|
|
|
Single Family Homes and condominiums can be purchased with 10%, 5% or Zero down payments. Multi-unit buildings currently require from 10% to 35% down depending on the price. These large down payments on multi- unit buildings tend to eliminate and or decrease the advantage of leverage. To maximize return in the Real Estate market leverage is key. The Safari solution: EXAMPLE: Purchase a $220,000 condominium with 10%, 5% or zero down. Rent the unit for 1 to 2 years. You will run a negative monthly payment. This negative payment will be partially offset by a reduction in your income tax. You are essentially making / financing your down payment over time. At the end of 2 years or so sell your condo. If your condo increased in value 10% per year for 2 years the value is $266,000. If you took advantage of the zero down payment and cover the monthly negative of $329 (after tax) your equity / profit is about $42,000. FORMULA: $266,000 less $7,912 in monthly payments less purchase price of $220,000, less principal reduction on loan of $4,000 = equity of $42,000. For an actual property please see: DEAL OF THE WEEK. Of course there is a risk. Here are a few thoughts: 1. By purchasing in the lower end / starter market, you could assume the demand from first time buyers should be strong regardless of the interest rate and market conditions. 2. When you purchase, have 12 months to 24 months of payments in your checking account ready so you can fund comfortably for 2 years. 3. You should have the ability to raise rent in 2nd year; this will reduce your negative monthly payments. 4. What If the market for condos goes down? You could place on market immediately; Safari will discount commission and fees to get you out as close to whole as possible. Also you could sell and carry back a 2nd T.D. to recoup lost equity if necessary. 5. Management: Condominiums have management in place handling the grounds, trash, water etc. This is paid for in your Homeowners Association fees. When you purchase your condo you will also purchase a Home Warranty, which insures against expensive repairs. Why this might be a good
investment strategy: We at Safari study the condo market. Condos are a funny animal. Usually there are no sales in a particular condominium project for a period of time, and then one comes on the market and sells. Quickly, the next to come to market increases in price, and so on. We have seen this pattern over and over. We look for the beginning of this trend in each project. Safari Realty will give you their “VALUE PROMISE.” Safari will supply you with our research on a particular building. You will see comparable sales, sales trends, price per square foot, and a rental rate analysis. Armed with our research you will feel confident you are not overpaying, and, hopefully that you are buying with a built in profit. We can guide you thru the selection, financing and closing process. We can even help you find a tenant and a management company if you so desire.
|