How many 2nd's can I carry? And more...

4 Replies

I am wanting to sell 10 1-bedroom condos.  I have been using them for vacation/nightly rental for the past 2 summers (bought them in April '14) but have found VR to be far to active, and not really all that lucrative when additional taxes, laundry, furnishings, amenities, etc. are factored in.  I've been strongly considering transitioning to long-term rental.  I am also considering selling them outright.  They are a perfect "affordable housing" option for my high-priced area. 

The buyers are likely to have little money to put down, assuming they can otherwise qualify for the loan. What are the laws for carrying a 2nd for the down payment (i.e is there a maximum number I can carry as there is in owner financing)?  Is it even reasonable to do so?  I bought last year for 490,000, can sell this year for net 750,000, maybe more.  I'm willing to carry the second because I will net so much from the sale.

Rental value of each unit is about 700 with 155 in dues; taxes and insurance are negligible; allowing for vacancy, management, and reserve fund, and debt service, I net about 150 per month per unit.

The bigger question: should I sell with that much gain and 1031 it into, say, a commercial building or a larger apartment complex, or should I hold? It would make a great down payment on something bigger. And, I'm not happy about having only limited influence over the types of neighbors that other HOA members are willing to rent to, and a little concerned about refinancing after the 5 year owner-term expires, as I will be a 25% stake-holder in a condo association that has less than 15% owner occupancy.

Thanks for your input ahead of time.  I've been investing small scale for a little while (I own a duplex, a commercial rental, and another condo besides) and I'm beginning to realize how much I need to learn

I don't like the idea of HOAs: someone else telling you what you have to do with your property. I would say if the market is right to sell and get out from under their thumb, go for it. Being a noob, I generally opt for doing some kind of seller financing (to a newbie), but If you are netting 260k (or is it netting 750k?) that seems like too good of an opportunity to pass up.

Not sure what 260k down will get you in your market. Maybe 1.5M property, get it for 1.3M with seller carrying 10%?

Thanks for the reply, Matt. 

I agree about HOA, actually the problem is not the bylaws (I read them and they're good). It's that common interest improvements have to be voted on, so you can't just make value added changes unless others share your vision and want to spend the money (think "new paint"). Plus, you can't control quality of tenants, which affects your own tenant base. Lesson learned: own the whole project.

EXCEPT where you can make $260k in a year... My market is north of Seattle  (San Juan Island). Similar prices to Seattle,  but very little opportunity for rental investment.  Flips are generally luxury flips, about which I have no confidence.  I will probably have to look elsewhere.  I have an additional 100k rolled over, but net including vacancy and reserves is still about 9.4%,  Capital or keep?  I'll mark you down in the capital column.

Interesting topic, and what a unique type of market given the logistics of an Island.

Great place to live, not so great to invest in!

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