80/20 ARM Loan HIGH RATES on a duplex 20yr old investor Am I screwed? Plz Help!!?

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I am 20 years old from washington, I managed to get a loan and buy a duplex w/$ 0 down 80/20 Arm loan 80@7.5% 115,000 and 20@11.5 32,000 Yes rates are very high but w/ 0 down and no assets I had to take what I was given. My question is I want to buy more properties. I will be paying interest for the first 2 years and I have no extra money to pay extra on top of my minimum payment. I am losing money rents out both units@$ 1125 + $ 115 water +75 add to mortgage payment so I’m losing $ 190 a month, I cannot raise rent it’s already up there. I cannot refi for atleast 2 years. I bought the duplex for 147,000 (including closing costs). It’s been appraised at only 148,000 so I bought it at top dollar. Lol I am 20 come on =). I’m curious should I just sell in 2 years and walk out? Since rates are going up I cannot afford paying my bills plus property additional bills. Both tenants are planning to stay for atleast 2 years. Any suggestions/comments deeply appreciate! Thanx!

  1. Reply
    February 5, 2011 at 5:46 pm

    You knew going in what the situation was, so you must have prepared yourself in some way to make up the difference between expenses and income.

    Instead of going out and getting a new loan on another property, find one that the owner is willing to finance and make sure you are going to cash flow positively. That will make the burden of the negative cash flow from the duplex more palatable.

    I wouldn’t be thinking about selling in two years. I would be thinking about 5 years. Rents are in the process of going up (traditionally they increase at about 4% annually) and it won’t be that long until you break even. In the interim, renters are paying off your mortgage and you are building wealth.

    One thing you might think of is adding additional profit centers if possible. Are the renters willing to pay extra if you provide a washing and dryer? Or you could get a coin operated one put in and split profits with the operator.

    If one of your tenants decides to move, perhaps you should take one of the apartments and live in it yourself.

    You are young and real estate is forgiving in the long haul. Time is on your side and you will come to see that this investment will work out.

    Think about refinancing in two years if the rates don’t up dramtically and you will save money.

  2. Reply
    February 5, 2011 at 6:25 pm

    There is no definite answer to your question… The important thing to remember is that there is ALWAYS a good deal. It might be all over the news that the real estate bubble is about collapse and go to high hell, but the fact remains that good deals are still there– they might just be harder to find.

    From the sound of it, your investment is marginal at best. You are very close to breaking even, and as the previous person posted, rental rates are sure to go up. On top of that, the property is bound to appreciate in value by anywhere from 4-6% depending on your location. The big question isn’t whether you can pull off this deal to make it work, but what is your opportunity cost for holding onto it… If you aren’t familiar with the term, opportunity cost is another way of saying “what you could be doing with your money if you were to do something else with it.”

    I have been a real estate investor for a long time and I would be hard pressed to believe that you cannot find a better deal out there. Are you screwed? No. You merely got yourself into a deal that is only mediocre. I would spend the next two years looking for a substitute property that has a better return, take a small profit from the appreciation (assuming your rental income offsets your mortgage payments) and invest in a different property. You never know– your property value always has the chance of skyrocketing due to changes outside your control. Check with the planning commission to see what developments/improvements are going to be made in the area.

    Finally, don’t limit yourself to the financing you can obtain yourself. There are plenty of other ways to secure property. Take for example finding and managing a property for a certain percentage profit– or if you’re really lucky you might be able to weasel a small percentage of ownership. Most people will say that this method is crazy and would never work, but it’s exactly how I got started in real estate investment. Your success in acquiring outside private funding is directly related to how well you can sell yourself. Best of luck.

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