Friend inherited $215k condo from parents. What should he do?

7 Replies

A friend of mine works in IT inherited a 2 BR 2 Bath condo in the Falls Church area from his parents when they decided to move out of the country. He currently lives there with his sister. Similar condos in the building have sold for around 215k. The building is called Wood Lake Towers

I've been telling him he needs to talk to some experienced investors to figure out what his options are to get the biggest bang for his buck. He said he's torn between keeping it and renting it out or selling it. 

If it will appreciate a great deal in the next few years once its paid off he wants to just rent it out and sell it in a few years. 

I've told him if he can sell if for around 215K he could use that money to buy a few rental properties and grow his earnings exponentially compared to his idea. Or possibly airbnb the property if there is high demand in his area.

He has about 35K left on the mortgage and he'll own it free and clear.

The mortgage is currently 1k and the condo fees are $500. (I hate Condos and condo fee's btw)

What would you all do in his situation?

That's a hefty condo fee. How much can he rent it for?

If he only has 35k left on the mortgage, he can refinance out the equity for a down payment on multiple additional rental properties.

@Gabriel Addy - At $2100, it'll cash flow $600 minus expenses, so it should cash flow.  Renting out an existing property is certainly the easiest way to get into real estate investing.  I would do what I suggested: 1) Rent out this property 2) Refi back to 80% (should net around $130k after paying off remaining $35k) 3) use most of the $130k for deposits on additional rental properties (saving enough to cover emergency expenses).

John's plan above is pretty solid. I'd note that $1,000/mo is the payment on his current mortgage, and may not be the payment once he's refinanced. Remember to consider the cost of maintenance and updates, too. I generally recommend setting aside 2% of the property's market value for that, so in this case $4,300/year. If your friend will make $600/mo after mortgage and condo fees, that's $7,200/yr. $4,300 gets reinvested in maintaining the unit, and he takes $2,900 profit annually. Plus the property appreciates, and his mortgage is paid by someone else.

If you figure he leaves 20% of the value in when he refinances, or $43,000, his ROI is 6.7% (2,900/43,000). To determine if this is the BEST plan of action, you'd have to evaluate other investment opportunities and their ROIs. I would say, though, considering the transaction costs of buying and selling real estate, keeping something he already owns as a rental property will generally be lucrative compared to buying a new investment property.

If this is your friend's first foray into real estate investing, he may want to rent it out without refinancing, and see how he likes having a rental property. If  he finds he can do it well, then he can refinance and use that cash to buy more properties.

I would caveat this with you will get more favorable interest rates refinancing it while it's your primary residence. It can be a little more difficult to refinance a rental.

Originally posted by @Adrienne Green :

If this is your friend's first foray into real estate investing, he may want to rent it out without refinancing, and see how he likes having a rental property. If  he finds he can do it well, then he can refinance and use that cash to buy more properties.