I received the following question from a reader via email, and thought it would make an interesting discussion topic:
I’m a long time Seattle resident who moved to Asia due to work assignment in 2007. Separately from the money we are saving to buy a home to live in when we return, we have a fund that we would like to use to purchase a downtown condo, as we’ve noticed that downtown/Belltown condo prices have come down quite a bit in my opinion.
This would be a cash purchase and we are thinking about renting it out. Our budget for the condo is approximately $250,000 and from my amateur investigating skills through various websites, I believe I can rent it out for approximately $1,100 – $1,300/month. With HOD and tax, we believe we can still have a little bit of profit that would exceed bank interest from CDs.
This purchase is for a long term, meaning 10+ years. Since I’m not a real estate pro nor would I even call myself an amateur as I don’t have any experience being a landlord, we made a preliminary arrangement with my trusted friend to manage the property with a nominal fee until we return to Seattle (he has experience in property management). We are not in any hurry and we are willing to wait for a right condo at a right price. So here are the questions.
- From your opinion do you believe the condo prices will further decline in coming months? As I understand it that there are many more short sales and foreclosures that would affect real estate market in Seattle.
- What are the risks that I may have missed?
- If you and other members are in my situation, would you considerdoing this? If not, why not? If not now, when?
We’ve been struggling with this for a while now and we would greatly appreciate Seattle Bubble’s opinion. Thank you for reading this email and hope to hear from you soon.
Personally, if I had $250k to invest, I probably would choose a SFH in a suburb over a Seattle condo, based mostly on my aversion to HOA dues, and assessments. I’m also not sure how realistic it is that a $250k condo will be able to rent for $1,100+ a month.
That being said, if you have done the research, the numbers make sense, and you’re comfortable with the risk, it doesn’t seem like a terrible idea. To more specifically answer the numbered questions:
- It does seem likely to me that condo prices still have a ways to fall. Hard to say just how much since I don’t spend a lot of time researching that specific market. You’re right to be concerned about foreclosures, and especially so a the lower end like that.
- The biggest risk in your plan in my opinion is that a year or two in, you get hit with a big special assessment that eats all of your returns.
- As I mentioned above, if I were in your situation I would probably go for a SFH instead of a condo.
If you’re seriously considering becoming a landlord, here are a couple recent posts on the excellent personal finance blog Get Rich Slowly that I recommend you read.
What advice would you give to this reader?