All Forum Posts by: Tim S

@ Daniel - You will need to sell in less than 3 years, not 5 years to avoid capital gains. From IRS.gov: Determine whether you meet the residence requirement. If your home was your residence for at least 24 of the months you owned the home during the 5 years leading up to the date of sale, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period. It doesn't even have to be a single block of time. All you need is a total of 24 months (730 days) of residence during the 5-year period.

I bought a townhouse in a similar situation in 2011. The association was in a lawsuit with the insurance company that would not pay for storm damage. In my situation, if the HOA did not win the lawsuit, every unit would need to pay a sigificant amount to cover the cost of repairs (I can't remember exact amount but I think it was ~$5k). Even with the extra $5k, the deal was extremely good (paid $91k and worth over $200k today). Similar to your situation, cash offer since no banks would finance under litigation. The HOA eventually won the lawsuit.

Is your deal still good even if your HOA dues are increased? I'd also be concerned about the structural issues, mold, etc? Have these issues been resolved?

We bought an REO townhouse in Nov 2011 for $91k (bank was only accepting cash deals), rehab costs $25k. The property is now conservatively worth $170k. Our original intent of this purchase was to live in the townhouse for 2-3 years and then buy a SFH and rent out the townhouse.

I have been approved for $120K HELOC for the townhouse. Closing costs only ~$200 since no appraisal will be done. I am considering using the HELOC plus additional cash to buy our SFH. I would like to pay cash to negotiate a better deal, lower closing costs, etc and we are looking in the $200k range.

After the SFH is purchased, I would either sell the townhouse and pay off the HELOC or rent the townhouse (estimated rent $1600 minus $230 HOA fees). I would like to keep my options open since I am still a bit nervous about being a landlord. If we rent the townhouse, after 6 months, I would plan on taking a mortgage out on my primary SFH and pay off the HELOC.

I'm interested in hearing from the Bigger Pockets community to see if you all think this is a sound plan. Thanks!

- Tim

@ Nathan: For my estimated cash flow, I did factor in HOA dues, taxes, and insurance. Good point on Property #1 as closing costs are not factored into loan. I also need to factor in the 50% rule. I'm leaning towards property #2 or something similar but I have some work to do. It looks like I need to keep total cost including rehab to ~$40k.

@ Mark: Great advice. Regarding rent, I did estimate lower rent in my model. My preliminary research shows I could get $100-$150 more than my estimates. Regarding rehab costs. I have a brother that can do all work. I tend to agree, however, that estimates are usually low. I just rehabbed an REO town house in which I live and I did go over budget.

I'm getting serious about purchasing my first investment property. I could use some advice/recommendations to help decide between 2 potential properties. Both are REO properties and I estimate both will need an additional $5k rehab.

Property #1 Town House built in 2006: $85k with 25% down payment. Loan value ~$64k. Estimated rent of $1200 with estimated positive monthly cash flow of +$300 (plus $262 towards equity each month).

Property #2 Condo built in 1987: $42k cash. Estimated rent of $800 with estimated positive monthly cash flow of +$450.

I appreciate your feedback.