Author Topic: Buy a rental condo or not?  (Read 3297 times)

GoCubsGo

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Buy a rental condo or not?
« on: October 31, 2014, 10:59:34 AM »
Having a hard time pulling the trigger on a condo rental as I've only owned SFH up to this point.  Looking for advice from others who own condos to see their thoughts.  SFH in my area have appreciated to the point where they don't make sense as rentals.  I have $ sitting around which I want to add to my rental portfolio but haven't been able to spend.  I'm concerned with turnover and quality of tenants in condos and if others here can compare/contrast to their SFH rentals. 

Decent association. I almost bought in this building 2 years ago (got outbid) and prices have climbed 20% since then.  Maintenance costs would be low as I will be fully rehabbed at the $75K purchase price.  Cash on Cash rate of 15%.  I can't touch that kind of return in any property but condos locally.  Not sure why I have a bias against condos but I'm pretty sick of having cash sitting around at this point.  Anyone happy/not happy with condo rentals?  See stats below.....

Market Value: $80,000
Original Purchase price: $75,000
Original Mortgage Amount: $55,000
Interest Rate: 5%
Mortgage Term: 30
Term remaining: 30
Amount remaining on mortgage:
Gross Rents: $1,200/mth
Principal and Interest (the P&I of your PITI - should match with the above info): $294
Taxes and Insurance (the T&I of your PITI): 300
HOA costs:270
Deferred maintenance notes:
Anything else special or unique in regards to the numbers of the property (not the property itself; things such as city assessments, back taxes, special costs due to unique features of the property, etc. etc.):

arebelspy

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Re: Buy a rental condo or not?
« Reply #1 on: October 31, 2014, 11:27:43 AM »
I'm biased against condos too, but that's one of the better numbers I've seen.  It's a borderline buy if you have to have in your area and nothing else makes sense.

Check the condos financials - how healthy are their reserves?  How often do they raise fees? 
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GoCubsGo

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Re: Buy a rental condo or not?
« Reply #2 on: October 31, 2014, 12:28:30 PM »
Reserves have gotten better the past two years as most of the foreclosures were bought by investors (this one is a foreclosure) and bills are being paid.  Most of the big ticket projects were done during the boom in 2007 (roofs/balconies).  As a Realtor, I put an out of town investor client into 3 different condo developments in this area and he has been extremely happy (he's getting 20% plus COC as he bought last year).  I handled a couple of the rentals for him and the quality of the tenants apps was about the same as I see on my own SFH (high volume of apps many terrible but always a couple good solid ones to choose from in the end). 

I've had such good luck with long term tenants in my SFH's over the last 10 years that I've been spoiled by low turnover (self managed).  I also don't like things being out of my control with condos (board votes to limit or eliminate rentals have been popular in my market now that we've gained back so much appreciation).  I do like that I can leverage with a mortgage and my buy in is pretty low (compared to the $200K SFH I normally look at).  Investors have been snapping up units in this building for cash so if I can get it leveraged I'll most likely have to pull the trigger as the area rents are always strong.  I wish I didn't have this aversion for condos as there were a lot of great deals the past few years that I've passed on.

SunshineGirl

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Re: Buy a rental condo or not?
« Reply #3 on: October 31, 2014, 01:51:42 PM »
What bugs me, looking at your numbers, is that for a property worth $80,000, you will be paying a minimum of $6840 FOREVER in taxes, insurance, and HOA fees, and you know all of those will only go up. Part of the beauty of owning income property is that once the mortgage is paid off, your cash flow goes up substantially, and that won't happen in your case.

arebelspy

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Re: Buy a rental condo or not?
« Reply #4 on: October 31, 2014, 03:15:53 PM »

What bugs me, looking at your numbers, is that for a property worth $80,000, you will be paying a minimum of $6840 FOREVER in taxes, insurance, and HOA fees, and you know all of those will only go up. Part of the beauty of owning income property is that once the mortgage is paid off, your cash flow goes up substantially, and that won't happen in your case.

That only matters if paying off a mortgage is your end game.

But yes, with a mortgage payment so small, your cash flow won't go up much when it's paid off.

You could look at the plus side of it not going up much when it's paid off: that means you're already getting most of the cash flow now. ;)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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GoCubsGo

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Re: Buy a rental condo or not?
« Reply #5 on: November 01, 2014, 04:48:13 PM »
Yeah, taxes are pretty ridiculous (but it is a great area which drives the strong rental rates).  All condos have HOA's but that does almost "pre-pay" the big ticket items that will eventually need replacement.  I don't have any interest in paying it off early as the leverage will allow me to purchase more properties. 

These condos sold for $140K at the height of the market if they get back to low 100's in the next ten years that's a pretty good return on $20K invested.  If I sold in 10 years at $115,000, I would clear  roughly $35K on appreciation and another $25K in accrued cash flow (plus the mortgage getting paid down plus tax breaks).  If it goes down in value or doesn't appreciate at all then I just keep renting it at a solid profit.

arebelspy

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Re: Buy a rental condo or not?
« Reply #6 on: November 01, 2014, 05:50:20 PM »

All condos have HOA's but that does almost "pre-pay" the big ticket items that will eventually need replacement.  I don't have any interest in paying it off early as the leverage will allow me to purchase more properties. 

I wish. I see a lot of times an HOA have higher than necessary fees, piss it away on staff and unnecessary things (painting when none is required, for example), and then need special assessments when big things come up that should have been anticipated. This can be, as you'd imagine, quite frustrating. :P
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

SunshineGirl

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Re: Buy a rental condo or not?
« Reply #7 on: November 02, 2014, 08:05:06 AM »
I was just visiting someone who lived in a very affordable condo - something like $50K for a decent two-bedroom in a safe neighborhood. They have a high monthly fee, something in the $300 range, but it includes heat & hot water. However, the common areas are so dated that it's actually depressing to be there. You feel like you're in a time warp. On the day I visited, neighbors were talking about the $600 assessment the HOA wanted to charge the following year to update one common area. The work sorely needs to be done, but no one wants to spend the money, AND the president of the HOA does not seem to be trustworthy with money. Which has required the people I was visiting to have to involve themselves in the HOA, which isn't something they'd prefer to do and brings its own set of demands and personality clashes.

I'm not sure what my point is. Only that it all seemed like one big headache to me, having to deal with an HOA all the time, and so if you can go to a few HOA meetings before you decide, that might give you some insight as to what it would be like to be an owner there. 
« Last Edit: November 03, 2014, 02:05:08 PM by SunshineGirl »

BlueHouse

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Re: Buy a rental condo or not?
« Reply #8 on: November 03, 2014, 10:50:23 AM »
Yes! please buy mine.  I'm tired of the HOA fees that I cannot control.  I have a great tenant, but I'm cash-flow negative.  Prospects look good for increased value within 3-4 years (train line will land a few blocks from the building).  I am a horrible landlord and I can't stomach the risk associated with it. 
Unfortunately, I'm not in your area or budget. 
I really have no useful advice, but it felt good to get that out.  :)