condo-risky?

13 Replies

We're seriously considering a 2 br 1.5 ba condo, listed at $39,900. Needs about 10-15k cosmetic work. Resale would be 75-80k. The catch?  Of the 32 units, 12 are rented, so underwriting could be a problem for buyers when we go to sell. Because of this our plan B, renting it out would be turned down by the association at this point. We would be paying all cash. Any advice?

Not a condo investor, but why "could" there be a problem to underwriters with rented units?  

Whats your HOA fee and tax? That might kill your cash flow in plan B. Should you be worried about HOA not allowing anymore rental units?

If you do get stuck with plan B, can you cash out refi the majority money you put in at least?

Our agent talked to the listing agent, who explained that the ratio of owner occupied to rental, lowers the value as far as underwriters are concerned. That is why the HOA doesn't want to allow any more rentals. We can pay cash at 39,900, but to sell would we be too limited because first time buyers usually need financing. HOA fees $175/mo, taxes $1400/yr.

You could Always owner finance if there were FHA issues due to number of investor owned properties. Also check on the financial health of the condo. We just bought a condo from homepath for $25k and we plan to put $10k into it and rent it. It will have an ARV of $55k. While i see a lot of people frown upon condos, they do limit for capital expenditures As if you do your due diligence you can greatly reduce any capex or costs which are surprises

Very good idea, Chris. Hadn't considered potentially financing future buyer. I was worried about not having a exit strategy. We have to get our offer in tomorrow-this place has been on the market for 3 days. Not a foreclosure or short sale. Agent will be presenting the owner with any/all offers this weekend. Now we're wondering if full price cash is enough. We don't want to get in a bidding war, don't want to miss a good deal, and don't want to squeeze that margin for profit. We do the work ourselves, but our time is worth a lot as we both have full time jobs. Decisions...

@Terry Hoefer

Do the analysis and decide what the place is worth to you. That is your maximum - don't go over it. If your calculated number is slightly over list, you can always offer a bit more to try to lock down the property. I would not get caught up in a bidding war or the 'highest and best' shenanigans that sometimes go on.

As far as condos go, financing may be ok. I believe FHA currently allows up to 50% of the condos to be investor owned, so long as less than 50% of the loans are FHA. There are also some specific requirements for insurance and such. I would recommend that you verify this information with a loan officer in your state, as I am not a financial adviser!

-Christopher

We were in a similar position. There was a condo I saw (Fannie Mae) listed for $26k. It needed $10k of work and ARV about $55k The day we were going to put a bid in the price dropped to $22k. We put an offer in at 22k. We found out there are three other offers and needed to submit best and final. Since we were originally going to offer 25k we went above asking price and resubmitted at $25k and got the condo. If you feel it's a good price you don't have to negotiate - offer what your comfortable with and confident you will have your expected return.

We put in our offer with a "acceleration clause", saying we'll pay a certain amount over the highest bid not to exceed $--------. 

Chris & Christopher, your comments add to my confidence in our offer, so now we wait...

@Terry Hoefer

 - I have never heard of an escalation clause before. Thats pretty smart. Has anyone else ever used one? And are they legal in other states?

Our agent suggested  the escalation clause, we hadn't heard of it before. We know there will be multiple offers, and we were worried about how much over asking price would be necessary without going too far. This seems like a safe solution. We're in Wisconsin, and  my guess is that you can write anything you want in an offer, but the question could be whether or not the seller's agent advises their client to go along with it. Just guessing. I'll post how it goes.

@Terry Hoefer what city is the property located ?

Sounds like the property I been trying to locate biggerpockets partner for in Milwaukee.

If property is located on the southside of Milwaukee : it not FHA approved per recent association meeting. Property just sold yesterday for $61,000 after 277 DOM (est)

Jenkins Ramon-not in Milwaukee, Waukesha County. There's not much available here anymore. There was an article in the paper today about the diminished supply. Seems we got started a couple years too late for our area. We have to dig deeper, as several Bigger Pockets Investors suggested.

@Terry Hoefer  okay

Yes, we are talking about different properties.

FYI: Your property will need a mold remediation and work needs to be approved via Association.

Good luck on your offer to purchase.

@Terry Hoefer

There are other factors involved in getting the condo Fannie/Freddie approved. < 50% rentals is just one piece. Reserves, pending litigation, etc. could cause financing to not be approved. See if you can get them to fill out a condo questionnaire and run it by a lender first. Better to cross your t's and dot your i's. 

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.