Have your cake... And eat it to!

9 Replies

Just wanted to share a small success story with BP. I recently bought a REO condo as a rental. I had a hard time talking myself into it because I HATE condos but alas, I did it. Here is the brief story:

Condo is a 900 sq ft 2/1. The bank fixed it all up (carpet, paint, etc.) so it was ready to rent. The list price was $41,000. I negotiated the bank down to $31,000 and put it under contract. Once under contract I did a little more research and found out the going rent wasn't $750 like I thought, it was $600-650. Based on this and a few other minor reasons I came back to the bank and said I needed it for $25,000 in order for it to meet my rental criteria (ROI). My agent passed the information to the REO agent (in his office) and the agent felt pretty sure they would say no. I didn't hear anything else for a few days and asked my agent about my earnest money so he prepared an official cancellation form. Once the REO agent passed it to the contact at the bank they told her to ask if I would take it for $26,000. :lol:

I couldn't refuse that so I bought it with cash and just planned on renting it for a 15-17% return (numbers below for the nerds):

Rent $600 (went below $650 to get good tenant)
-$97 (HOA)
-$25 (insurance)
-$50 (taxes, which I appealed with my HUDs so it might lower :lol: )
-$80 (vacancy, misc repairs)
-----------
$348 / m net so approximately 16% on my cash, not great but okay.

Then I found a local credit union that will do a 65% equity line non owner occupied with no seasoning at prime plus 1.5% (so 4.75% currently). Appraisal came back $43,000 (which is accurate for the complex). So 65% of 43k equals $27,950.

So there you have it, I know the numbers are small but I thought it was amazing that I could pull this one off given the current lending environment. Free rental in my book because I still have full access to use the 26k (er... 28k). :)

I love the idea of owning a fleet of rentals just like this with equity lines for access to money for flips or HML's.

Anyone else done this or employ this strategy?

Great deal!

Congrats on getting that all done. If I read it right, you basically came out a head by a small amount plus it should cashflow nicely.

Great to hear the story Andy!

Quick question on the HOA... I have read horror stories with HOA's lately, essentially only a small % of units are paying their fees and it's driving the fees through the roof as complexes struggle to make ends meet. Any risk of the HOA going up dramatically and chewing badly into your numbers? How did you account for a risk like that in your analysis?

Given the scenario, being able to essentially cash it all out, $0 out of pocket, still a steal... just a more general question when dealing with HOAs.

Nate, I did account for thatva little. That is the main reason I hate condos, lack of ultimate control. I don't like the idea of ever being subject to someone else's mismanagement. Given the circumstances I was okay with it though.

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