s/t, l/o condos vs sfh

General Real Estate Investing
1

I was wondering if anyone has had more success with one or the other. Also a few more questions on this.

  1. As a begginer, do you think s/t, l/o a condo is a good idea thereby minimizing my risk if I have to refi (exit strategy).
  2. Has anyone used a similar clause “subject to finding a qualifying tenant,” for which the contract will not take effect until you put a t/b in the house.
  3. What is the average time a property should be held under s/t, l/o. I have heard time frames raging from 18mo-10yrs.
2

Whether you buy condos or SFH’s will depend on the market. In general, SFH’s have been a safer bet as they are a more desirable type of living environment. In some real estate markets where SFH’s have become so expensive, condo’s become more desirable because they are more affordable.

I have tried to use that clause before (it was several years ago). The seller looked at me as if I had lobsters crawling out of my ears. I only tried it the one time. The seller was far more experienced than me at the time and explained that although he appreciated my creativity, he was not going to put himself in a position to be stuck holding the property. If I wanted to buy it, the risk of placing someone would be on me.

What I did to mitigate my risk (with holding costs) was to ask the seller instead for a credit toward closing costs so I’d have some funds to pay for the property while vacant. In general, if you’re financing the property you’ll always have at least a month (longer if you plan in correctly with your closing date) before your first payment is due.

As far as average time…I think it’s going to depend on your exit strategy (what are you trying to accomplish…cash from flip or equity)? It will also depend on what is going on in the market at that time.

For example, I live in Orange County, CA…the real estate market is pretty slow and the prices have come down. If I was going to make a buy and hold investment there, I would plan on holding it for several years, knowing it will likely take several years for the market to recover and start moving up again.

Hope that helps…

3

NL-NC

Appreciate the info, I too am from the OC (Santa Ana) area and because prices are still high, I am thinking about starting with condos and townhomes. That way, I can afford the payments while the property is still vacant.

4

Santa Ana has a lot of REO’s (and hence a lot of opportunity). Another thought to consider is small multi’s (like 2-3 units). You’d reduce your risk of negative cash flow.

Even if you can afford the payment if it goes vacant, it’s a major bummer when your savings account is dwindling in order to own your wealth building real estate (I wish someone would have told me that when I was just starting). If you can get into a two or three unit…or more, of course, you’d have multiple renters to offset the expense of a vacancy.

I think you’ll see a better opportunity for appreciation from the single unit, but I’ve had times when I was “real estate rich and cash poor”…and it’s great to build wealth, but only works if you can get through the tough times and hang onto your wealth builders.

Ideally, you’ll be integrating some flips (either retail flips or investor flips) along the way to make sure you’re bringing in chunks of cash (this is what I consider the more substantial “cash flow”) to support both you and your investments.

Anyway, just some thoughts to chew on. Good luck in Santa Ana!!

Stacy