Should I Buy This Condo? (Time Sensitive!)

General Real Estate Investing
1

Hi everyone! Newbie here. I’m 29 years old and make $75000 annually. I have an opportunity to buy a nice 1x1 condo for $240000 in an decent area of Santa Ana (which is an OK area of central Orange County, CA [it isn’t the safest, but it’s very convenient to a number of business/universities with lots of potential renters]).

The condo is 713 sq ft, with community laundry, semi-upgraded (newer/upgraded cabinets in the kitchen, laminate flooring throughout, tile counters), carport + 1 extra parking, large patio, 1st floor, corner unit, lots of light, safe/gated community with good amenities (pool/spa, club house, sauna, small fitness room), location is convenient to shopping, freeways, other cities, etc.

Purchase price would be $240K with 20% down. I’d be borrowing a bit from my mom (interest free) to assist with the down payment and plan to pay her back $200/month. The total mortgage/interest/taxes/HOA is $1516/month (and with paying back my mom, I’d be looking at $1716/month).

My plan would be to get it, move into it for about a year (but maybe longer, depending on where life takes me), and then rent it out/keep it as a long term investment. I checked comps in the area, and it looks like they’re renting for about $1500.

Is this a smart decision/investment?

My boyfriend isn’t a fan of the purchase. He’s worried about: my potentially moving out of the area/who would manage the property, doing the family thing/me working less (and not being able to cover the monthly payment should it not be currently rented), my getting into a 30 year commitment for a mortgage, etc.

I’m not as worried about these things (I have 3 years of property management experience and no concerns about whether or not I would be able to rent the property; if I’m not in the area, my mom is a real estate agent and she would rent the property; I feel like wherever I end up I’ll be able to make at least $2000/month to cover the cost of it sitting vacant… which I highly doubt that it would as the area/condo is quite good/convenient). But then I wonder if I’m not considering unforeseen costs? I feel like, even if I rent it and only break even (or lose a month or so of rent if it sits vacant), it’ll still be OK to invest in as it will hopefully increase in value over the years and, when the mortgage is paid off, it will be passive income just in time for retirement. OR, I could sell it in 5-10 years and use whatever equity has been gained as a down payment for something bigger/better. But I think I would prefer to keep it as a property for future passive income.

One thing to consider is, because I will be paying the down payment back, the monthly cost of ownership would be more like $1716, and with an expected rental income of $1500, I’d be losing around $200 every month.

I do worry that I’m buying when the market is too high, and so when it inevitably dips I’ll be losing money almost instantly.

It’s always been a goal of mine to buy myself a property. But, I don’t want that goal to blind me of a bad purchase.

I just don’t want to purchase something that’s almost guaranteed to lose me a lot of money over the long term, and I don’t want to buy into something that will prevent me from getting more properties or a future home.

Any and all advice/input is aprpeciated. Thank you!!

2

No. You should not be buying a condo.

You are not committed to this investment any more than you’re committed to living in Orange County. Bad start.

You are depending on your mom to bail you out of a management headache in the event you move? Really?

Sure, your mom’s into real estate. Making money. Not babysitting your pipe-dreams …and certainly not wanting to do it, simply to protect her 20% investment in your half-baked commitment …that she will kick herself for involving herself with.

Unless this is a super-duper steal deal, you should not be buying condos anyway. They are the first to lose value in a down market, and the last to recover when the market comes back. These are lose/lose investments, if your timing is off.

And you’re mistaken. Rarely do investors lose money long-term on real estate. They mostly lose money short-term, because they buy wrong, and don’t have any holding ability.

When you buy retail, which it would seem you’re doing with this condo, and add insult to injury by becoming 100% leveraged into the deal, you deliberately create a high-risk, negative cash-flowing “alligator” for yourself.

This investing approach is like dropping an H-bomb on Hiroshima, and hoping it doesn’t hit anything important.

Can I be any more negative on your plans? Nope. Never mind that out-of-state, and out-of-area investing is reserved for naive, if not ignorant, late-night real estate infomercial-believing, unicorn herders. And I’m not sure there’s a faster way to risk a loss than investing out of state, or failing to personally commit to a one-off real estate investment.

So a better idea?

Buy a house that your mom wouldn’t mind living in, using her money as a down payment, and then when you get an itch, or an out-of-area employment offer, your mom can move into the house that she’s already responsible for financing. And when your mom’s finally rotting, face up, at Fairhaven Memorial Park, you’ll inherit the house she already paid for, and you’ll accomplish your investment goals to boot. Yay for you!

Too harsh? Well, I feel better.

3

Too harsh? Well, I feel better.

NOT at all, the truth sometimes hurts the worst.

4

Thanks all for the responses, but it seems there are a few things that have been mistaken?

This isn’t an out of state purchase. I live in Orange County, and would be living in the condo for at least a year (if not more).

When you say:

And you're mistaken. Rarely do investors lose money long-term on real estate. They mostly lose money short-term, because they buy wrong, and don't have any holding ability.

So wouldn’t that mean I’m correct in thinking that regardless of what happens in the short term, if I hold on to the property for the long haul it would ultimately come out ahead (once the loan is paid off)?

I hear what you’re saying about condos being a bad investment.

