First Primary Residence turned Rental condo

[Will Kenner]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $470,000
Cash invested: $60,000
Sale price: $440,000

I purchased this condo right out of school, fearing that I was going to be priced out of the market in the hot market of 2007. Fast forward two years when the whole economy came crashing down, and I was at a cross roads. I couldn't unload the property for what I owed, but houses were on the cheap all around our neighborhood and I wanted to buy. I took the leap and purchased a home just two blocks down the street and put the condo up for rent.

What made you interested in investing in this type of deal?

Since this was my first primary residence, I didn't consider the cash-flow potential, however it was a top-floor, water view condo with it's own private roof-top deck, so I felt it had intrinsic value.

How did you find this deal and how did you negotiate it?

This was one of 10+ properties pulled from the MLS that I looked at over one weekend home from school My negotiation skills were poor (well before great books like 'Never Split the Difference' were written) so I did not negotiate much.

How did you finance this deal?

Fortunately there was a nice little element in the mortgage industry at that time that let a newly minted professional, right out of school, with no income history, qualify for a jumbo loan - The no-doc Alt-A loan! Courtesy of a friend who worked at the now defunct Countrywide Mortgage, I was able to get this condo on stated income and a smile.

How did you add value to the deal?

The property was essentially turn-key as the prior owners had just remodeled the unit before listing.

What was the outcome?

Mitigated loss.

Lessons learned? Challenges?

The property didn't cash flow even with strong rent. This is where buying a rental property for the right price comes in. I overpaid for this property even though all the metrics were telling me it was overpriced. Ignoring those metrics, I "just wanted in" and ended up paying for it later. Not only was the mortgage payment sizable, but there HOA dues to consider as well. (One of many good reasons NOT to buy condos as rentals)