I own 2 condos with good equity. What is the best way to use them to start REI?

General Real Estate Investing
1

Hello everyone.

First thank you for all the good stuff on this site. I am new here and it looks like a gold mine of info and networking opportunities!!! Thanks for sharing your knowledge.

I bought 2 condos years ago, and they have now, on paper, +/- 30Gs equity each. The cash flow from renting isn’t good because of high HOA and rent devaluation… and maybe poor marketing/discipline from my part.

What is the most effective way to use these properties to jumpstart a Real Estate Investment company? Should I sell them for cash to buy more? Lease them out?

In other words, in your opinion, what is the best start-up strategy?

Thank you for your help,

Alex

2

Much more info is needed for anyone to be able to answer. For example, where are you located and what is the local real estate market like?
When you talk about a “start up strategy”, what are you goals?

3

This is a general comment I urge people that know how to make money with condos to chime in. I say that because real estate like politics is local. Some areas of the country condos work really well for income but in Texas they don’t and I would advise you to sell them get the money out of them and invest that money in either single family houses of apartments. I say this because of control. The problem with condos is that you don’t have enough control to differentiate your property from all the others on the market. If you owned an apartment complex you could make sure it had the amenities you want and the look and feel you desire. With a condo you don’t have that control. If the neighbor next door decided he wanted to clean his pistol on the front porch while feeding babies to his pit bull, you have no control of that. All you can do is call the owner of that unit and complain to him. If it was actually an apartment you could evict the troublesome tenant. Condos look like apartments and it puts that expectation in the mind of the prospective tenant but it is not an apartment…but it is not.

4

Thank you for the answers.

Here is a little bit more information:

The condos are located in Grand Junction, Colorado. It is a natural gaz / oil boom and bust town, that is going through a down turn right now. The 2000-2007 strech was fantastic though!
Today, I can still find renters, but I barelly break even with my mortgage + HOA fees (far from the 50% theory).

APT#1 rents for $975, Market value $135000, HOA $240/mth, owe $78Gs, mortgage $640/mth
APT#2 rents for $820, Market value $115000, HOA $240/mth, owe $81Gs, mortgage $$650/mth

The neighborhood is beautiful and most neighbors are quiet and clean.
I’ve had a 3rd condo for sale (traditional with realtor) since February at or slightly bellow market price, but the HOA killed the deal every time. Current Sales value $114000, HOA $240/mth
I just tryed to offer 1 year free HOA, and additional 1/2 point to buyer agent at 3.5% to see what happens. I need the cash on this one to pay a I owe U note to a familly member.

The foreclosures in town and exodus of oil workers (and the people/business they supported) don’t help of course.

So here I am trying to figure out if I should Lease to own my places, or offer an owner carry, and try to cash flow the places. Of course i’d have to learn about all those because I am brand new to this.

Or hold until things get better, sell for cash, and use the equity to buy more places in Denver, where I currently live.

Thank you all for your advice.

Alex

5

Nereus,
I like your plan to pay one year HOA fees for a buyer. I’m presuming that would be through a neutral third party escrow agent, so that you are assured of the payements being made.

You are in the red zone on those 3 units, and my feeling is that it will take 5 years or so for the market to go back up. There are a tone on foreclosures that will still hit.

So it you sell on a carryback loan or subsidize the buyers payments; I think that is the way to go. Talk to a couple of local Title officers about how to structure a deal. Or talk to the escrow collection agency. They will have tips for you. You need to become THE expert on how to sell a condo in a down market.

Let us know how it goes.

Furnishedowner

6

Furnishedowner,

Thank you for your reply. You have confirmed my idea that a carryback may be the best solution. And that is big to get a beginner like me out of catarsis.

I will contact a local title company to get more information on how to legally draft the transaction.

I am not sure what you meant by subsidize the buyer, or escrow collection agency (is that in case the carryback/subsidy fails to pay on time?)
I am planning to buy the Naked Investor book to learn about lease to own as well.

I may need to set up a land trust, an LLC,… there is so much!!!
can I still apply a 1031?
I guess these condos will be a good opportunity for me to learn about future investments in the least risky way.

How does my equity affect the effectiveness of a carryback? What is a proper interrest rate to charge? How about market value for a carryback?

PS; for the condo that I need to collect cash on, I was planning to pay the HOA directly in advance at Closing for 1 year. It sounds like the easiest way.

Thanks again for your help

Nereus

7

Nereus,
Since you have a Realtor already for the one condo, ask them all the same questions. It is their job to answer them, or find the answers. If your Realtor doesn’t know, ask to talk to the Broker at the company. You need expert local advice. If you can’t get it, fire your Realtor and hire an expert Realtor instead.

Yes, on offering to pre-pay the annual HOA AT CLOSING, when you are sure the deal is going to go through.

Read the threads on LLC’s and Land Contracts. Personally I wouldn’t bother with an LLC at all. I don’t think it is going to protect you, and it’s a lot of hassle. That’s my opinion.

If you can do a 1031 exhange on ALL the condos and swap them for a piece of income property that makes more sense, that would be great. This is where your expert Realtor help is again essential.

Good luck to you, and let us know how it goes.

Furnishedowner

8

just curious. What did the condo association do to kill your deals? Maybe solving whatever problem the association had with your deals is the solution to getting your property sold.

9

Sell the condos and buy properties where you live.

10

Your best course of action would be to continue to try and rent these condos out for a breakeven cash flow until market conditions improve. Remember that by being able to rent these out with no cashflow, your tenants are still buying you increased equity. It is very very rare for any residential property to have a positive cash flow in the first 5 to 10 years if the initial down payment was lbelow 25% and/or the property was purchased in a sellers market.

11

I would sell. Condos are hard enough to profit from in good times and a bear in bad. In the mean time stay focused on maintaining paying tenants. Of course selling will be a bit of a mess as well as the buyer will only be able to secure about an 80% of purchase price loan and even with that the property income will not be covered in the debt to income calculation if not held long enough. Try to get understanding of what buyer’s financial picture needs to look like for an investor or home buyer, set your price and terms to make it easier for them to buy and qualify for financing. As for the equity, consider it lost in the sale for the most part as you have to make the math work for buyer