Paul’s parents own a property worth $100,000, and they owe $80,000 on the mortgage. If he wants to buy this property from them, how should he do it?
Max is torn between investing in a rental property or taking advantage of a mega backdoor Roth 401k through his company. Which is the better option?
Ali is a travel nurse and wants to get into real estate investing. Should she buy a duplex that needs fixing up or a cheaper apartment that’s rent-ready?
Kate and her husband own a townhome that has appreciated substantially, but they need a bigger house. They’re wondering: is it wise to keep it, rent it out, and use a cash-out refinance as a downpayment on their next property?
I answer these questions on today’s episode. Enjoy!
Paul asks (at 1:49 minutes):
My parents own a home that’s worth around $100,000. They have $80,000 left on the mortgage, and they want to downsize in a few years. If I’m interested in buying this property, would the bank still expect me to put 20 percent down, given that I’ll have instant equity based on the value of the house? Are there other ways I can go about this? Can I “take over the mortgage” for them?
Max asks (at 18:05 minutes):
I’m 34 years old and married with two young kids, ages 4 and 2. I’ve been on the path to financial independence for the last year.
My wife and I max out our 401ks, we have an emergency fund, and we invest our after-tax savings in VTSAX. We live in the Bay Area and have a mortgage that we refinanced to 3.25 percent.
I’d like to invest in real estate — either by building a one-bed, one-bath short-term rental on our current lot, or buying a rental out-of-state. However, I have access to a mega backdoor Roth through my company 401k, but it would lock the money until my retirement. Which option is better?
Ali asks (at 38:50 minutes):
I’m a travel nurse, and the majority of my money comes from housing stipends and per diems. My hourly rate is low. To get my housing stipend, I have to be 50 miles away from my home. I live in Indiana and work in Minnesota, but I’d like to permanently move to Minnesota. Since I’m in contract for my job, I can’t househack a property in Minnesota.
I have two other options to buy my first rental: there’s a duplex that needs work that’s listed for $205,000. I could rent out one half for over $1,000. The other option is to rent an apartment for $1,100 and buy an apartment that’s about $99,000 that’s move-in ready. It has an HOA fee of $250 per month.
I’d like to get my feet wet with flipping houses, and the duplex offers a good opportunity to do that. However, the apartment is located near friends and I know I’ll love it.
Is it smarter for me to buy the duplex, which I could gain equity in, or should I rent an apartment for $1,100 per month and buy a one-bedroom apartment for $99,000 that I could rent out for $1,200 per month?
Kate asks (at 49:53 minutes):
My question is around real estate and taking advantage of the current market situation due to COVID-19. We bought our first townhouse in September 2008 — brand-new, for $395,000 with three percent down. We still live here and have about 50 percent equity. It’s now worth $585,000.
We have two kids in elementary school and we need a bigger house. Even though we live in a high cost of living area, the schools are good, and we’d like to stay.
We want to take advantage of low-interest rates and the potential correction of housing prices. We’d like to purchase a house sooner than we originally planned — within the next two years. Our plan is to purchase a new house with a budget of $1 million with 20 percent down. We want to convert our townhouse into a rental property in the process. Our plan is to hold onto it until retirement.
We’re in our early 40s and earn $225,000 combined, before taxes. We’re debt-free other than our mortgage and have excellent credit. We have $284,000 in equity, $50,000 in cash in an emergency fund (6 months of expenses), and $25,000 in reserves for our townhouse. We save $3,700 per month for a downpayment on our next home. We’re considering a cash-out refi on our townhouse to pull money out for a downpayment. Our current mortgage is 3.65 percent and we’re four years into a 30-year term.
Here are my questions:
- When should we do a cash-out refi? There is a belief that interest rates will stay at current lows for another 12 months. We don’t want to miss the opportunity to refi at a low rate, but also don’t want to keep cash for too long before we buy.
- Once we refi, where should we park the cash until we’re ready to buy?
- How should we calculate if keeping the townhouse is a financially sound decision? All the calculators online are based on purchasing a rental property.
- How should we calculate the optimal amount to pull out for the cash-out refi? We can take up to $160,000 — the more we pull, the faster we can come up with a downpayment, but we might not get positive cash flow on the townhouse.
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