$40k REO Condo - Originally 130k. Buy or Not Buy?

Question

In a predicament. foreclosed loft sold for 130k in 2004, now an REO. bank wants 80k.

Taxes: 260+/mo.
Dues: 230+/mo.
All in all fixed cost to own the unit: $622

Will rent for $800 easily. $178/mo cash flow or $2136/year.

I will make 5%+ on my money if I offered a 35k cash deal on it.  Bank won't finance such a low amount.  They want to offload.

What to do? Would you buy it all cash?

Would you finance it instead and settle for a lower monthly cash flow but have the tenant pay down your mortgage over time?

What's the best route?

Will Barnard · Answer

So far, you have received advice to move on from this investment from several posters, of which, several are very experienced, yet you appear to keep coming back to make this deal work. In history, that is a recipe for disaster.

Keep emotion out of the equation. Your hunger to invest should not overcome common and savvy investment protocols.

Condos can be tricky due to HOA's, and the fees involved create a higher operating expense than units without HOA's. They can be harder to sell, but on occasion, market dependant, can be what sells.
I would personally consider condos to be a more advanced strategy for those experienced in doing so with proven track records. Please don't make this your first investment.

One more thing, your statement that the unit sold for $130k in 2004 means nothing. The only thing that matters is what it is worth now and what your market is doing now. 2004 was a phenom year for RE appreciation and should be disregarded in analysis as it will likely not repeat anytime within the next two decades.

Keith Shoemaker · Answer

Are you working with someone that writes offers every day on REO's and knows about the complex?  Have they sold other units in this same complex?

Jon has great advice for you, the what it sold for number has no effect on what you need to pay.  Have a good Realtor pull last 5 months sold listings for you.

Project a 4-8% reduction in market price  for good measure after purchase, run your numbers again.  Are you still positive cash flow after that?

Are you going to manage property or pay someone to do it?  Add this price into your fixed costs. 10 percent is normal.

Get a second opinion before spending your money.  You are correct Dallas is a better market, but if they do not have good reserves, you could be paying 20K in special assessment down the road.  You have cash reserve to do that?

Is it a new property?  Does it have new roofs on all buildings?

Tons of questions need to be answered first before buying.

Do it every day for my investors here in Jacksonville Florida.

Good luck...

Jon Holdman · Answer

Zillow isn't research.  Figure out what other condos in the same project are selling for right now.

Steve Babiak · Answer

Don't do it! You give KNOWN monthly expenses of $260 plus $230 ($490 total for those), and the rent is only $800!!  TOTAL of ALL expenses should come in no more than 50% of rents IMO (and I'd bet others agree on that).

Will Barnard · Answer

Anything is reasonable so long as you are satisfied with the results.

Sunil Kumar · Answer

Will,

I should have clarified.  Yes the primary intention was not built in equity but each had a built in sum, ranging from 20k to 40k. I also paid no down for one and 5% for the other 2, making the investment minimal and the ROI decent from the annual cash flow + tax benefits.  The buy down to date has only added to the equity.

Is that more reasonable given the clarification?

I do realize these are not the best deals, and am looking to get into some better ones in the future with more experience.

Anything I can learn from these experiences and your feedback is appreciated. Looking forward to your comments.

I am seeing that single home ownership for rental is the best route to go, and will start pursuing those from hereon.  concur? disagree?

Will Barnard · Answer

Please keep in mind that as stated, condos may be a good investment for some and in very specific cirumstances with adequate abilities of the investor, but in the case based on the statements made by you, looks like you got into some deals that are not such good deals. As such, your strategy to exit and move into better deals may be a good one.
This of course is all opinion, not to be construed as legal or financial advise.

Sunil Kumar · Answer

Keith and Will,

This is great advice.  I have three condos currently, all of which are positive cash flow. I invested for the long term (equity buy down) and not appreciation or built in equity.  That said, you are right. Several experienced investors have advised to move away, and I will. I am evaluating some single fam homes and will be back for an update.

Thanks again everyone

John Hicks · Answer

The best price you will get from the bank is going to be at the end of one of their quarters...especially December.

Rental property always has a way of costing more than you anticipate and is simply too much of a headache for me.

There are deals all over for 50% -65% of tax accessed value. Keep looking.......

$40k REO Condo - Originally 130k. Buy or Not Buy?

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