Comparing 2 Very Different Properties

7 Replies

As background, I own 5 rental condo units (in the DC area). Till now I've been more interested in cash flow but understand the power of having equity to tap. My goal has been to move towards rowhomes/SFR to eliminate the HOA expense, but have a potential opportunity that could be worthwhile. I plan to put in 100k cash either way, to include closing costs (so around 80,000 for a downpayment).

Rowhome: Purchase price and repairs will be around 850k and the repairs would bring it to rental standard (it's already livable) but likely wouldn't give more than 25k in immediate equity. It's a 2 unit (top unit and basement). Factoring rent at 10 month (1 month goes to maintenance, 1 month to vacancy) the return is around 600/month or 7.2% annually.

Condo: This would be a gut job. Purchase price is around 220k, looking at 45k in repairs. It would likely be easily sold for 400k based on location. With the same rental factors as above, profit would likely be around 1,200/month or 12.1% annually.

I'm torn as in theory I could do the condo, flip it, then be sitting with 225k after the sale to go back out and buy a similar rowhome. However, anything can happen in the meantime and I could be stuck holding the condo for several years. While this isn't the worst outcome given the potential CoC return, the potential equity returns in the long term by just buying the rowhome gives me pause about being "greedy."

Anyone been in a relatively similar situation? Thoughts? Thank you!

I'm not sure where you are getting any of your numbers, on either option, for equity, flip profit, cash flow, etc...since none of the numbers you've given so far that would be used to calculate the questioned numbers...don't add up or make any sense.

Also, if you're definition of maxing out profit is "greedy", and you feel guilty about it, why are you in REI? I'm not saying it's OK to be greedy. I just question why you feel you are defining the ultimate goal of REI to be something you feel guilty about achieving...and refer to being successful at it in a very negative way?

@Michael Needle

You’re worried about buying a value add asset and being stuck with it in case there is a downturn, but don’t have the same worry about the more appropriately priced income asset with lower cash flow?

It sounds like an easy decision to do the condo and take that money and do the next deal with $300k instead of $100k in your bank account.

@Russell Brazil completely agree on the vacancy, I’m just being conservative.

@Joe Villeneuve those profit numbers for each are appropriate rents minus mortgage principal and interest, property taxes, and in the one case condo fees. Since I plan on only 10 months of rent (1 month vacancy, 1 month towards repairs) I get to 7,200 and 12,100 annually.

As far as greed, of course I want to build wealth and make money, and the obvious choice is do the flip and then buy again, but the real question is, is getting “stuck” with the asset that will appreciate less (in dollar terms) worth the risk of not finding as good of a bigger deal in the future. I certainly want to make money, but I want to make the best possible decisions along the way.

@Marco G. so my fear of being stuck with the condo is that I then can’t immediately follow up and buy the row house, if I buy the row house and it drops 10% for a period of time I still have renters paying down the mortgage. With the numbers I’m using even the rent could drop by 10% and I would still be at break even. It’s missing out on the rowhouse that is my greater fear.

With all that any more thoughts/responses would be great, thanks again!

Originally posted by @Michael Needle :

@Russell Brazil completely agree on the vacancy, I’m just being conservative.

@Joe Villeneuve those profit numbers for each are appropriate rents minus mortgage principal and interest, property taxes, and in the one case condo fees. Since I plan on only 10 months of rent (1 month vacancy, 1 month towards repairs) I get to 7,200 and 12,100 annually.

As far as greed, of course I want to build wealth and make money, and the obvious choice is do the flip and then buy again, but the real question is, is getting “stuck” with the asset that will appreciate less (in dollar terms) worth the risk of not finding as good of a bigger deal in the future. I certainly want to make money, but I want to make the best possible decisions along the way.

@Marco G. so my fear of being stuck with the condo is that I then can’t immediately follow up and buy the row house, if I buy the row house and it drops 10% for a period of time I still have renters paying down the mortgage. With the numbers I’m using even the rent could drop by 10% and I would still be at break even. It’s missing out on the rowhouse that is my greater fear.

With all that any more thoughts/responses would be great, thanks again!

 It sounds like you're looking for reasons not to do this...and you're not confident in what you have doen, and are doing because you are talking about future events as if they are waiting for you down the road...with knives and pitchforks.  Get more comfortable with your knowledge, and most important...learn how to control risks.

“My goal has been to move towards rowhomes/SFR to eliminate the HOA expense”

Sooo... why would you buy a condo??

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