Is this idea sound? Beginning rental property

12 Replies

I'm in the Northern Virginia Area, and looking at purchasing a 2 bed/2 bath condo. The condo was assessed at 235k and the seller is asking for 200k. realtor.com says the expected appreciation for the neighborhood is 4% and has appreciated 11% since last year.  Condos in the neighborhood tend to be on the low side like 220k, or higher at 300k.

There are very obvious problems with the interior, predominantly that the walls need to be repainted. I'd also like to replace the floors with laminate as the carpet looks... rough.

I'd be paying 20% down, and probably getting a loan in the 4% area. My initial plan is for my girlfriend and I to move in and rent out one of the rooms for 750$ish while putting in the elbow grease to fix the place up. Once the condo is in good condition, I figure the value will rise quite a bit. With HOA Fees, mortgage, principle, and insurance I'd be paying (1,250 - sublease rent) while I lived there, but once I'm out I would ideally like to rent the place for 1800 - maybe more.

1) Is this idea sound?

2) If we move out of the property when it is generating income for us, will that negatively impact our ability to take out a second mortgage on a townhouse or condo despite us grossing additional

Edit: The house itself has increased 11% in the last 4 years - not the neighborhood. 

Edit: The house itself has increased 11% in the last 4 years - not the neighborhood.

Ignore algorithmic generated numbers like expected appreciation.  If its priced $20k below what they typically sell for on the low side, sounds pretty solid for the area .  Most parts of Northern Virginia maintain pretty good demand over time, but not all necessarily.  That is also a pretty cheap price point in general, since the median home price in the metro area is  pushing $500k

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635

Thanks.

The condo I'm looking at is in the Springfield area. I'm interested in doing a buy and hold, but I'm a little apprehensive of the cash-flow. I've talked to a real estate agent who is advising to move on townhomes in the Sterling area, so I'll be looking around there too.

I would not hesitate to put down payment or even try to sell it after 1 year or so.  Fairfax is one of the richest counties in America.  In Silicon Valley you will be looking at 660-1100K for similar condos with a rent bet 2200-2800 a month 15-20% appreciation annually for the last 6 years. Not positive cash flow now. 

Thanks for the encouragement, I get varied responses from individuals in this area who say to go buy up townhomes. My current salary is around 60k and my girlfriend won't be working for a year or two. I'd like to stay cheap with the condo and then graduate on to the next home.

The biggest point that others bring up is once I sell and/or rent this condo, that I will no longer be eligible for tax breaks and first time home buyer loans. I'd like to ideally get out of there in 1 year and move into a townhouse so I can rinse/repeat while the incoming rent from the condo covers its mortgage.

@David Kendall

If you are going to make money as a real estate investor you need to buy a first home. There is only one first. You have to start somewhere so why worry about losing a benefit that you have to lose on something anyway.


Good point!

It's a new game to me - I just want to make sure I don't end up kicking myself over some major landmine I may have been able to see from some crowd-sourcing and education.

@Marcy Moyer

@David Kendall

I'd listen to the investors in the area that are pushing you toward townhomes and while I don't want to sound disrespectful,  just because Fairfax is one of the richest counties in America and Silicon Valley prices are 3 to 5 times what they are here, that information has no bearing on your situation or local appreciation or local rents.

Assess the value of the condo in Springfield on the merits of the individual building because that's what you're going to be working with.  Make sure you take investor concentration and the percentage of ownership from one owner/entity into consideration before you make an offer because whether the condo building is warrantable or not will determine whether you can get financing now and in the future.  Looking long term, if you purchase a condo in a building that's warrantable, but if the investor concentration goes beyond 50%, or if the budget doesn't set aside 10%+ for reserves or if one entity decides to buy more than 20% of the units, suddenly you can't sell your condo if you want because financing is out of most people's reach and you're stuck because your building is suddenly non warrantable.

Additionally, what if they put a special assessment on the HOA fee to repave the parking lot or add a swimming pool that the board thinks they need; your HOA fee goes up eating up your already tenuous cash flow.

4% may or may not happen.  We're in a rising rate environment right now.  With 20% down and great credit it might, but the rates are going up.

Sorry for the doom and gloom, but I've seen too many tyrannical HOA boards and investors that can't sell their properties because of the investor concentration.

Stephanie

Price if that is against condos in the same assocition sounds good Are there any association rules against renting?

Thanks for the candid feedback, Stephanie. I was not aware of everything that you had mentioned until now, and got to read up quite a bit. I checked with my agent and it is FHA approved, but I won't be able to review the documents until we move forward (that's how it sounds anyway).

Looking at townhouses in the area. Springfield is where I work my day-job and I'd ideally like to be nearby, but maybe it's just irrational to do that for investing purposes. I'll keep looking for options as my current lease doesn't expire until August.

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