IS this a good idea?

Hi Everybody !! Two months ago I had my first experience investing on real estate: I bought my first apartment. I thought at that point I’ve done a good deal . Purchase price : 135K for a 1/1 , Appraisal Value: 350K. It was a bank repo. I’ve got a 95% LTV , FHA loan with a very affordable payment.
The building is located in Miami, very close to the airport and while doing my research I found it was the best complex on the area. Nice water view, gym, Jacuzzi , sauna, pool. I wanted to give the best to mi family (wife and a 2 year daughter).
All this time I’ve been thinking that, in my opinion, the building has a lot of potential and it would be worth to invest in other units in the same complex. I was getting more and more enthusiastic with the idea when last Monday I received a letter from the association with the news of a future assessment. 1 extra payment one year from now of maybe $3,000 or $4,000. Because of the delinquency on the payments, the association is about to go bankrupt and is getting a line of credit of one year to solve the situation. A slap in the face.
My first idea was to buy and rent ,but is impossible: mortgage +association + taxes+ other costs is a lot more than what they are paying for rent.
Second idea was: buy another unit for a very good price as I did or less, and then find non bank qualified buyers willing to buy . Example:
I buy at 110K. Finance 90% at 8 %
I sell at 150K. Finance 90% with private mortgage at 10%

With this I would get back my down payment (10%) and a monthly income for financing the 40K at a higher rate than I’m paying. I not going to be responsible for association and taxes.

  1. is this a good idea? Should I go on with it?
  2. should I quit on the idea on this complex with the situation on the association?
  3. Or can I do this somewhere else?

Thanks everybody for the advice, it would be very helpful, in special from people who had success in Real Estate.


First, you need to figure out if the bankruptcy situation with the homeowner’s association is a temporary problem or a death blow. Since you are an owner, I would think that you could see the financial statements of the homeowner’s association. If this association is facing insolvency, you may be in for problems from just your own condo, let alone any other investment properties.
You could use home equity to put 10% down on another property, then flip the property and offering seller financing on the difference at 10%. Remember that agent commissions and closing costs on buying and selling this property will come close to 20K, so you will want to figure out who is paying that (in this market, it’s usually the seller).

  1. You buy the property with the following terms:
    Purchase price 110K
    Home equity used for the down payment 11K (cost $80/month on a 30 year direct am note)
    Seller pays 10K in closing costs
  2. Then you sell for 140K
    The buyer pays 14K down
    The buyer gets a bank loan for 111,600 (the 99K that you owe plus about 12,600 in closing costs)
    You carry $14,400 as a second mortgage for the buyer (a seller carry back) at 10%.
    Often the terms on a seller carry back are interest only due and payable, so the buyer pays you $120 per month for, let’s say, 5 years, then owes you the original $14,400.
    So, the yield spread between your $80 per month for the cost of the deal, and the $120 the buyer is giving you is $40 per month, and when the buyer pays the $14,400, you can pay back the home equity that you used for the down payment, and you have made a profit of $3,400.
    The risk is that if the buyer defaults on the note, you could lose your interest in the deal as a second lien holder.
    You could also set it up as a lease option. You might be pressed to get someone to put up 10K for option money, but you could charge an option premium, a one time only fee for the option. Then, this place could bring in more than market rent for a lease option. Could you get $1850 for rental income on a lease option contract?

is it worth 150k? 140k?

you’re appraised value for your unit is 350k?

if it’s appraised at 350k - your unit - sell it for as much as you can NOW and get out of dodge - period.

you said you bought for 135k - then you say you got 95% LTV - so do you mean you financed 95% of the 135k ($128,250) or was the LTV on the 350k appraised value ($332,500)

if it’s the second scenario - you already pocketed 190k and change and will be hard-pressed to sell it. APPRAISED VALUE and MARKET VALUE are two entirely different things - especially in this economy and housing market.

I just comped out a preforeclosure condo - appraised value came in at about $240k

when i did my comps and REALLY comped it out comparing hard core analysis and data review that was COMPREHENSIVE - market value turned up to be $195k - HUGE DIFFERENCE.

at auction - thinking the value is 240k - a bidder may go as high as $156,000 or so (.65 of the “value”)

KNOWING it’s MARKET VALUE (what it will actually sell for relatively quickly <45 days on the market) a bidder would bid not one penny more than $136,500 (max .70 of REAL TRUE MARKET VALUE).

THAT’S A 20K swing - HUGE.

that’s the difference between complete investment failure and success.

If your association goes bankrupt, no buyers will be able to use conventional financing to purchase a condo. The buyer pool will shrink to those who have cash, hard money, or private lenders. The market value of your unit will drop precipitously.

I agree with TCMG. Sell now, for whatever you can get for it even if that happens to be $200K. You will have to disclose the impending assessment which will scare a lot of buyers away.

Thanks everybody for your comments , just a little something to add:

TMCG: Took your advise and went to the association and asked for the financial statement. Not too good . Almost 1 third of the complex don’t pay maintenance. But they told me that this situation may ease during the next year or the other as long as the repossessed units get sold. :bs ?
2) As you said
I paid $135K for the condo
MARKET VALUE: 150K , (today’s market) no more than that. But that’s my opinion.
APPRAISED VALUE: 350K, I still think I made a good deal…in the long run. I would like to sell it for 200K right away, but I think It’s impossible.

Funder: Thanks for the idea !! I found very interesting the lease option. I thought about owner finance since I wouldn’t be responsible for maintenance and taxes. I already started to get more info on this.
Does it work same way with lease option about taxes and maintenance?

Dave T : Thanks for your input , Do you think is better for a starter to invest on condominiums or SFR?

Thanks in advance !! :beer