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Author: moonchite Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127683  
Subject: To Buy or Not to Buy Date: 2/4/2014 6:18 AM
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Dear Community,

I am reaching out to you all today in hopes that you may be able to share your wisdom and insight with me.

A very good friend of mine has been encouraging me for 11+ years to buy a home to invest in property. While it sounded like a great idea, I never did because I was swamped in school loans and worked diligently to repay them, which I did,finishing almost 2 years ago. While I was paying back loans, I managed to save some money, investing it in a Roth IRA time and I have continued to save some money after repaying my loans. I must say during the past two years I have enjoyed a bit of breathing room and a sigh of relief that for the first time in my adult life since I have been living on my own (20+ years), I have not had to constantly worry about money and have actually felt a sense of freedom in my life.

I have been wanting to move in order to have more space and so I can own a car without having to pay for a monthly parking space (I do not own a car now, I rent them as needed), and have been starting to look at some places for sale in the $200,000 range.

Now, a buying opportunity for property has presented itself but its very unclear to me exactly what my monthly expenses would be if I obtained the property. The sale price of the house is $325,000 - its a 3 floor townhouse with the potential to buildout a 4th floor. Its a gut-job, everything must be ripped out and rebuilt including replacing the pipes and replacing the oil burner. The water must be tested by the city to see if it is safe. The neighborhood is ok, and is slowly in the process of rebuilding itself, which means that it is most likely that the property value will more than likely double over the time. The house belongs to my friend's best friend's wife; they must sell the house within the next 3 months, have received several "lowball" offers and have refused the offers. My friend who is an expert at gutting houses and rebuilding them (he does beautiful work), estimates that rebuilding will run approx. $25,000 for each floor including replacing pipes and the oil tank (so $75,000 - $100,000 additionally on top of the $325,000). I don't know how much the build out of the 4th floor would be as I didn't think to ask him.

If I took money out of my Roth IRA (the earnings on the principal) I could come up with 20% of the downpayment and that would deplete my account by a little more than half. Also, as I have my own business I write off a lot of expenses related to my work, and my net income is low - $32,000. With that amount, I will not qualify for the full loan needed for the rest of the purchase price, not to mention the cost to rebuild the house. My friend tells me to just find out how much of a loan that I qualify for and he will see if he can come up with the rest of the money and co-own the building with me. So, he would be paying some of the mortgage, but I learned recently from the seller that the monthly cost of electricity and water alone was running her $1500 a month. That figure shocked me, and there is no way that I would pay that, on top of a mortgage, conservatively estimated at $1500 a month.

So, overall, I feel unclear, I think it could be a good opportunity, but I am wondering what steps should I take to become clearer whether this is a realistic thing that I will be able to afford. Taking out so many loans for school was a big risk, and it has paid off, but I don't want to get into a situation where I feel overwhelmed and over my head. On the other hand, I do know that if I stay in my current place, then I am not going to be able to grow and develop in the way that I want to.

Investing in stocks over the years under the guidance of the Motley Fool has been an excellent move for me, and I do believe that my money will continue to grow as I continue to invest with them. But at some point I do want to diversify a bit and own a home, but not be over my head so much that I am overwhelmed and back to the days of being scared of opening my bills.

So any advice and insight anyone has would be appreciated.

Thank you, and Warm Regards.
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