- Centurion Member
- Posts: 235
- Joined: Tue Mar 12, 2013 10:10 pm
- Location: United States
First let me say that I'm getting into seasoned pro territory on this. This would be my 3rd property and 4th mortgage.
In this environment and this city, and *my* circumstances, an ARM actually makes a lot of sense. Both of my current properties have them. You just have to understand the specifics of the loan terms and your market. For example, I had lived in my primary residence for 4 years already when I refinanced into a 5/1/2 arm. The loan rate maxes out just a little above what I was paying before, so the most my mortgage could EVER be above my original 30-year fixed is ~$100/month. Since the chances of me NOT selling within the next 5 years are pretty low, it also made more sense to take the up front savings. And even if I rented it, I could be profitable in 5+ years even at the higher payment. Same math different circumstances for my rental...it was SO cheap that interest means almost nothing. My annual *profit* is more than the annual interest, and will be unless and until the rate maxed out (and then it would be about even with the annual profit, assuming NO rent increases, which is a very bad assumption in a city where rents rise, sometimes dramatically, every year).
This latest property is in near-flip territory. It's a cheapie that needs a little work in a VERY hot neighborhood. With the work and up to 5 years to soak in price appreciation, it could turn a handsome profit. And, even if something didn't work out, again, the max rates I'd see would keep the total payment in sane territory. I define "sane territory" as no more than 60% of rent on a comparable property. Studios in that neighborhood can go for as much as $1800, so I'm not very worried. Remember, if everything goes to pot, I'm going to be living in one of these, so I don't need to turn a large profit on ALL of them, just an aggregate profit. Right now I can pay both my mortgages and then some on the rent from my one rental property. I'm not *employed* as a landlord...I have a stable job that pays okay. According to lending standards, I could technically support all three mortgages on just my income. Not that I'd want to do that, but, by the numbers, I could.
I do tend to agree that if you're buying a house to stay in, fixed is the way to go with today's rates. You won't see better 5-7-10 years down the line.
Member, here's the time frame to go from a rental to an owned property:
day 1 - offer
day 2-5 - under contract
days 3-40 - get your inspections done, finalize financing, iron out any contingencies that get called
days 45-60 - close
day 75 or 90 - make your first mortgage payment
That's right, you get one "free" month. I'd try to close at the end of September if I were you. So, if you're looking 4 months out, consider getting that pre-approval in very late May or very early June. Remember, the earlier in the month you close, the more pre-paid interest you fork over at signing. If you have the cash, NBD. If not, think about planning your closing carefully.
Finally, DC never charges a specific neighborhood for improvements. It's all from general funds, except for the once-in-a-blue-moon major outlay, which usually gets paid for with sales or business tax bumps for businesses in that neighborhood (hitting everyone who enjoys it rather than only the people who live there). We do have fairly high income taxes, but very low property taxes (on my primary property, less than $900/year, and increases are capped at 10%/year) and average sales tax (6%, 10% on alcohol and prepared food, NOTHING on services). I can forgive the high-ish income taxes because we have a lot of infrastructure to support and we get some nice freebies that I'd never seen before. For example, all the pools and rec centers here are free for city residents. Growing up in the burbs, we always had to pay to use the pools and sometimes the rec centers if they put in a nice one. But here, you can swim, play tennis, shoot hoops, or use a workout room for free if you live here. Sports fields have extra fees, but that seems normal, even if ours are a bit on the high side. Plus we can't charge a commuter tax (you pay income tax to the jurisdiction you live in, even if you work in the city), so the income taxes have to support commuter infrastructure without any money in the pot from the commuters except what they pay in sales taxes.
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