Flip or Hold? Analysis Help for 1 Bed/1 Bath Condo in Redmond, WA

Omar Ongoco · 2016-12-20T21:06:37-08:00

Hello BP World,I recently acquired a condo in Redmond, WA just north of DT Redmond/Redmond Town Center. The purchase price was $150k. It was built in the 80’s and it is a 760 square foot space with 1 bedroom and 1 bathroom. This is my second investment property so I am still very new to the process. I believe that the work that needs to be done to it consists of replacing the vinyl kitchen flooring (there is a burn mark on it), new paint, stainless steel kitchen appliances, and professional cleaning. I figure it will cost me around $6k - $8k for the listed fixes. Given the comps I researched, I believe it can be sold for around $200k-$220k.This is a deal where I can potentially pocket $12k+, but I am slightly discouraged on the fees that are associated to closing (my assumptions are 3% to buyer agent, 3% to seller agent, and 3% for excise tax, closing costs, and miscellaneous fees). I am also aware that there are tax implications for flipping also.All the taxes and fees associated with flipping is painful to see, which is why I'm also considering renting it out. I calculated that the principle and interest will be $750, the HOA is $325, and I assuming that the property management fee would be around $120/month and taxes and insurance around $150/month (please check me on the latter two costs). This comes out to $1345/month, which doesn't even include the set aside for maintenance costs and special assessments (how much should be set aside for this?). I could possibly rent it out for $1400/month. Obviously this margin is very slim - I'd like to see more of a $200+/month income. Is the Redmond real estate market worth holding onto? - Can I count on the instant equity I've gained, future appreciation, and rising rent alone? Is renting out a condo feasible or should I stick with my plan of building enough equity through flipping to be able to rent out a SFR?Thank you in advance,-Omar

Ben Meisel

Real Estate Professional · Redmond, WA · Member since 2015 · 67 posts · 47 votes

9y

Omar, congratulations on what sounds like a good buy. Do you know if the condominium complex has a rental cap? If you don't know, you can find out by contacting the HOA. If they do have a rental cap, they may have already reached it, which would likely impact the available options for you.

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Paul Biniasz

Investor · Redmond, WA · Member since 2016 · 10 posts · 7 votes

9y

Omar, I live in Redmond, WA and I can tell you this area is affluent and a very solid real estate market so you didn't go wrong there. I'm sure you will always have tenants and buyers no matter what you decide. However you raise some excellent questions regarding exactly what your next move should be. I've always found the calculators on this site to be incredibly helpful. You can easily run the numbers based on a couple of different scenarios to give yourself the best chance of success. Good luck!

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Tatiana Gershanovich

Real Estate Investor · Seattle, WA · Member since 2014 · 156 posts · 141 votes

9y

Omar,

Congratulations on the buy!

I would strongly encourage you to do a flip and buy a SFH as a buy and hold (in the area where you have a cashflow and appreciation. Tacoma is a good area for it).

There are a lot of downsides with holding a condo. As @Ben Meisel mentioned above, rental cap is one of them (some condominiums allow only certain percentage of all units to be rented out). If that cap is reached, you can't rent out your unit. And that can be reached at any time, for example, when you are between tenants, and you are stuck with a condo you can't rent out. Absence of rental cap is also a problem. When you decide to sell, your buyer will have limited choice of lenders if there are more units rented than the lenders like (I think a lot of lenders require ore than 50% of the units in the building to be owners occupied), so might be harder to sell. Another issue is an assessment. When some costly items in the building need repair, the owners of all condos have to chip in (most of the time there are not enough money from home owners dues in the reserve and the money are very mismanaged). Also, the maid up rules of what you and your tenants can and can't do in the unit (for example, what color of curtains are allowed). You can't choose your neighbors and bad neighbors in the condominium can affect your rental income much worse than bad neighbors of SFR.

If your calculations are correct and the condo can be sold for 220K and you can get away with putting only 6-8K into repairs, I would say flip it. You don't need to use a listing agent at 3% to get on the MLS if you are ok to sell yourself (you can send me a message and I can tell you more about it), your closing costs will be around 2.7% including title/escrow/excise taxes. If you bought it with bank financing you, probably, will stand to make about 35K+ if your ARV and repair numbers are right and you can do repairs and sell within 3 months.

If you, indeed, decide to hold, I can recommend you a great property manager who charges only 8% management fees.

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Omar Ongoco

OP

Civil Engineer · Auburn, WA · Member since 2015 · 5 posts · 2 votes

9y

Thank you all for the advice! Ben Meisel it turns out there is no rental cap - I appreciate you bringing that to my attention as another thing to verify when analyzing whether the property is feasible to rent. Paul Biniasz I haven't had a chance to use the calculators yet, but I will definitely check it out! I'm sure it's much more expansive than my Excel spreadsheet. I can see Redmond continue to thrive, which is why it feels like a tough decision for me. But given all the uncertainties in owning a condo, I think I'm leaning towards selling the unit. Tatiana Gershanovich the numbers I provided were really rough estimates; I would still need to field estimates from contractors. I am definitely interested in learning ways to cut down on costs, including negotiating how to lower realtor commission rates - I will PM you!

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James Marszalek

Property Manager · Tacoma, WA · Member since 2016 · 197 posts · 112 votes

9y

Hey @Omar Ongoco. My personal preference, both on the residential side and the investor side, I don't do condos or HOA's. I became an investor to flex my creative muscles for getting deals done, thus I don't appreciate being restricted by rules and CC&R's that dictate how I run my business. With that being said though, the cost of flipping can be high, especially when you talk about selling it.

2 things.

1st, You don't have to pay both sides of commissions and escrow fees when you sell. It can easily be split down the middle, but that may limit your buyer pool. Depends on the price. In this particular situation, I think being closed to paying closing costs for both sides would limit your pool, only because you're talking about a fairly low end condo for King County.

2nd, if closing costs and other expenses are a big deal, then you need to work that into your purchase price. Remember, you don't make your money when you sell, you make it when you buy. If you're planning on having $15,000 in costs associated with buying/selling, then my offer would be $15,000 less than what it was originally. If that price isn't agreeable to the seller, no big deal, move onto the next until you find a buyer willing to do that deal.

For investors that I work with consistently, and have a working relationship with, I will waive the buyer's side of commission, as long as they are willing to keep me as the listing agent. This has worked wonderfully in the past, and only makes both our operations stronger. You know any other agents that do that? I'm in the business of building relationships. Selling houses is a side effect to me. It helps that I was an investor far before I became a licensed agent. Anyway, some food for thought. Hope it helps!

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Flip or Hold? Analysis Help for 1 Bed/1 Bath Condo in Redmond, WA

Flip or Hold? Analysis Help for 1 Bed/1 Bath Condo in Redmond, WA

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