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Offer Accepted for Condo Purchase

The condo story continues – read from there to get a better picture. In this post I’ll talk about the condo purchase offer which finally was accepted.

Buying a Condo in Portland, Oregon

The condos I have looked at so far are all in the NW neighborhood of Portland. It’s a safe neighborhood, easy to rent out to residents or medical students and I am close to grocery stores, a library, and public transportation.

I tried looking for affordable neighborhoods for single family homes. St. Johns was the best neighborhood that still met the criteria above with decent access to central Portland. Unfortunately, once I checked out the neighborhood and walked around I got a less favorable vibe. For $250k I could get a very nice house, a ranch style which requires minimal maintenance.

I am not sure if that purchase offer would have been accepted – it was a ranch-style home in HUD which is a whole other purchase process.

Home Prices in Portland

In the NW, homes can be had for about $450k but they generally need a little work and are not low-maintenance homes. Spending half a million dollars on a house doesn’t mesh well with my financial plan for early retirement, so that option is out of the question.

Condos in the NW are in the $175-200k range. There are a few that pop up in the $150k range on occasion. The HOA’s here are in the $200-300 per month range. Taxes are approximately $2,000 annually. I was fortunate to find a building that met all my criteria and beat these prices. 

The Condo Purchase Offer

This building has about 70 units, it’s in the NW and HOA’s are in the $160/mo range. Taxes for this property are right at $2,000/yr. The unit has a washer/dryer and it’s a studio. It’s on a busy street and so it’s loud on the inside with the windows down. Despite this, the unit is being rented by tenants currently for around $1,000/mo.

The above figure shows what the a real estate investor would be calculating to determine overhead. So, to make this an income property I would need to make over $990.50 per month in order to turn a profit. This is assuming I would have a mortgage of $112,000 at 4% for 30 years. The income wouldn’t be very impressive, I would pocket maybe $60/mo. Hey, at least it’s a positive cash flow!

Upfront Costs

The above numbers would be for a total investment of $32,500 upfront. That includes the down payment for the mortgage, some money to ‘prep’ the place and closing costs.

Sure, I can get more detailed and say that $32,500 invested in stocks/bonds might make me a passive income of $100/mo. However, the condo may also go up in value once I decide to sell it.

What if I paid cash for the unit? I would have lower closing costs and no mortgage. In fact, as I’m updating this post in 2021, I did end up paying cash for it after my condo purchase offer went through.

Investing the Cash, Instead

With an overhead of $456.50 per month I could profit nearly $594 per month. I would have to pay some taxes on this and the numbers all depend on various factors such as the vacancy rate and repairs that may be higher some years and much lower others.

This is all speculation of course but once your purchase offer goes through, these are the thoughts worth having so that you can assess whether you’re making a good decision, overall.

The other factor to consider is what that $140k could do if I invested it. If it could generate let’s say $800/mo then it wouldn’t make sense for me to pull it out and invest it in this rental income. However, after discussing this with my financial adviser the $140k could generate maybe $525/mo over a long enough period of time if invested on wall street.

My rent currently is right around $750 per month. So this condo seems to be an overall good purchase. I likely will move into it once the current tenants vacate. I feel good about it so we’ll see how the numbers actually play out.

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