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It looks likely that a friend of mine will be in this situation in the near future. He's not exactly the most knowledgeable about finances and isn't sure about the best route to take if this does in fact happen. The property he'd be receiving is currently rented out and he'd be receiving $550/mo after HOA, property taxes, and homeowner's insurance are deducted. The property will not actually legally be transferred to him, he'll literally just receive $200k when he decides to "cash out" in which case the rental income will stop.
Financial situation is as follows:
Currently paying $1k/mo rent, no debt whatsoever and keeps the expenses low. $30k in the bank. Refuses to invest in the stock market due to some heavy losses in the past. Would like to buy home, preferably cash which is possible in his area although it won't be pretty in his price range. He wouldn't be able qualify for a loan for at least a year anyway because he does contract work and there's a two year requirement for lending to independent contractors. He's mentioned he wants to do dog daycare (using Rover and DogVacay, not as an official business) to bring in a little extra income although he's realistic in the sense that he know's it won't be much. Is his best option:
1) Buy a place with cash and enjoy life w/o a mortgage at the age of 30, with future savings used toward purchasing rental properties with cash?
or
2) Use the $200k as a massive down payment on a nicer home or multi-unit and either wait another year for a conventional loan or possibly take out a private loan from a family member?
It looks likely that a friend of mine will be in this situation in the near future. He's not exactly the most knowledgeable about finances and isn't sure about the best route to take if this does in fact happen. The property he'd be receiving is currently rented out and he'd be receiving $550/mo after HOA, property taxes, and homeowner's insurance are deducted. The property will not actually legally be transferred to him, he'll literally just receive $200k when he decides to "cash out" in which case the rental income will stop.
Financial situation is as follows:
Currently paying $1k/mo rent, no debt whatsoever and keeps the expenses low. $30k in the bank. Refuses to invest in the stock market due to some heavy losses in the past. Would like to buy home, preferably cash which is possible in his area although it won't be pretty in his price range. He wouldn't be able qualify for a loan for at least a year anyway because he does contract work and there's a two year requirement for lending to independent contractors. He's mentioned he wants to do dog daycare (using Rover and DogVacay, not as an official business) to bring in a little extra income although he's realistic in the sense that he know's it won't be much. Is his best option:
1) Buy a place with cash and enjoy life w/o a mortgage at the age of 30?
or
2) Use the $200k as a massive down payment on a nicer home or multi-unit and either wait another year for a conventional loan or possibly take out a private loan from a family member?
Well, if he wants to buy his house in cash, he should go for it. Spending more money on luxuries you don't even want, especially with borrowed money, is rather pointless. Paying cash for the house is also a bad idea if he is lacking in emergency or retirement funding, though.
Maybe he can come down on price to $170k or $180k. If it's a fixer upper he can buy the house in cash and then finance the repairs through the repair company, and treat that as his "mortgage". This would circumvent the problem of no emergency fund and unable to get a mortgage, as the cash that would have paid for repairs outright is then the emergency fund.
Just be sure that the "homework" is done to avoid underestimating repair costs!
Samir: You know what I would do if I had a million dollars? I would invest half of it in low risk mutual funds and then take the other half over to my friend Asadulah who works in securities...
$550 a month is good rental income (not revenue) so I'd keep it rented, assuming that the person is cool being a landlord. $1000 a month in rent (if he's happy in his place) is way below median, so it doesn't make sense to ramp up to a $200k place, which would be more than $500 a month in insurance and rent and other homeowner expenses.
Plus it would offer some income stability when his contracting is slow. Or he could move in when the renter leaves, assuming it's in the same city without cashing out and paying fees to realtors.
If it's not in the same city, then I'd recommend this person sell.
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