Should I Bet on Equity

Question

Good morning BP community

I live in Oakland, Ca and have rental property here. This is an expensive market so a new investor has to be very discerning when looking for deals, especially if you are new to the business. My wife and I found have been presented with an opportunity to buy a 1Bed 1 bath condo for 270K. Because of a shortage of funds at the moment we would put 5% down and have a mortgage payment of about 2100/month. The rental market is hot in Oakland and this condo is in a decent area and doesn't need any real work. However, I don't think we could rent this place for more than 2100 to 2200 a month which would obviously be a small monthly profit but a profit none the less. If we can't get the rent we want we could also do air B&B for approximately 200 a night, if rented for half the month that would be 3K.

With all things considered we estimate the market continuing to grow in the coming next 2 years. I'd estimate this property could land around 400K in that time. That would be betting and I am not sure if this is something we should do. what do you all think?

Parius Futch · Answer

Account Closed

This condo is in the Maxwell/ Redwood area and I believe is a conversion from apartments. The payment includes taxes/insurance/HOA. I was thinking the same thing. possibly Air B&B and flip in 6 to 12 months.

Account Closed · Answer

That is a very up and coming area, and if you could get it for that price with only 5% down, I would definitely do it. Air BNB it while there are no Oakland regulations, cash flow like crazy, build up your bank account again. Refi to pull out your initial investment while still cash flowing. You could keep this property potentially forever.

I don't like condos but it's a great way to enter the rental market.

Honestly I don't think you are "betting on equity" - you are "betting on Oakland", and are doing it by keeping out of pocket cash at a minimum. Plus you have the ability to cash flow like crazy. I'd do it.

Account Closed · Answer

Where in Oakland is this condo? Seems like a steal (price-wise). Cash flow wise, you will lose several hundred dollars a month. What about taxes/insurance/HOA/maintenance? Probably no cap-ex as it's a condo, but you need to factor those in.

This being BP, be prepared for the hounds to come label this is as a bad investment (which it might be) and say you must invest OOS.

Personally, this deal doesn't look too attractive, but it sounds like you are buying it for much less than market value. If you felt it was really worth $400K but buying it for $270K, why not buy, AirBNB for 6-12 months, then flip for $400K? That's probably your best play. Cash flow while owning, then sell to get some cash back.

Michaela G. · Answer

5% down looks like an owner-occupied loan. I'd be very careful trying to do fraud and then using it as an investment property. It's a slippery slope.

JD Martin · Answer

Equity is the prize at the bottom of a box of Cracker Jacks - if you eat enough candied popcorn and peanuts, there's something waiting for you at the end. In this case, the peanuts & popcorn is time. But in the meantime, you better like eating candied popcorn and not have a peanut allergy :)