Capitol Hill Condo: should I stay or should I go?

[Dave White]

First, I want to say how happy I am to have found such an active community concerned with real estate investing. It’s rather unfortunate that I didn’t know about BP when I bought my condo, but oh well, you don’t know what you don’t know... So here’s the deal. In late 2015 I bought a condo in cap hill for $425k. I love the condo, and at the time, I was certainly not looking at it through the lens of an investor. It has since appreciated to the 475-495 range, which is nice, however if I were to rent it out, the HOA plus mortgage amounts to about $2350. As for rent, it seems that the rent is in the $2300-2500 range, but there’s a huge luxury apartment building coming up next door, as well as other buildings in the Golden Triangle area coming in. In general, it looks like the place would be cash flow neutral before considering any tax breaks, and rent durability may be affected in the future. Further adding to my confusion is the expectation that the housing market will cool off as interest rates are hiked, and much of the appreciation I’ve seen over the past 2.5 years could be wiped out if I wait too long to sell it. In short, I am sort of anxious to get rid of it. I am getting married this summer and would like to move to Lakewood, Golden, or Wheatridge. We’re busy and my fiancé works a night schedule, so she doesn’t want to move until after the wedding, but it seems that June 2018 would be the ideal time to unload. Here’s what I want to do: I want to get a house. Then I want to start buying rental properties, probably SFRs, but maybe duplexes and quads. Buy and hold over fix and flip. My reservation with keeping the condo is that I did not really understand how to analyze a property as an investment when I got into it, and now when I look at it, it doesn’t seem that it is really a solid investment. Rather, it is a nice place to live, so the likely market for it is the homebuyer who doesn’t care about the economics, but enjoys the location, granite countertops, et cetera. Beyond that, the condo is tying up all my credit, and if it goes vacant, I will quickly become destitute ;) Given everything I have shared please help me tease out a couple things: are my concerns about the market unrealistic, maybe do I have more time than I think? Is there a way I could make this condo cash flow positive? $200/mo doesn’t seem like a very big carrot for holding such a large liability. Are there things I am not considering? What would you do if you were a 30-something looking to start generating passive income to the tune of several thousand per month? I acknowledge that my case is just another riff on a familiar story. Regardless, I really appreciate your feedback, and I look forward to being able to give back to the forum as my experience grows. Thank you. Dave

[Jared Bouzek]

@Dave White It depends on the program at the time you purchased. Right now there are 3 Conventional programs available for 3% down payment on a 1-unit primary residence. Fannie Mae offers HomeReady which has income resctrictions and Conventional 97 which has no income restrictions but has a First-Time Home Buyer requirement. Freddie Mac offers Home Possible which has income restrictions and starting in July they are rolling out a new program called HomeOne which will have a First-Time Home Buyer requirement. Aside from that you have FHA which allows a 3.5% down payment. Since you won't meet the FTHB requirement anymore, you have HomeReady & Home Possible depending on your income at 3% down, FHA at 3.5% down, or you can do a straight Conventional mortgage at 5% down with no restrictions. For the income limits, most of the Denver metro area is 100% of AMI which is around $84,000. There are a few low-income census tracts which have no income restriction.

Long story short, at the very least you could do 5% down and possibly less depending on your circumstances.