Protected Senior Citizen Tenant
I encountered a condo on sale with almost 40% below market price. Then, it turned out that a protected senior citizen is the current tenant and the rent is ridiculously low and it is under rent control which is max. 3.5%. As a beginner in this field, with no cash or asset, I was having trouble getting qualified for a conventional loan. I was wondering if it is possible to secure second loan with appraisal of regular price for this property after I purchase this with owner financing, so that I can use the second loan for future investing.
Does the current rent affect on the appraisal?
The tenant became the senior citizen just few years ago, So I am expecting long term negative cash flow though. Would anyone give me a piece of advice?
Why would you want to buy this?
The market price of the similar condo in this area is about 270K. I was told from one of my agent that usually the appraisal does not count the tenant situation. If that is true, I can instantly build the equity of approximatly 100K. Although, I am not sure if I can actually use this equity, I can at least improve my asset situation which hopefully makes it easier for me to get qualified for a conventional loan if I need to get one.
The estimated negative cash flow is managible from my current salery.
Please correct me if I am missing something. especially on appraisal process. Thank you.[ Edited by demong on Date 06/15/2006 ]
Just curious.
What makes the property a rent control property? Do you have to own some number of properties before you are subject to rent controls, or does it happen with the first one?
If you will have only one property and only this one tenant, what is it about being a senior citizen that protects that tenant from paying market rent?
Is the property in NJ? I know of NY to be rent controlled but never heard of any in NJ.
The value of the property is NOT affected by the rent that you receive or expect to receive. The low rent will only affect you in qualifying as it plays directly to your debt-to-equity ratio.
Typically, lenders only consider 75% of the rent as part of your income and then they figure in the expected monthly payment for the new loan you are applying for. If this difference (along with your current obligations) do not meet their underwriting guidelines, then you may not be able to qualify.
So, if you have a good salary (income) and few obligations (debt payments), then you should not have a problem with a conventional loan on this property even with the -ve cash flow. If you truly have 100k immediate equity in the property, it should help your overall equity position, but I have found that lenders are more concerned with liquid assets than with "illiquid" or long term assets like real estate.
However, as most people have implied here, What is your exit plan? Are you planning to have years of -ve cashflow then sell for great profit? It sounds like a good plan ONLY if you are confident that you can support the -ve cashflow indefinitely.
Good Luck,
JS.