First Primary Residence turned Rental condo

[Will Kenner]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $470,000
Cash invested: $60,000
Sale price: $440,000

This was my wild ride into the world of real estate. I purchased this condo right out of school, fearing that I was going to be priced out of the market because everywhere I turned, new records were being set in housing prices in the Seattle area. Fortunately there was a nice little element in the mortgage industry at that time that let a newly minted professional, right out of school, with no income history, qualify for a jumbo loan - The no-doc Alt-A loan. Courtesy of a friend who worked at the now defunct Countrywide Mortgage, I was able to get this condo on stated income and a smile. Fast forward two years when the whole economy came crashing down, and I was at a cross roads. I couldn't unload the property for what I owed, but houses were on the cheap all around our neighborhood and I wanted to buy. I took the leap and purchased a home just two blocks down the street and put the condo up for rent. I lucked out as the first tenant I signed ended up being the only tenant I had for the next 6 years. He took care of the place and was paying top of market rent with annual increases. All was not rosy though, as the property did not cash flow even with the strong rent. This is where buying a rental property for the right price comes in. I had clearly overpaid for this property but at the time, "I just wanted in", even though all the metrics were telling me it was overpriced. Ignoring those metrics, I end up paying for it later. Not only was the mortgage payment huge, but there HOA dues to consider as well. (One of many good reasons NOT to buy condos as rentals) The rent covered the majority of expenses, but at the end of the month, I still found myself shoveling $1700/mo into it. It was either this or short-sale, and I knew that I wanted to continue to buy real-estate, so I had to make it work. Lessoned learned on always sticking with the metrics - numbers don't lie!

What made you interested in investing in this type of deal?

Since this was my first primary residence, I didn't consider the cash-flow potential, however it was a top-floor, water view condo with it's own private roof-top deck, so I felt it had intrinsic value.

How did you find this deal and how did you negotiate it?

This was one of 10+ properties pulled from the MLS that I looked at over one weekend home from school My negotiation skills were poor (well before great books like 'Never Split the Difference' were written) so I did not negotiate much.

How did you finance this deal?

No-doc Alt-A loan!

How did you add value to the deal?

The property was essentially turn-key as the prior owners had just remodeled the unit before listing.

What was the outcome?

Mitigated loss.

Lessons learned? Challenges?

Know your numbers, run your metrics, and don't over-pay!