Expert: Connie Wildasinn-Broker,GRI,Realtor® - 1/8/2010

Question
QUESTION: I was wondering if a studio condominium is a good investment when it comes to resale value? I have found a condominium complex in that I really like. They have a studio and a 1 bedroom for sale priced at $125K and $150K respectively. This will be my first real estate purchase, and my goal is to sell this property is the next 5 years or so for enough profit to use as a down payment on my next, bigger home. The lower price of the studio attracts me but is the extra cost of the 1 bedroom condo worth it when it comes time to sell?

ANSWER: Good morning Mike...

I will assume that you are paying substantially less for a studio from a 1 bedroom? When you buy, take all in to consideration... you will always pay less for less... less in size, area, tract location, amenity... the more you get the more you pay... but that said a tenant will not always pay more than the going rate to an area... you can have the greatest place and still only be able to get the rents of the surrounding units...

On your studio deal to one bedroom... figure out the difference from the $25,000 and what you get in rents... if the difference is substantial and you are planning on holding the unit for some time (a long term capitol gains position) then you are better off most likely paying the for a one bedroom... you will be able to sell faster also... in fact a 2 bedroom would sell better than a one bedroom and a 2/2 better than a 2/1  get the picture...

But if the rent difference is negligible then buy the smaller... on all investments you just have to run the numbers... it is a number crunching game...

ps on the selling in the next 5 years for enough to make a down payment... don't count on the market place going crazy again... we are slated for slow growth for a long time coming and real estate to take a much more traditional 5-8% gains per year in the future... please speak to your tax adviser and financial adviser!

---------- FOLLOW-UP ----------

QUESTION: Hello again Connie,

Happy New Year to you! So here are some recent developments in my real estate search. My offer on the short sale for the 1 bedroom condo has expired, and I have decided not to proceed with reinitiating another offer. The studio in the same complex which is bank-owned has had no offers in 2-3 weeks and has dropped in price from $125K to $105K.

The FHA down payment requirements and the amount of closing costs the seller can pay for are set to change in February. Once these changes take effect, it will severely limit my buying power for any propertiesin the near future. This leads to my question. If this studio is the only unit I both like and is in my price range, is it worth it to offer lower than what the bank has already discounted the property to? In other words, is it worth it to buy this studio if I do not want to rent it out but only want to sell it in the future?

I am quite content renting and waiting out the market for lower prices, but I am wondering if I should make an offer on this studio as one last ditch effort. Thank-you in advance for your guidance.  

Answer
Hi Mike...

Hope the dish this afternoon helped you to make a decision... I would do the deal.. but also like I said... a good real estate portfolio will keep you in the back for decades... and that always makes a good investment... you have so little vested in this price... hold and soar... good luck with all!