# Should this condo be my first investment deal?

2 Replies

My in-laws are currently renting from a condo owner. Recently, the owner let them know that he wants to sell and needs them out (or buying, \$200K) by the end of August (also the end of their lease). My in-laws don't want to move, therefore, they decided to make a counter offer of \$190K. My first thought, was maybe my husband and I should buy this for them. It would be an "easy" first deal for us; good renters, good location, off-market transaction. However, when I did the math, I wasn't so sure anymore. If we buy this condo at \$190K, we would net \$3,384/yr in CF. The CCR would be 7%. In everything I've been reading, it sounds like we should aim for a CCR of 8-12%. Also, the HOA is about \$400/mo which takes about \$4,800 away from us in what would be our otherwise annual CF. How do I know if this is a good deal for us? Thanks for your time!

Originally posted by @Lauren Dwyer :

My in-laws are currently renting from a condo owner. Recently, the owner let them know that he wants to sell and needs them out (or buying, \$200K) by the end of August (also the end of their lease). My in-laws don't want to move, therefore, they decided to make a counter offer of \$190K. My first thought, was maybe my husband and I should buy this for them. It would be an "easy" first deal for us; good renters, good location, off-market transaction. However, when I did the math, I wasn't so sure anymore. If we buy this condo at \$190K, we would net \$3,384/yr in CF. The CCR would be 7%. In everything I've been reading, it sounds like we should aim for a CCR of 8-12%. Also, the HOA is about \$400/mo which takes about \$4,800 away from us in what would be our otherwise annual CF. How do I know if this is a good deal for us? Thanks for your time!

This would be an all cash offer or financed offer? The CCR is based on all cash investment? I think the best practice is 10% CCR based on a CASH offer. If you are getting this CCR while financed, that seems less appealing to me and below my minimum criteria. 400 HOA fee is usually my max preferred fee for investments. Keep in mind it is currently \$400 but can be increased at anytime, meaning it could threaten your cashflow in 6 months or 10 years from now. try the calculation at 450/month to stress test your calculations and see how they work. You have no recourse to increasing fees. It's still an expense subtracted from your cashflow and not treated any different. Did you budget for property manager and vacancy in your cashflow estimates? Otherwise you aren't valuing the cost of your time to manage the property.

Thanks for you comments and advice @Jeff Bridges ! This would be a financed deal; 25% down, 75% loan. I did not factor VL or PMF because his parents are planning to stay there for at least the next 5 years, possibly longer. However, that being said, at some point they will move and we will either sell or have some VL for a period of time. I factored in 5%, and also stress tested with an HOA of \$450. This cuts my annual CF to \$1,680 and CCR of 3.5%. I don't anticipate needing a PM b/c we have family that will help. Feels like we may pass on this deal...