Condos are a difficult to flip these days, for a number of reasons:

1. Many buyers prefer houses, and in today’s down real estate market, you can get a single family home for the same price as a condo in many areas;

2. Investors aren’t buying condos these days before of the association rules that limit the number of units in any particular building that can be rented at once. Because so many owners need to rent these days, investors are scared that if they buy a condo unit, they won’t be allowed to rent it;

3. Condo association fees tend to be very high, and can make owning a condo disproportionately expensive compared to a single family home.

All that said, if the association fees aren’t ridiculous, if you are confident you can find a buyer at your targeted price, and if you have a backup exit plan in the case the flip doesn’t work out, it can’t hurt to try. Plus, the Buckhead area is holding its value pretty well, so if you’re going to flip a condo, that’s as good a place as any to try.

Just double check that the numbers work before you jump in…

Yes, the 40% expenses includes the property taxes. In general, I like to assume that expenses (including vacancy) will come to between 45-50% of the gross rental income, with the remaining 50-55% left to cover the mortgage and profit.

Check out the 50% Rule: http://www.123flip.com/education/the-50-rule

I got the same result of yours after draft the calculation below.

1) Cash Flow:
netcome(after Tax): $1050 * (1-8.3%)*(1-40%) = $578,
mortgage: $506
1st year net Cash Flow: ($578-$506)*12= $864

2) Equity Accrual from Loan Payments (end of 1st year):
($80000-$79106)= $894

3) Cash-on-Cash Return: 7.43% = $864 / $12000

I am interested in this because I am in the middle of a bid war of my 1st REO property listed at $39.9K. I offered 52k. It is a legal 2-unit multifamily house with the third unit in the attic. The ARV is about 100K to 120K for the normal comps ( very close to your assumption). I was hesitating whether I should go forward if the seller accept my offer because I am afraid of running out of cash. Now that if I can take the cash out after the rehab by financing, I think it probably is not a bad one for me after I hold it for 5 years.

You calculation is very helpful on my ongoing bidding. I greatly appreciate it.

BTW, I think your assumption of “Expenses: 40% of Net Income ” includes the Property Tax, am I right? what is the Property TAX in your assumption? The one I am bidding is $3233.

Thanks

Yes, this is exactly the intent of the scenario. Of course, many buyers wouldn’t have the cash to purchase the property outright, and would likely need to figure out a financing strategy that worked for them, but because everyone will be in a different situation, I didn’t want to assume any particular financing strategy.