I have some cash available at hand (about 125k) and I am thinking about a couple of options. I am thinking about an investment property for about 250k and put 50% down on the property. I understand Folsom is not the place to look for at this kind of price. Elk Grove, Rancho Cordova, and Roseville are likely better places. When it comes to renting and ROI, is a single family home or condo better? What kind of ROI can I expect in this market? Also, are there any other areas in Sacramento that you recommend?
Another option I have is to use part of this money (75k) and refinance my current home to a 15 yr mortgage (I still have 27 years left on the mortgage). I could still the remaining for a down payment on an investment property. What do you folks recommend?
This will probably take a little more thinking and investigation on your part. The answer will come down to a matter of your goals and amount of risk you're willing to take.
Some would say to put that 50% down on a property and then use the rent to pay down the mortgage on it and you'll have a nice income producing property for as long as you want. I have clients doing just that. One couple took money out of their retirement account to buy a rental in Folsom for $249K. They were very nervous, wondering if they were doing the right thing. Today, the same model is listed for $415K, and they still have theirs, with and are paying extra on the principal every month. That one house is their security and nest egg, and rents for $1700 per month.
I know others who would tell you to put 25% down on each of 2 rentals, and have 2 income-producing properties.
Another might say to buy a condo for $100K cash, or 4 of them with 25% down each.
So many possibilities.
Some will say to buy in Folsom, where the rents are higher and one can get often get multiple strong applicants, and where home values are stronger. At this point in time, positive cash return may be lower than you might expect.
Others will tell you, as fouroheight did, that you can get nice properties cheaper in newer areas of Rancho Cordova.
I even have a client considering lower-end properties and offering them to Section 8 renters, because the government guarantees that they will get a guaranteed income as long as the renter is there.
I also have some looking at Mid-town because it was already a strong rental market, but with the new arena, getting even better.
Some have warned buyers to stay away, however, because the properties are old and likely to have structural, electrical and plumbing issues.
Instead, they suggest to buy in one of the recent developments in West Sac, as the homes are newer and cheaper.
I even have a client talking about investing in Ohio, where one can pick up rentals for $30K to $40K, and get $800 per month rent.
The opposition would say that you should invest where you can see it and touch it.
I know one investor who has been buying rental property for over 40 years. He won't tell me how many he owns, but that he's never sold one and all of them are worth more than he paid for them.
I also have clients who got out of the rental business because they got tired of dealing with tenants, late payments and plugged toilets. Speaking of that, are you going to manage it yourself or are you going to hire someone?
Lastly, I have a friend who never refinanced, never bought a rental, just paid as much as he could on his house each month an now owns it free and clear. He is very risk-averse, and is saving his money (some would say that's risky too).
You've got to think about what your goals are, what you would tolerate, and how much risk you want to take.
As for the 15 year mortgage options, consider that you will likely have to pay a couple thousand dollars to get that done, and that you will be forced to make that payment. Some would say to go ahead and do it, that it will force you to pay it off.
Others might suggest just keeping the mortgage and paying extra on it each month, as if it were a 15 year. That way, you turn it into a 15 year mortgage without paying out refi fees, and if you find yourself in need of the extra cash, you just make your regular 30 year payment. Also, the 15 year will increase your debt-to-income ratio that will be considered when you apply for mortgage or other loans.
I don't know if I've gotten you any closer to an answer, but maybe have given you things to think about.
