A condo is typically not the first choice for any real estate investor in the beginning, especially just a single unit…bust sometimes a great deal just can’t be passed up. This condo was negotiated as owner-financing from an estate sale with an insurance claim towards the renovation budget.
Right away, dealing with any condominium we knew extra research is required. First, there is a HOA or property management company, which is not always a bad thing, check out this Bigger Pockets article to provide a positive perspective. Second, there is a monthly fee associated which weighed heavily with negotiating the monthly payment. Third, HOA’s require certain permits, coordination, and approvals to improvements. Luckily, this was simple because everything was simple updates with no structural changes. After an initial market analysis for rents in the community, we accounted for a min. cash flow of $300/month minus HOA fee, taxes, and insurance, we figured out our comfortable monthly payment. Little did we know that the property would take 7 months to close and the rental market would increase significantly.
Unique challenges...
...require patience
This deal brought unique challenges because the closing required us to wait on the close of an estate before we could even start the renovation. Since, the insurance claim was filed with the HOA, it required us to coordinate with the HOA to be reimbursed which took an extra 5 weeks to receive the final disbursement. This certainly was a project that required a great deal of patience.
We instantly knew the condo had potential and simply required fresh paint, flooring, vanities, cabinets, and finishes to meet our expectations. We were right, the end result was perfect and this condo made finding a tenant easy and at the top of the rental market!
The kitchen is a core part of any house. Replacing distressed cabinets, finishes and appliances are always at the top of our renovation list!
White vanities, granite countertops, and new lights/fixtures made this 1980’s condo feel rejuvenated and brand-new!
Though this property was tied to an estate, this was not a traditional estate sale. The project required us to wait for an estate to close/settle so that all debts were paid in full before the executor of the state could offload any assets. COVID-19 introduced a lot of challenges to the way we conduct business, check out our situation on the Jefferson BRRRR to understand how we managed some trying times with lending options. COVID-19 delayed an estate closing longer than usual, but the seller remained vigilant in communication with the estate attorney to ensure we would be all set for closing. This property had a bill associated with the insurance claim and required the bill to be settled prior to close and further required us to finance the entire renovation before claiming for the remainder of any insurance reimbursement.
Always consult with an attorney or real estate professional when you are considering the purchase of a property with an associated estate and claims to insurance reimbursements or other funds. If the purchase agreement does not mention claims to such and the closing attorney is not forcing the seller to forfeit any claims, the seller may snake those proceeds from under you. Luckily, our relationship with the seller allowed for a smooth claims process.
Project Photos
It’s always important to layout your goals for any project. Here is how we envision this project:
- Acquire, Rehab, and Rent for a minimum of 5 years
- Assess ROI, Time invested, Management Costs
- At 5 years, make final determination to sell or payoff 7-year balloon payment
For this project, it is unlikely we will hold the condo beyond 10 years. After the renovation, the equity is almost doubled in the property, but very limited to increase much further.
In conclusion, after the anticipated wait of a 7-month closing, about 8 weeks for the renovation, another 4-5 weeks in insurance claim reimbursements, this condo proved to be a great project and experience. We learned the value in negotiating for both sides to walk away happy. We learned the value in research in all phases of any deal and to ensure important items are in writing. Furthermore, we learned that unique opportunities present unique challenges, but have a great potential for unique rewards. This property allowed us to minimize the amount of money placed into a project and cash flow beyond our own expectations.