First Investment Property

[James Quillian Mello]

Investment Info:

Condo buy & hold investment.

Purchase price: $130,000
Cash invested: $30,000
Sale price: $198,000

Studio condo in Pentagon City, Bought, Rehabbed, and Rented. Very slim cashflow but value appreciated well.

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

We knew we wanted to invest in real estate, buying and holding for a bit of cash flow and building equity by paying down and appreciation. This was a good starter property - light to moderate rehab made it one of the more appealing units in an older building - condo fees were low when we bought, and a special assessment was slapped on a few days after we closed. A real education in Condo Associations and deferred maintenance!

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

This was listed on MLS and we were looking at properties 'off-season' because there used to be an off season. This was almost in our price range but it had been on the market for about 3 months, and we offered $25k under asking, and ended up at about $15k under. The property didn't show well, it smelled and had cat pee saturated carpet and a disgusting falling-apart kitchen.

How did you finance this deal?

Conventional Mortgage, 20% down for investment property. Seller granted some contingencies that couldn't be accommodated due to the type of loan, so we substituted pre-payment of Condo Association fees.

How did you add value to the deal?

We removed carpet, re-finished the underlying hardwood flooring, repaired plaster, and completely replaced the kitchen including subfloor, and re-painted. We also added modern fixtures, curtains rods, curtains (required by Condo Association), and minimum required carpeting with thick underlayment.

What was the outcome?

Average $200/month income after expenses for 10 years. We had one tenant that got behind and we didn't evict quickly enough, which cost us $7500, and when our last tenant left in September 2020, we were unable to attract another tenant to live in a studio condo whose main attractions were all closed due to COVID.

Lessons learned? Challenges?

Condo Associations are something you have to be VERY careful of. If you've never heard of unfunded members' equity, it boils down to the amount the association SHOULD have been collecting in revenue, but either has not raised fees on a regular schedule or has many delinquencies. We wish we'd gotten a copy of the Reserve Study and had an expert analyze it. Despite all that, it was a good learning experience as landlords and property owners.