Unexpected investment.. thoughts?

6 Replies

Wanted to get everyone’s thoughts on this deal. I recently closed on a property in Hawaii because I never found ANYTHING that could cash flow in the Bay Area. I was not planning on buying another unit for a few months but I came across this one bedroom condo literally around the corner from my house for $439k. There was another unit in the same complex for $499k that is under contract now for ~$470k (slightly updated).

I put in an offer at $430k with an aggressive close date. The seller had another offer at full ask. Despite having the lower offer, I just received the verbal acceptance, on account of my financials and close timeline!

Now I’m a bit nervous because I wasn’t expecting to buy something so quickly. I expect the unit will be able to rent for $2500/month once fixed up ($15-20k in rehab). Nearby complexes with more amenities are renting for $3k+. Cash flow should be just about break even with 25% down.

I normally would not considering buying something to simply break even, but I’m very bullish on the area. It is right near downtown Campbell and is close to the future Google HQ in San Jose. There really are not many units at this price point which makes me think it will appreciate over the next 5-10 years.

What are all of your thoughts?

You are speculating, not investing. Assuming that appreciation will continue, you should make money at some point in the future by either selling or refinancing. In the meantime, you have a liability that doesn't cash flow. If that is good for you, then go for it. If you are OK with putting $107,000 down and $15-20K in rehab costs to break even, while waiting for appreciation, then good for you. I would pay you 8% for 3 years on $125,000 if we knew each other. I would make 15-20% COC and do all of the work.

You're buying a place for $430K....plus another 20K in rehab and hoping to get $2,500/mo in rent?

As another poster said that is speculating...........Yes Campbell is a great area, etc. etc.....but damn....you're barely at "1/2 percent rule". If you're betting on appreciation then good luck....but many people are saying the next correction is within the next 3 years. 

ONLY since you asked....I would pass on that one.

I think it depends on what your goals are for investing... If you are trying to generate as much cashflow as possible to leave your job, for example, I'd say skip.  If you're trying to put your extra money to good use so it's not just losing money in the bank, and can afford to hold onto this for an undetermined amount of time until the time is right to sell, you can make a lot of money in the long run.  I would just caution you to make sure you are accounting for the other costs that come with landlording (vacancy, increased taxes, maintenance, capex, PM, etc) and make sure you wont have a problem covering those. 

@Jeremy Segermeister , why make an offer if you were not prepared to move forward? I am not going to advice you on the specific deal.

I do think this situation is a great opportunity for you to think about why you are investing. Once you are clear, then you will know if you should be making offers or not. 

I am not saying to go with or walk away from the deal on the table. Just that you need to get clear about your motivations. This accepted offers is going to clarify things for you if you pause to really think about your motivations.

Good luck either way. 

Thanks everyone for the feedback. After some more thought, I think I might flip this instead. My agent believes she can sell it for $530k if I fix it up properly. Even if I sell it for $510k, I'll be satisfied and chalk it up as a learning experience. I should have taken a HELOC to save on closing costs, but the timing would not have worked out.

If it's worth 530k renovated, only needs 15-20k work, then why was it listed at only 439k? In a normal market that would get bid up to probably at least 480k if not more after accounting for some sweat equity. Have your realtor show you the comps she's using.