Home Buying in San Jose>Question Details

Sam, Home Buyer in Sunnyvale, CA

Buying a house$760K with 20% down,30 yr fixd loan 5% apr;my bank acct wil just have $10K reserve;is it good move? chance of profit in 5 yrs?

Asked by Sam, Sunnyvale, CA Fri Jun 18, 2010

Buying a house in 95129 - Moreland school district, country lane elementary..looking at the mortage pymts if home value increases in next 5 years, will I see profit? or shoudl I wait to purchase a property until my down payment capacity increases? After i pay 20% down, it might be pretty much hand to mouth...

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6
If you are going to be living hand to mouth, buy a house with a smaller price. Don't put yourself in a precarious position. And don't buy a home to live in when your sole consideration is profit. Buy a home to live in because you like it and it meets your needs. Yes, try to buy in an area that will maintain value. If you want profit from real estate, buy an investment property.
1 vote Thank Flag Link Fri Jun 18, 2010
Future depends on the economy & inflation. Only the most depressed neighborhoods will bounce back faster than better areas.

Local experts are predicting little or no growth for several years, To recover to the peak price most optimistic economists are hoping to arrive surpass that point after year 2020s.

This is nothing new. In the 70s one lives in a house for 5 years and make $1-$2K 1970 dollars. In the early 1980s people pay interest rate as high as 20% and survived.
0 votes Thank Flag Link Tue Jun 22, 2010
John, this is not an investment property so I don't see how your calculations are relevant to what this person is asking.

I am also in the process of buying a house for ~800K, but in my case, I will have plenty of money to live well.

Why buy a house if you're not gonna have money to live well, have fun, enjoy life? Seems to me that you are overextending yourself.

I'd recommend you downsize a bit. Otherwise, I see nothing but trouble in case you lose your job or encounter any other unforeseen expense.

I like to have 50K in my checking/savings (or any other highly liquid) account just in case.
0 votes Thank Flag Link Tue Jun 22, 2010
Sam,

Congrats on your investment. Sounds like you've done a little homework in determining a good location for your investment. And yes, school districts are an important part of owning rental property amongst other things such as freeway/interstate access, access to grocery stores/major services, low crime rate, etc.

From a monetary standpoint, here's a formula I've used to determine whether its worth my time or not.

annual net operating income (NOI)/ down payment = percentage return

I know, what is “annual net operating income”? This is basically, income minus expenses or in other words, cash flow. Let’s look at an example to see how it all breaks down.

Subject home: $160,000
Required down payment: $40,000
Amount Financed: $120,000
Rate 5.625%

Income: 1,550
Mortgage: 690
Property tax: 83
Insurance: 52

Add this all up (1550 - 690 -83 -52) and you have a monthly NOI of $725 or annual NOI of $8,700. Getting back to our formula (NOI / down payment), it would look like this:

$8,700 NOI / $40,000 DP = 21.75% return

Not too bad. I usually try to shoot for 15% or greater. Can you make this in the stock market or anywhere else? Hence, my passion for real estate investing!! Got further interest? Give me a shout.

John Mondello, Realtor
“I find the house, you make it home.”
Keller Williams
(225) 329-8119
0 votes Thank Flag Link Sat Jun 19, 2010
Sam,
I agree with Maria, don't buy a home just for profit you just can not predict what the market will do in 5 years, purchase a home that will not financially strap you, you do NOT want to be a slave to your home.
If this home is what you REALLY want , you might want to try a different loan like an FHA with 10% down or explore other options.
Just don't buy anything that is going to put you under to much stress.
Feel free to contact me with any questions.
Regards,
Allyson
408-705-6578
allyson@homesbyallyson.com
Dre# 01397256
0 votes Thank Flag Link Fri Jun 18, 2010
As for value increasing in 5 years, unfortunately none of us can answer with accuracy, as who knows where the market will head tomorrow--as to waiting or not--Lenders have their income v. debt criteria for qualifying for the amount of a mortgage—oftentimes requiring that housing costs are not in excess of one-third of gross income in addition to a stipulated income v. overall debt-ratio. What lenders don’t know are borrowers’ non-debt spending habits, present and anticipated. You, the borrower, need to consider the economic factors of your lifestyle that would impact on your individual comfort level of affordability. A mortgage outside your budgetary constraints can dramatically alter your overall living conditions. So, be sure to factor micro and macro economic concerns into your mortgage amount deliberations. It's always best to live within your means.
0 votes Thank Flag Link Fri Jun 18, 2010
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