New to Real Estate · the US of A · Member since 2017 · 107 posts · 14 votes
Hi all,
I'm considering moving to another city for my first attempt at a fix-n-flip. I had planned on renting in this new city for at least a year during the entire process. But I've recently started thinking that it might make sense put a down payment on a condo in lieu renting.
This way, after a year (or two), I could sell the condo and recoup some $$$ that would have otherwise vanished towards rent.
In this scenario, let's assume mortgage/taxes/insurance on the condo is roughly the same or slightly higher that rent/insurance on an apartment.
Makes sense to me, but maybe I'm missing something...?
The problem with your theory is that two years from now, real estate prices may not increase and could possibly even be lower. If you sell, you could end up losing money after you figure in all the real estate fees, realtor fees, etc. If you have flexibility or don't mind being a landlord longer term, this is a good strategy. Attempting to time the market two years from now could be problematic. Also, a single year probably isnt sufficient to cover the loan and closing costs to justify the buy.
This plan usually only works if experience massive appreciation. This is because you have to recoup losing costs and attorney fees on the buy side, then 6% commission on the sell side. Debt paydown will be basically nonexistent in the first few years. You will be about 10% in the hole before you factor in appreciation. When owning a property, you pay interest, taxes, and insurance. Only thing you get back is debt paydown, which like I said is insignificant the first couple years. your best bet is probably to rent.
That being said, the discussion completely changes if this is a live in flip, or you buy with intention to hold longer term.
Thanks @Christopher Brainard. From the research I've done, property prices here are trending upwards. Especially in area I would be buying. But you're right, I neglected to factor in closing costs and other related fees.
@Andrew B. Attorney fees to buy, then again for selling, ugh.
I'm going to check the numbers to see if renting will cover my cost of ownership and check the HOA restrictions regarding subletting for a long-term buy/hold after living there for a bit. I'll also get more granular with the overall scenario (I do already know that rent would be ~ $1,700/month = $20,400/year)
I'll see if I can get some rough numbers w/regard to mortgage, taxes, insurance + closing costs.
@John G. Makes sense as long as you're not putting all the eggs in the "I can sell it in a year" basket.
I don't like to focus on when a downturn will come, but I know it will. With your strategy, just be sure that you can also rent the property and cash flow a little or at least cover the mortgage in case the market does turn and you can't sell.
@Grant Rothenburger - I'm really only looking at this as a way to park my money that would otherwise be spent on rent. *If* I'm able to break even, given all the associated costs, I consider it a win. And if I make a little profit due to appreciation, that's a win-win (again, factoring in all relevant costs. In this case capital gains tax). Plan B will be rental income or breaking even on ownership, then sell with a higher chance of appreciation profit in a few years.
@Grant Rothenburger - I'm really only looking at this as a way to park my money that would otherwise be spent on rent. *If* I'm able to break even, given all the associated costs, I consider it a win. And if I make a little profit due to appreciation, that's a win-win (again, factoring in all relevant costs. In this case capital gains tax). Plan B will be rental income or breaking even on ownership, then sell with a higher chance of appreciation profit in a few years.
Awesome, just making sure there was a plan B. Good luck on whatever you decide!