80/20 ARM Loan $0 down High Rates 20 yr old investor, Am I Screwed?

Question

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. 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 $. I rent 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 or I have to pay 3600 penalty fee. I bought the duplex for 147,600 (including closing costs). It's been appraised at only 148,000 so I bought it at top dollar. Zillow says it's now worth around 153,000 and it's only been 4 months, it's probably bs lot of people said but maybe it went up who knows

This is suppose to be my "primary resedential property" and I'm suppose to be living there but I am not but no one knows. I cannot make tenants pay water, sewer, garbage. Rents are already up.. I don't want to move in the duplex myself because then I would have to pay more right now which saves me $150/month. So what is waiting for me in the future? Wealth? Or disaster? Equity is slowly building, here in Spokane the market is consistent not too slow but not too rapid. My credit score I'm sure is doing wonderful! I just want suggestions/comments. Should I just hold this place up for 2 yrs? I can handle it w/ my normal job + college. Am I just young and paranoid? Or is wealth around the corner if I buy more properties within few yrs w/ positive cashflow this time, or is disaster waiting for me around the corner? I deeply appreciate any comments or suggestions. Thanks in advance and God Bless! =)

Answer 1

LoL you're screwed dude!!!
9% interest... you gotta be kidding me!!!

Answer 2

If you're only feeding the alligator $75.00 a month on the note you're in pretty good shape. If this plus the water is breaking you, you bought too high. Small comfort now.

Don't pay any attention to Zillow's valuations. They're a bad joke. I sold a place outside San Antonio several months ago and they showed its value more than $20k high.

You're going to have to wait until the value is at least $15k above your loan payoff just to make your selling costs so even if Zillow's valuation is correct you're not positioned to sell yet.

Your best plan of attack for right now would be to keep a close eye on valuation and interest rates and re-fi as soon as you no longer face the pre-payment penalty. With a bit of luck, the value will be high enough in 2 years that you won't have to worry about PMI and your credit score will be good enough to get a good rate on the re-fi.

Keep a close eye on rents in the area and move them up as and when the market allows. But don't forget a cardinal rule of being a landlord: A good tenant who pays less rent on time and takes care of your property is better than an unreliable one paying a higher rent!

Lastly, keep a good eye on your overall finances including taxes. You get some significant tax benefit from owning rental property and the reduction in your tax bite will help to offset some if not all of your negative cash flow. Have your tax advisor run the numbers and see if you can adjust your withholdings and put some more $$$ in your take-home pay to cover the negative cash flow.

Answer 3

Hi. It appears you payed too much for the building. A great lesson is always to have a building cash flow or don't buy it. I am amazed the bank offered you these terms with zero down.If the lender is a bank, they definitely don't want this back on their books. Approach the lender, honestly explain your oversight, and ask if they are willing to allow you to refinace. Many banks are sympathetic and want you to succeed so that you will do more business with them.
If the bank is inflexible or you went through a lender the best advice would be to carry the note and sell the duplex with a wrap if you could find a buyer. I am unsure when your leases expire, but it is easier to do a wrap when the buyer is actually living in one unit. Since your building doesn't cash flow well, most buyers would want the ability to live in one unit while the other side pays some of their rent while they are building equity. If you do a wrap be sure and retain tax benefits, mandate they maintain the premises, and be sure and keep insurance on the unit yourself. Also be very quiet as to not alert the mortgage company. Read Real Estate Riches by the Rich Dad, Poor Dad author.

If I was you I would try to sell the place by owner. Unless this place is going to appreciate like crazy, it is a monkey on your back. There are better places to invest. We all have lessons like this building you bought. Hopefully one of the leases will soon expire and you can either raise the rent or look for a buyer who will at least cover the payments in exchange for 'using' your credit. You may look for a way to supplement your income. My brother learned how to finish garage floors with enamel paint. Mow lawns, bartend...don't let this discourage you. Learn from it and move on. Even if you have to pay the $3600 penalty to refinance the building it will still leave you with a cash flow issue.
I wish I could be of more assistance.

Answer 4

Wow...that's gotta hurt.

Your interest rate is high, you lied on your mortgage application, you can't refinance, and you are losing money.

Let's examine this.

If you can't afford the place, you shouldn't have bought it. If you are still going to college, you should have waited until you finished school as who knows where life will take you (I grew up in Juneau, AK...ended up outside of Chicago).

You lied on your mortgage application. You can get your property repossessed on this fact (or rather, the company can call the loan and take the property when you can't pay).

As for Zillow. Zillow is a nice tool for estimating, but estimating what a property is worth and getting someone to pay that price are two different things (I just bought a house estimated at over $280K for $246K). Zillow is a very good estimate, but just remember it is an estimate. Market conditions dictate what your place is worth.

Take a step back and look at what you have. You have a property that is a liability. If you can afford to lose $200 a month (which isn't bad considering) then hold onto the property. If the market goes up 1.5% a year, you'll break even in the end. If you can't afford it, you either need to get another job, get rid of the property, or find a way to get more money in rent.

I must say good for you for trying to get into the real estate market. Try it while you are young. That way if you fall flat on your face, you have time to recover before marriage, SOs, or kids.

Good Luck!!

Answer 5

If you can do what you are doing right now for the 2 more years, then refi, tat may be your best answer for right now. Since you are so young, they gave you a very high interest rate. Maybe wen you get o refi, you will get a lower interest rate. It's great that you could buy a place now. It may take some years, but you can make some money in the long run. You know some people actually lose money for like the first 5 years? Just keep hope up & you will be fine.

Answer 6

First of all, please do not trust Zillow. I'm a Realtor and when people tell me they got a price from that website i just grind my teeth. Why? Zillow over estimates on prices so much (in my market). I'm talking 30k to 40k, and this on homes that are in the 1 and 2 hundred thousands. That's way off!

Get a Realtor to do a good CMA. They should do it for free (I would) in hopes to earn your business in the future. Ask them what kind of market growth is in your area & especially for duplexes which might move at a seperate rate. After that you might be able to see if it is worth keeping the property for the 2 yrs or if you'll end up losing more money by paying out of pocket monthly. Which ever makes(or saves) you money might be the best. Sometimes it's best to just say goodbye and take a hit. Especially if its gonna hurt your credit, wallet, school and personal life. Just start over later, dont give up on doing what your doing, it will pay off eventually with experience.

http://www.exityourhome.com

Answer 7

I bought a house for 575K last October on my 19th birthday.I got two loans and a payment of $4,200/ month in Southern Cali.I will keep my house for 1 more year so I won't have to pay Capital Gains.My tenants are paying 2K a month and I'm putting $2,200 from my pocket doesn't look such a good investment huh? Oh well next year hopefully it would sell around 725K right now it's appraised at 685K. Not bad for a 20 year old investor. Hustle Hustle and Hustle if will definately pay off.