Negative Cash Flow Condo Puzzle (Denver)

6 Replies

Morning. This may be very straightforward, it may not be. Hence I'm asking the collective. 

Current situation: I currently own a 2bed/2bath condo in Downtown Denver. Condo value is somewhere $580-600k, currently have outstanding debt on the property of ~$395k. Ownership costs including HOA are approximately $2,900/month. Rent is currently $2,400/month. Market rent may be closer to $2,600 but getting to just break even would be tough.

Goal: There are multiple condos south of Downtown Denver priced in the $275-300k range.  I know these units can rent for $1500-1800. (My parents own and rent out a unit in the complex at the high end of this range). Goal is to sell the downtown unit and buy two of these units. 

Getting Current to Goal: I would like to 1031, to get from A to B but I have some challenging financing stipulations that I think are going to complicate things a bit. I'm on the tail end of getting divorced. As a result, I am still on the mortgage for what was our primary residence in Southern CA muddying up my debt to income. She has made all the payments on that property since April of 2015. I have heard that if I can show 12 months or payments they may look past that obligation. Further, given my monthly student loan obligations and current salary (Took a 40% pay decrease to move back to Denver from LA) I think I would have real trouble qualifying for the two properties without including the expected rental income. Not sure how a traditional lender would look at that. Last complication is I have a renter in the current unit until May 31. I think he would be willing to work with me if I were to sell. 

Just hoping to get some general advice on how to go about this, what I should look out for or any other creative ideas to get this done. 

Thanks!

Scott

Well first I would point out that you can get a much better rental income from a cheaper property. Getting $1800 out of a 300k condo is not great numbers especially in the condo game. For comparison you can get $1500 out of a 200k condo somewhat easily. If you're living in it and you only want the best then that's a different case. 

As far as your financial situation there are definitely lenders who will take the rents as income if you have signed leases. If you want to talk to someone about the situation I've got a great mortgage broker who can give you an idea of what is possible.

Hey @Scott Buck long time no talk. I've have 2 contacts I'll send your way as I'm doing something similar to you. I'm going after 2 rentals up north around the $100k mark that rent for $1200+ a month. 

It might be difficult for your loan to be sold on the secondary market, so a mortgage broker is probably out of the question for you. I'd look at a portfolio loan from someone local like FirstBank. They will do a 5 or 7 year arm with a 30 year AM and will take your loan scenario to their committee for approval. 

You will surely have to be taken off your CA property for your DTI.

Scott, where there's a will there's a way. With the equity you'll pull out of your current condo and the potential cash flow on the new one, it's really a question of finding the right lender. An asset based lender who is going to look at the property rather than your DTI might be worth paying a little more in interest. I've found that the percent of rent income that can be counted varies widely from lender to lender so that's a good question to ask up front. If you need suggestions for non traditional financing please PM or email. I do a lot of buying/selling condos and having the right lender on both sides can make the process much smoother, I'm happy to answer questions as they come up!

Originally posted by @Matt M. :

Hey @Scott Buck long time no talk. I've have 2 contacts I'll send your way as I'm doing something similar to you. I'm going after 2 rentals up north around the $100k mark that rent for $1200+ a month. 

It might be difficult for your loan to be sold on the secondary market, so a mortgage broker is probably out of the question for you. I'd look at a portfolio loan from someone local like FirstBank. They will do a 5 or 7 year arm with a 30 year AM and will take your loan scenario to their committee for approval. 

You will surely have to be taken off your CA property for your DTI.

Matt, I am not trying to be harsh but a mortgage broker (a good one mind you) is exactly the way you want to go in this type of scenario. A bank can only offer the programs they have. And every bank you go to will pull your credit again. A good mortgage broker can shop your loan to numerous portfolio lenders etc, with only one credit pull. And if the mortgage broker is really talented, they will already know which lenders are likely to finance loan. Also, there is pretty good chance he won't have to be taken off the CA loan the if the ex-wife will cooperate and show that she has made 12 months payments. And that is just for a conforming loan. Many portfolio lenders might be more flexible than that. The whole point of a good mortgage broker is that they study the guidelines of lenders that don't just do Fannie and Freddie or FHA. And with any luck they develop relationships that can make getting a loan through a non conforming lender easier. Admittedly if you already have a good banking relationship with a portfolio lender, that is a good place to start. But if you don't have that relationship already, or if you get turned down, it is time to turn to a broker. Admittedly I am prejudiced as I used to be a broker and may go back to being one so feel free to take my opinion with a grain of salt.

I appreciate all the feedback.

I figured the financing part would be tricky and I would likely need to look with a non traditional lender.

As far as the rent/value, I understand there may be better cash flow opportunities elsewhere. However, I believe there are other circumstances around these units that make them particularly attractive, at least for my portfolio, even at lower cash flow levels.

Scott

@Scott Buck

Perhaps if you don't sell look into short term furnished corporate rental. Insurance clients, fire flood etc. They will pay substantially more rent for downtown and furnished it appears. These rental amounts should get you into positive as much as you were negative if not double.

https://denver.corporatehousingbyowner.com/