Expert: Connie Wildasinn-Broker,GRI,Realtor® - 8/31/2009

Question
QUESTION: I am interested in buying this 1943 home, but would like your honest opinion about it.  Its home taxes are $61,000 and that is what the owner will accept. His selling price was $65000. The house is in pretty good condition, especially the kitchen and layout of the house.  It doesn't look like the modern houses built today.  The rooms are somewhat small, but will suffice.  It is in a very established neighborhood close to everything.  There are no other houses for sale in this area.  Is it a good investment?  Most of the houses' tax value are about that same price, some more and some less.  Of course, I would first get a home inspection, but would it be worthwhile?  It has a very charming kitchen and front porch that I fell in love with.  Any advice  asap would be greatly appreciated.  (There are a lot of people looking at this property.)

ANSWER: Hi Ester,

Congratulations on wanting to buy investment property... a great way to obtain retirement wealth..

You don't mention what state you are in... but you sound like you are purchasing for $61,000? Is that the 'value' of the property or back taxes you are paying off?

when you are looking at an investment (any investment) you need to calculate your rate of return and decide if this vehicle is a good one or some other avenue would be better...

You need to calculate the rent you think you can get, how much of a vacancy factor you will incur, how often tenants turn over in that type of property in that neighborhood, what a realistic rent would be... You just want to keep in mind not to go negative... now matter that is not the way to buy income property, you want to be in a positive position, because for most areas in the USA rents are where you will make your money, not on the appreciation (which we may not see for a long time to come)

Speak with a local realtor who know the are, a local rental / property management company, tax advisor and financial planner.. Run your numbers and see if the property works, if not do not buy...

Also... for most rentals, clean and fresh usually does well... for many they will want the area and be willing to live in a vintage home even through they may only want to 'BUY' a more contemporary home.  Rentals and property to live in are two completely different things...

Good luck

---------- FOLLOW-UP ----------

QUESTION: Connie, I forgot to ask you a very important question.  Would it be wise to take out a home equity loan for this house?  Many warn me that it's not a good idea. So when is it a good idea?  Please respond asap as the house is showing like it's an open house.(It is selling as for sale by owner.)

ANSWER: Hi Ester... my advise and it is only my advise, DO NOT take out  a home equity loan or line of credit... first of all it means you have put your home on the chopping block and at risk should the investment go south... and now your personal residence is at stake... if you are ready to invest you should have saved the money to do so.. 20-35% or more down and the credit to make it happen... investing is not for everyone and should not be... so save and when you are ready you can... good luck

---------- FOLLOW-UP ----------

QUESTION: Thanks, I will take your advice and wait. I just wanted to take advantage of the market right now, but you made some important points that I really hadn't thought of.  So how long do you think this market is going to be good?  I know that maybe in 1 year, we should have the 20% for the down payment.

Answer
Hi Ester...

You have plenty of time to gather funds and purchase... we have not foreclosed on the 5 year adjustable hybrids, and then we have the 7 year to get through... additionally as long as the government keep putting the industry in moratorium status... nothing is happening... but the prolonging of this market...

My personal view also (and keep in mind I and no one has a crystal ball) it is looking like the bottom to be sometime in 2011 (late quarter) or 2012 (Mid quarter) so again you still have time... even once we hit the 'bottom' the market will have to have a reason to move up... it better job situation, economic recovery in full swing..

I also don't think we will see the unprecedented upswing in apperception that we saw in the early 2000's ever again... that was a once in a lifetime event...

good luck