Profile picture for davidpernici

Advise me on strategy....

Advise me on strategy

I had a bankruptcy in the past but am now able to get loans due to my credit and income to debt ratio (I have no expenses and make over 10K a month, so I can put down 20% on every purchase). I've never owned a house, or a mortgage.

My long term goal is to buy cheap houses/ condos fix them up, and rent them (anything around 40-90K), depending on total perceived rent value. I'm also in need of my own house, although I can suffice by living in the condos I buy while I renovate them over a 3-6 months period, while I buy the next place…   

Or, should I buy a duplex in 300K range, fix one side quickly, move over to the other side and live there a year while renovating the rest; and  then start taking on another duplex, or  condos…?

Are there advantages for me buying an expensive house vs. a cheaper condos? Any other suggestions?

  • November 03 2013 - Denver
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Answers (6)

Profile picture for davidhawke
Duplexes are definitely a safer investment than condos or townhomes.  Condos and townhomes are the first to depreciate in a down market, and the last to regain value when the market comes back.  Additionally, condos are subject to becoming "non-warrantable" if more than 50% of the units become rentals, or if the HOA's finances get out of balance.  This means that buyers will not be able to purchase the units with FHA or Conventional loans, instead being forced to use obscure portfolio loan products, that have higher interest rates and larger down payment requirements.  Finally, the HOA fees on condos and townhomes increase steadily over time as the complexes age and maintenance requirements grow.  As the HOA fees increase, the amount of rent you can collect will decrease in order to keep the rental rate competitive on the unit.  
So in short... go with the Duplex or even better, single family homes if you can find them.  I know of a few decent neighborhoods where you can still find acceptable rental homes around $100k in Denver.  
  • November 03 2013
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It's not so much a strategy that you need to find, David, as a method of accounting.

I'd start by creating a spreadsheet, and I'd compare how cash it would take to acquire, carry, and rehab specific places and compare that to how much I could rent them for when they're done.

Investing in real estate takes a lot of pencil work. In fact, most of the hard work is done in the office, not on the property.

All the best,
  • November 03 2013
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Profile picture for davidpernici
I appreciate your response, I hear you loud and clear.

Would you happen to have such spreadsheet?

Thank you Mack.
  • November 03 2013
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No, but you can make one up for yourself, and you can use paper.
  • November 03 2013
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Condos are a bit of a wild card, but a good place to start. Sometimes, just leaping in at a higher price range can back fire on you, get your feet wet 1st. Learn the process and then get going on the duplexes and homes as you learn the process. Good luck!
  • December 22 2014
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Hi David -- unless you have an inside connection at a bank, the days of finding "cheap" fix & flip properties are pretty much over.

You didn't mention if you would be doing the work or hiring a contractor to "fix" for you.  If you have to hire a contractor, it's a bad idea on all counts.  People really don't understand how much money it takes to find a buy and sell flip properties (most if not all investment homes are cash only deals fyi).  By the time you renovate, there are additional costs when you sell -- Realtors fees and title company fees typically add up to around 7% of the purchase price.

It's extremely difficult to make money unless you are a professional flipper, and even then, it's a very risky business.

If you decide to go with or scrap the investment plan, buying a home is the only investment where your equity position will grow over time.  The Denver market is expensive and will prices will likely continue rising into the foreseeable future because of low inventory -- supply and demand.  With interest rates near 4% again, the safest decision you can make is to buy a home and scrap the "flip" plan, at least for a few more years to see what happens.
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  • December 24 2014
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