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Under: Investing & Retirement
I'm in debt, but I want to buy assets!
  • howmanycamels
    I'm itching to buy a fixer-upper and rent it out. The plus side: my network of family and friends and I can do the work ourselves easily. The cons: I have $7000 of credit card debt and practically no cash available because I've been focused on paying down my debt. What do I do? Is there a reasonable way to start this venture now, or do I have to wait til I'm debt-free?
  • FLady
    Well how would you finance the repairs? Do you have enough income/assets to qualify for a bank loan for this property? Are you planning to live there too?
  • howmanycamels
    My credit score is excellent, so I can qualify for a loan. I do not plan to live there while it's being fixed up, and then after the work is done I will rent it out. What type of a loan would I pursue for this? The loan amount would be relatively small, which I understand can sometimes make approval more difficult.
  • gadgetgirl
    Congratulations on paying down your debt!

    Buying a rental property requires more down payment than if you were buying the property as your primary home. Last time I checked, rental property requires a 25% down; however, I recommend that you consult a mortgage broker to discuss current requirements since I believe lenders usually want to see some emergency savings to cover unexpected repairs or vacancies (i.e., loss of tenants and rent).

    Have you considered purchasing property as your primary residence and living there? There are better loan terms for this type of purchase.

    Also, as you consider rental property, please also consider liability insurance for your property and to protect your assets. Good luck!
  • howmanycamels
    Thank you for bringing up such good points as the larger downpayment and emergency savings needed! If I buy a 2-unit home and live in one part while renting out the other will I still have to pay the larger downpayment?
  • gadgetgirl
    Hi camels - I'm not sure what the required down payment will be for a duplex. In my experience, lenders are not considering the possible rental income as a factor and underwriting is more likely to occur if you put more money down. Your mileage may vary.

    Most realtors/brokers will answer questions. I recommend you contact a broker/realtor or consult your bank. Best wishes.
  • howmanycamels
    Sounds like that will be my next step. Thanks so much!
  • FLady
    @howmanycamels: Here (in Chicago) you are more likely to qualify for a larger loan if you live there while renting out part. However it's not clear to me what the ratio is for doing so. I agree with gadgetgirl the best option would be to start talking with a loan officer to see what you could qualify for.

    One site you might want to take a look at is the afford anything website. The author also buys places for rental mainly in the Atlanta area. She has a lot of good tips about what to look for when purchasing a property and explains how much work it turn out to be.

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