San Diego: Condo Investment good or not?

Question

====> Should I buy or pass?

I have an off market deal passed to me.  Does this look like it is worth pursuing:

Property: 2/2 bath condo 900 sq feet, built in 1990. Needs full rehab.  Fixed up comps have sold for $515k

Purchase Price : $425,000Fix costs: $40,000, full gut labor, material, new appliances, new kit+bath, and new hvac

Rents: $2700-2800, $300 hoa, $400 prop tax, in good area with schools rated 9. Poway School district.

Dan H. · Answer

It will initially have negative cash flow at high LTV (80% LTV).  $465k with $2.7k is a 0.58% ratio.  That is not good but made worse by the $300 HOA.   Using 50% rule (with that HOA may be aggressive) depicts ~$200/month negative (so you may be worse than this).

Now for the value add: $465k for $515k value implies a $50k value add.   $50k from the value add can absorb a lot of negative cash flow.

Poway area (poway, RB, Scripps Ranch) is B to A area, but where condos are is B to high B area.  You can expect very qualified tenants that are low maintenance. Historical appreciation for last 20 years in Poway has exceeded $2k/month on average.

Vale adds are not passive.  They require effort.

My view is that if you have the time for the value add and can handle the minor negative cash flow this could be a good start to RE investing.  There are people that believe no property with negative cash flow is a good investment.  None of them are familiar with the Poway area market.  They discount the over $2k/month average appreciation for this century.  They are unaware of what sort of tenants can be expected.  They are unaware of the quality school district and how sought out the units are in Poway school district.

You can message me if you have questions.  Note where I live and where I invest.

Good luck

Alex U. · Answer

HI Dan, thank you for your detailed analysis and guidance, much appreciated.