All Forum Posts by: Chris Wierman

@Account Closed I appreciate your feedback and I agree with you that there truly might be better options out there were the effort is the same (or less without an HOA), but the returns are much greater. I like the stock market and my returns have been very solid, but the appeal of generating a solid stream of AT cash flow (and potentially becoming an investor full time) is very tempting.

@Account Closed Thanks for the thought and I would love to come to the meetup! In fact, barring a minor family emergency, I would have come to the meetup last Monday (at the Bike Cafe, right?). I am planning on going to the next one. I agree with your valuations as well - I suspect this place is worth quite a bit more now. A unit in the complex that was a 2/2, fully renovated, bottom floor, not an end unit, just sold for about $175k - so there is definitely some hope for mine.

Hi, I am fairly new to BP and haven’t posted too much. So, in order to avoid full on lurker status I thought I would ask you guys (and gals) what you might do in my situation. (Sorry for the long post).

Scenario:

I bought my first property (primary residence) which closed about 1 year ago today. Now I am married and my wife and I would like to start having kids and buy a small SFH in the next 2-4 years. I am very interested in real estate investing but I am still a newbie and don't own any rental property. Buy and hold or BRRR strategies appeal to me the most. I work in Finance and make a pretty good income and we live below our means, making a monthly savings of $500 - $1,000 pretty doable.

The question is - what do I do with this condo when moving to a SFH? Should I rent it out, locking in my low fixed rate? Should I sell it and use the proceeds as a down payment on our next home (and start my RE investing career with a different purchase on more favorable terms)? I have enough $ saved in IRAs that I could pay off the condo (after taking the tax and penalty hit), making it easily cash flow, however, my projections suggest that this might not be the most advisable route when account for the TVM. Maybe I could sell it via seller financing to someone self-employed with good credit at a higher rate and pocket the % difference? Other ideas? What would you do?

Relevant details:

-2/1 Condo in an up and coming B-C area of Denver, built in 1978, bought as a primary residence, end unit, top floor. Some cosmetic updates were made before I bought it (new carpet, paint, minor updates) – the unit can be rented immediately.

-Purchased for 117k, it appraised for 112k, I put 20% down for a loan of ~90k @ 4.375% fixed (30 yrs) – (yes I paid over what the appraisal came in at, but the savings when compared to renting for the first year easily covered the difference). After more recent sales in the complex, I am certain that the unit would currently appraise for $117k at least.

-The HOA has strong reserves with a good management team in place for the whole complex. I am on the HOA board and it is overall a very solid and fiscally conservative team. I plan on remaining on the board for as long as I own the unit.

-Income: If I rented the condo right now, as is, I think I could get somewhere from $1,100 to 1,300 per month (a similar 2/2 unit on the bottom floor (not an end unit) just rented for 1,350). Historically vacancy has been pretty low in Denver, but to be conservative I would like to estimate ~10%. I am estimating $1,200 for rent, which after vacancy is $1,080 per month.

-Expenses (per month): Insurance: $76, HOA: $194, Taxes: $66, Mortgage: $449, Property Management (@10%): $120, Maintenance (1% of 117k/12): $98 (not sure if this might be too high for a condo, but I might take it as a reserve anyway in case of a special assessment). Total Expenses = $1,003.

-Net Monthly Cash Flow = $1,080 - $1,003 = $77

-Monthly Equity Gain (from principal pay down) ~$125 (increasing, of course, over the life of the loan)

-Tax savings from depreciation ($117k/27.5/12)*.28 = $100

-Yearly COC Return ($77*12)/($117k-90k) = 3.5% (with AT cash flow this is more like 7.4%)

-Total Return (Includes equity and tax savings, but no appreciation) = (($125*12)+($100*12)+($77*12))/($117k-90k) = 12.7%

So, BP, can you help a newbie out and let me know what you would do? I am happy to add any numbers I might have forgotten. Thanks!

Awesome, great to hear! Looking forward to meeting you and everyone and I will be on the lookout for red hair.

I agree with the consensus, if houses are moving in your area, why would he leave 200k+ on the table? Maybe he wants investors only because there are known issues that need way more capital than he wants to put in (structural maybe?). Might be good for a flip (to fix whatever he isn't willing to, assuming that is the case) or a wholesale, but as a first deal this might be a pretty expensive flip. You might consider figuring out what is wrong with it, talk him down in price, and see if you can find someone to take it and pay you a finder's fee? Not quite sure how wholesaling/bird-dogging works in the real world, so someone else might have a better idea on that.

Hi Guys - Is this meet up still happening? I would love to attend the July meeting, but I wanted to make sure it isn't just me hanging out in the corner all alone...

I am still new to BP, but here are my thoughts:

-You mentioned that this is a turn-key property, are you saying that you are purchasing this from someone else as an investment property? If so, are these there numbers or yours? If theirs, take with a huge grain of salt and probably re-run them completely with a fresh set of assumptions.

-I agree with a few others where the insurance/water/sewer seems high (and odd for a LL to pay for), and management seems low.  I might tweak these in your estimates.  I would also caution against undervaluing the management fees because although you are happy to manage it now, you might not be in the future. You might regret putting yourself into a situation where you HAVE to manage it yourself otherwise it won't cash flow (and robbing you of a chance to be truly hands off, sitting on a beach somewhere).