I also hear what you’re saying about my mom supplementing some of the down payment. That is my least favorite part of this situation, but it was her idea. When I told her I couldn’t afford the condo at $240K, she offered to assist with the down payment so I could get it, so long as I pay her back.

Regardless, it seems that your point (that it’s a bad idea to buy it) still holds true.

5
Thanks all for the responses, but it seems there are a few things that have been mistaken?

This isn’t an out of state purchase. I live in Orange County, and would be living in the condo for at least a year (if not more).

Yes, it will be an out-of-state purchase/investment if you move out of state, as you mentioned your boyfriend was concerned about you doing:

First you said, “My plan would be to get it, move into it for about a year (but maybe longer, depending on where life takes me)…”

Well, how far out of Santa Ana are we talking? That sounds a lot like, “Outta Dodge,” to me.

Then you added, “My boyfriend isn’t a fan of the purchase. He’s worried about: my potentially moving out of the area…”

Then you said, “…if I’m not in the area, my mom is a real estate agent and she would rent the property…”

You’ve obviously left the door wide open to be an absentee investor. Otherwise why mention your mom being your back up leasing agent?

"And you're mistaken. Rarely do investors lose money long-term on real estate. They mostly lose money short-term, because they buy wrong, and don't have any holding ability."

So wouldn’t that mean I’m correct in thinking that regardless of what happens in the short term, if I hold on to the property for the long haul it would ultimately come out ahead (once the loan is paid off)?

That’s not what you said. You said, “I just don’t want to purchase something that’s almost guaranteed to lose me a lot of money over the long term…”

You also worried that you were buying when the market was too high, and so when it inevitably dipped you’d be be losing money almost instantly.

I hear what you're saying about condos being a bad investment.

[…]

Regardless, it seems that your point (that it’s a bad idea to buy it) still holds true.

Yes, for the following reasons:
First, and most importantly, you’re not buying a bargain.
2) Your basing investment decisions on advice from those (boyfriends) who are not yet investors.
3) 1/1 condos are intrinsically bad investments. The only thing worse, well there is nothing worse.
4) Market values on condos are like overloaded submarines; slow to rise and fast to sink.
5) You’re not committed enough long-term, and too prepared to take advantage of, if not pawn this off to, relatives.
6) Make up a reason.

6

Hi,

Not only is everything Jay said correct but you also did not include HOA fees, property management fee's (What happens if something happens to mom or mom moves away?) and what money do you have to maintain this property?

Then if more than 20 percent of these condo’s are non owner occupied then forget selling it as lenders will not loan money on a rental condo community!

Then property taxes and insurance need to be taken into account as I am not sure you added these costs to your mortgage costs?

This is a huge mistake, you would be better off renting and buy an actual single family home in the inland empire either San Bernardino or Riverside counties that you could buy and rent from the get go, also try to avoid buying retail even though you want a rental try to buy something at a discount / wholesale or buy creatively where your getting a leg up.

I would never buy a 1/1 as an investor, most of market demand is 2/1, 2/2, 3/1, 3/2, 3/2.5, 4/2, 4/2.5, 4/3 or larger.

                 GR
7

I lived in condos and invested in them. You got good answers but I want to add another one, particularly if you plan to eventually rent it out.

Condo bylaws restrict the total number of rental units, and the ones I purchased, at 20% of the total units. Important reason is banks generally would not grant mortgages if the non-owner occupied units exceed some percentage.

Another bylaws for some is the HOA must approve the tenant, and in some cases, the lease. So you might find a good tenant, and sometimes waiting patiently for the next HOA meeting, find that they have an objection with your pick. So you could very well find yourself losing a few months rent messing around with the HOA approvals.

Can you afford the vacancy??

In fact, the rental condo I own originally had no requirement of the HOA approving tenants. When they finally did some years later, I sold the place, thank goodness at a good profit.

I landlorded for a good number of years, and rented to many excellent prospects who got tired of waiting for the HOA approval, with my rental being the good second choice, and went with me. Heard some HOA’s are hostile to rentals and make things difficult on purpose.

What happens when you live there a while, then decide to move? If the NOO units are already at it’s limit, if they’re nice, will grant you an approval to rent on a year to year basis after approving your tenant. If they’re not nice, all they will say is “Sorry, NO”. And if they grant you approval, might not do so after a few years if there are to many units rented out, exceeding the limit. Then you’ll have to ask the tenant to leave.

What if the HOA has no limits. I was investing in condos in Springfield MA, and I was told there’s nearby condos selling for $8,000 ea. Thought I heard it wrong, and was told “no” it’s $8000. The story was there were no rental limits imposed originally, and the condo complex is 100% NOO. Aside from tenant problems, you cannot get a bank mortgage.

Imagine 100 absentee owners if the building has 100 units?? Would be a drug dealers paradise. And who will serve on the HOA??

Oh, my rental condo at the time I sold also needed $1,000,000 in repairs for the entire building, and the original plan was to impose an asessment of $10,000 a unit. I told the buyer of this. But at the last minute the HOA managed a bank loan, so the interest was paid out of the monthly charges. Who owes the principal on it, I don’t know.

Thought I throw these points in if you are seriously thinking of renting it out later on.