So we don’t normally write so much about our own finances these days, but it looks like we’ll be buying another investment property. My wife Miel has been keeping an eye on the real estate market here in Washington DC for the past few months. On Sunday she found a great investment prospect. To make a long story short, we decided to put in an offer on the place.
So, the past two days have been a bit of a whirlwind of applications, digging through our tax information, applying for loans, adding up accounts and signing lots and lots of paperwork.
The tricky thing about this deal, is the agent representing the seller reads our blog! So, unfortunately we can’t discuss our negotiation strategy or how much we are offering right now. However we can tell you that we’re looking at a basement apartment in the 17th street neighborhood in Northwest DC.
Here is a picture of me with our agent, Marcie Sandalow.
In order to raise the downpayment money we’ll have to dip into our emergency fund and the bulk of our liquid stocks and bonds. So most of our dividend paying stocks, our bond funds and our index funds – all that will get sold. Basically we’ll be converting that money into real estate equity. As I can see it this has at least two disadvantages:
1) It limits our future options. If we put most of our liquid wealth into relatively illiquid real estate equity, we will be less able to react to the next opportunity that comes our way. Cash is still king.
2) It reduces our diversification. Our net worth is somewhere south of $400,000. If the deal goes through, about half of our wealth will be in equity in DC based properties. This means our wealth would be vulnerable to any protracted downturn in the DC condo or rental markets.
These advantages are mitigated somewhat by the income and tax benefits the investment would generate. Right now, we are still specifying the exact tax benefits, but our back of the envelope estimate is the acquisition should slightly improve our cash flow over and above what our stocks and bonds are giving us.
We’ll keep you posted.