a good return on 50k investment.

Help me out with the math, because I don't know how $500 a month translates into $7200 per year or a 10% gain each month?

The rent money would not be pure profit either, and the same would go for a townhouse. There are going to be things you have to pay for like insurance, property taxes, HOA fees, and the like.

So while I know you don't want to here it, I would say you should take the easy 3.5% and 4% savings by paying off the loans and in the meantime research the ins and outs of rental properties.

[LivingAlmostLarge]

Here's a pro for paying off the student and car loans, when you are a landlord sometimes there are damages or unpaid rent. It's probably easier to handle property management if you don't have so many other liability or if you had a huge trust fund to cover costs. At least that's my thoughts.

I'm not a landlord nor do I have enough money to be one.

[Nobulladvisor]

First, congrats on saving that much so young!
Buying Real Estate is not an Investment in my opinion. Real Estate is a business. It not likes investing in the stock market and let to money sit there growing. You have to put lots of work and addition capital into your property to make it profitable. For example: Lets say you buy a 50K condo cash. If its a short Sale most likely its not in good condition. Meaning you have to fix couple things or remodel. Also all the other costs involved in being a landlord (HOA fees, Wear and tear from renters, etc). you will spend a lot more money then just the property.
By the way $500 return on %50000 is 1% not 10%.

So if you enjoy that type if business go for it. There lots of money to be made in estate if you know what you are doing. But if you don't like it and don't know much about it, Its a bad idea.
About paying off loans, If you have it under control DON'T pay it off. you are right, you have really low rates.

Buying a Business or a franchise could be a good idea. But again it’s a business not investment. You have to work on it to make a profit. You can call it "buying a job." Being your on boss the greatest feeling ever! So if you find a business that you love to do. Then go for it.

If you have a career and you don’t have time to put in Real estate or other business. The Stock Market is the best place to put your money.

Historically Stock outperforms all investments in the Long term. (Long term is the key word.)
Good Luck!

[jteezie]

I'm in a very similar situation as you. I choose to stretch the loans asd long asd possible because the rates make sense. Put your money in the market and spend your time in career exploratuon and advancement. Unless you want to be a property manager, franchise owner, etc or want some of those skills. For me, it's not worth my time and energy.kg

[DayByDay]

or should I put 50k towards a town house (selling for roughly 150k-50k down--financing 100k). I would have a mortgage but would possibly be easier to rent--target families as well with a townhome. More so, in 4-5 years may have more equity than you would with a condo and could maybe sell for 180k-200k. So I could potentially make 2-300 in profit from rent for 5 years but then flip and sell down the road for larger gain than you would a condo.

Thanks for all who reply

You might want to pay more attention to the housing news. Maybe your area is different (not sure where you live), but where I am in California the home prices are still dropping hard. Whenever the bottom hits (and who knows when that will be), it is expected to stay pretty flat for quite some time, possibly decades. The flipping days are over.

I vote for paying off all of your debt first.

[navisavi]

First off, thank you for those of you who responded--a lot of good advice and information. As for the few of you that mentioned the math. 12 months x 500 = $6,000.000 Investing 50k and getting a return of 6k would be more than 10%--that's all I was getting at. I would also probably rent for a lot more than 500 (I live in Florida). I kind of rushed my question when I had typed everything up. I have a good chunk of money to fix repairs/clean it up --In other words I wouldn't be putting my only spare money in the 50k and then not be able to have extra money to fix things/go on vacations/emergency fund, etc.

Again, ALL VERY GOOD POINTS--I don't want you think I am criticizing any of the responses, just wanted you to know where I was coming from with my thoughts on this...

[snafu]

Good on you! It's wonderful that your finances in good shape and you're planning your financial future.
Do you have the skill sets needed to do home/condo repair? Landlords rarely get holiday time as tenants have unending problems needing your attention at the most inconvenient time. Since there is yet another tranche of foreclosures moving through the system the prices may fall further. Have a look as investing some of your money in an good REIT. You will be investing in Real Estate. Be certain you want to be a landlord for the next 5 years. Meanwhile check out condos/townhouses short sales on the market and comparables that actually sold ascribing a value to added features or deductions for those missing.