Expert: Matt Heisler - 7/30/2007

Question
QUESTION: hi, i bought a condominium 3 months ago and everything is fine.  i put 20% down to avoid mortgage insurance.  i work 3 jobs and get pay good.  i pay extra principal in my mortgage.  i had save a couple of thousands dollars, enought for down payment on another condo.  i was thinking of buying another condo and rent.  another idea was to buy a house and rent the condo i have now. what's your advice?
what would you do if you own a condo and have extra money for down payment for another properties?

ANSWER: Hello -

You need to decide what type of cash flow and asset appreciation you are expecting.  There is no one answer to your question; it depends entirely on your needs, your cash, and your expected profit.  In general though, you will need at least 30% down for a property to be break-even from a cash-flow perspective.  If you want to let me know a more detailed analysis of what you're trying to achieve, perhaps I can help more.

Matt Heisler

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

QUESTION: thank you for your answer.  well, i already own a condo which i am currently paying. i even make extra payments to the principal.  with the help of my family, i can come up with more than 20K. what i want to do is to buy another condo and rent that condo so it will pay itself.  i found a couple of condos around my area but i know the rent will not cover the whole mortgage.  i will need to come up with $500 more to pay the mortgage which is not big problem for me. rent around this area range from $1200-$1300 for two bedrooms. since i can come up with extra money, i am wondering if i should buy and rent or just keep that money in the bank.

Answer
Hello:

If you're planning on losing $500 a month, it doesn't seem like that is something I would do.  Here's what you're not thinking about:  Vacancy rates, tenant damage, capital improvements, tax increases.  All of those things will be making it very hard to make the second condo work as an investment. Housing only 3% - at 5 to 1 that's 15%  - minus expenses. You're talking about a place that costs $150K, so a year of appreciation is $5000 - but you're going to lose that in cash. So here are other options I would consider.
A) Fix your place.  Use the money to upgrade the kitchens and baths.  Make your place more money for the selling it in the future
B) Pay down your mortgage.  If you have more equity in the place you own, it helps several ways.  It's helps you raise capital to buy another place (you can re-borrow it) and you can make the place your in cash flow positive for renting, by increasing the money down on it.
C) Invest in stocks and bonds.  7-10% is better than losing money.  

I just don't see profits in your strategy.

Matt