Buying Condo, Disaster of a Situation, Trying to Salvage Some Money
Hi all,
Thanks in advance for reading and offering any advice. I am working on a boat in Alaska, so my internet is limited and sporadic, after I post this, I will only be able to check it about once per day for update and will reply at that time, so please allow a little time for me to answer your questions.
New to the whole world of REI, new to Bigger Pockets, this is my first post outside of the Intro Section.
I'll get right to details:
Short story is: stuck in the process of buying a condo from a friend (first bad move). Have already given down payment (long since spent by said friend). Numbers are pretty jacked up but may be salvageable. Just moved back into said condo - discovered it needs a (probably typical) amount of work and updating. Need to figure out numbers, make a proper written offer, and figure out how to recover some of our money. We had been living in the condo for two years after giving the down payment but decided to move out of state, but then came back. So all in all, this is a pretty big screw up. Thankfully, the condo is basically sound, in a desirable location, and will rent for a decent amount when updated. If the details can be worked out.
We have already determined that a fix-n-flip or wholesale are way out the window due to numbers, but potential for cash flow exists, particularly if we live in it for a year or so and get it updated (which, BTW, works into our bigger life plan).
Numbers:
Condo, 2-story, 3 bed, 2.5 bath, about 1200 SF, parking included (1 spot covered, 1 uncovered); on a tidal inlet, 2 blocks to downtown, yet secluded and quiet. Built 1985. HOA is pretty solid, I have been to a number of meeting over years and it is financially sound for the most part and recently making exterior upgrades, taking care of the complex, and planning for future big items (roof in about 5 years, etc). In a 9-unit complex.
Agreed upon purchase price: $120k (this is going to be negotiated downwards)
down Payment given: $25k (in July 2011)
ARV: $110-120k, hard to state because it's a very small town on an Alaskan island. It's the only condo complex in town, 9 units. Others are currently for sale, next door for 130k asking, and a bigger unit for $145k. Comps are very few, only 1 or 2 have sold in the past few years. So ARV is less of an issue for us, not really in the picture. Cash flow and rents will be more important.
Potential rent: $1300-1400
Repairs:
Tricky to say, I need to get some better numbers and estimates from contractors, but there are very few in this town and are exorbitantly expensive, so we plan on some sweat equity, purchasing materials in the lower 48 and having a cargo container shipped up and repairing / updating at our leisure.
Downstairs will need new carpet (about 400SF), other half of downstairs has Pergo, but we might re-do the whole floor as the Pergo is in the entryway, kitchen, and 1/2 bath, all high-wear and moist/damp places, and it's a few years old.
Upstairs will need new carpet. Whole unit will need paint, but not much structural. We may decide to remove one downstairs wall to open up the floor plan, re-locate the washer/dryer upstairs, and open the kitchen and make a much huger usable living space.
Owner (friend) currently owes about 87k on house at about 3.5% I think; I can get more specific numbers in a couple days. Mortgage is, I believe, transferrable / assumable. Will find out as well in a day or two.
We agreed in 2010 to purchase it when we moved in, agreed on $120k at that time. Nothing in writing. In July 2011 gave check for $25k to owner, have written receipt that says "Owner receives $25k via Check #xxx for down payment of property at XXX." That is only paperwork we have for that.
Lived in it for 2 years, paying $900 month to owner, for $620 mortgage and $280 condo fees, until we could get financing and complete the deal. At time of original agreement, financing was 100% unavailable due to state-required paperwork not being filed by condo complex board, so banks would NOT loan at all (and only 3 places to get financing anyways, Wells Fargo, and the other local bank, and govt-run Alaska Housing finance Corp).
Moved out of town for a year when we decided we couldnt get a loan, owner agreed verbally to give money back when he could or when we sold it (yeah right). Moved back INTO the condo this month with intent to purchase (owner agrees). Have found that condo has not been kept up AT ALL in the past 15 months, barely even cleaned. Worse than before. Also finding lots of minor maintenance to be done - small plumbing leaks from dried out seals from not being used much the past year, etc.
So, big ticket repairs are:
- Flooring
- Paint
- Possible first floor wall removal / remodel etc.
- Wood stove needs to be replaced and chimney flue as well, it's out of date about 2 years ago according to fire code.
- Kitchen appliances are almost at end of life, cabinets could badly use at least a facelift or full renovation.
Obviously we are going to have to sink a fair amount of money in materials alone to this place. I work as a commercial fisherman, so am away from home for long times but will have several months off over the winter when I can work on the house, so that will work well in saving some labor costs. I will hire pro's when necessary and for some of the finish work, but have a great next door neighbor who is a hobby finish carpenter and does most excellent interior design / remodels.
i've run the calculators on here (Rental Property). Not sure the 70% one will apply, we are in a weird situation.
My opinion is that the down payment money is gone unless we buy. It's cash that I havent seen in 3 years, so in my mind it doesnt even exist. So, theoretically, we will have either instant equity or a good purchase price. I am thinking that I can just take over his loan, have him pay closing costs, and we will soak up the rehab costs.
Okay, I'm almost out of cell range and want to get this posted. I'll continue later tonight or tomorrow with any more info I think is relevant. Please ask any questions or post any thoughts. I know it's a jacked up situation but feel free to chastise anyways!
Thanks, Scott