Author Topic: Need help evaluating this condo  (Read 2139 times)

BCar

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Need help evaluating this condo
« on: April 12, 2015, 09:17:33 PM »
I live in a city with fairly low property cost, so I've been looking into getting into a rental property. A condo has come up that I've found out is a foreclosure, so it's a great deal, (asking price is 18k less than a similar unit in the same complex) I'm just hesitant to move forward with it based on the fact that it's a condo and it comes with the fees and home owners associations and all that potential headache, and based on the fact that I don't want to get in over my head. If anyone has any useful advice to share, I would really appreciate it. Here's the breakdown:

Asking price: 45,000
Monthly mortgage payment with 20% down payment: $166
Potential rent: similar unit rents for $900 inclusive, or I could rent it for around $750 plus utilities.
Condo fees: $280/month. I believe this includes water and taxes, but I have to get more information when I meet with the Realtor.
Utilities: Average around $250, but I would try to go for the tenant paying utilities.

When I run the numbers, the place looks good, but I'm hoping that someone with more experience than me will have something to say.

iamlindoro

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Re: Need help evaluating this condo
« Reply #1 on: April 12, 2015, 10:06:15 PM »
Probably the best thing you could do is elaborate on exactly what you mean when you say ran the numbers, and what about the result made it acceptable.

From my own evaluation based purely on assuming everything in your post is accurate, it seems like it would be a good deal.  Much depends on whether taxes are included in the HOA-- that would be uncommon, but just because I haven't seen it doesn't mean such a thing isn't possible.  Also, based on your anticipated mortgage, I'm guessing you're running based on mortgage rates for owner occupied rather than investor.  Take the consumer rate you think you would qualify for, and then add 1% to get a good approximation of what you may get as an investor-- you might do better, but you might not.

Have you been in the unit to know if it's rent ready, or there would be repairs or improvements necessary, and if so, their costs?  What closing cost, insurance, vacancy, maintenance, and reserve numbers are you using?  Also good to evaluate with the cost of property management (10% of collected rents usually) even if you plan to do it yourself, as you should figure in the time cost to you, and assure yourself that it would still be a good deal if you move away.

All of that said, I'm not trying to overwhelm you.  If we assume the best case, or even a marginally less than best case, $900 rents on ~$45K purchase price (or even 50-60K after improvements, closing costs, etc) is a good find *based on the assumptions above being accurate*.  We (and you) need to dig in further, but it merits doing so.

Edit to add: $280 HOA is still an awful lot, though, and you'd have to consider the possibility of special assessments.
« Last Edit: April 12, 2015, 10:16:05 PM by iamlindoro »

adamcollin

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Re: Need help evaluating this condo
« Reply #2 on: April 13, 2015, 01:19:00 AM »
According to me it is a good deal.

Mrkineticz

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Re: Need help evaluating this condo
« Reply #3 on: April 13, 2015, 01:31:16 AM »
looks good to me as well.. i never pay for utilities I always make the tennants pay for it .. unless you are making alot of money off the top
i always look for housing that will pay for my mortgage and still be able to give me 250+ monthly in passive income. thats my general rule of thumb. If i cant make more than 250 a month in rent then its a loss for me

if you break it down

166 for monthly
166 taxes & insurance
280 hoa

BCar

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Re: Need help evaluating this condo
« Reply #4 on: April 13, 2015, 01:44:29 PM »
Thanks so much for all the great thoughts and opinions.

Probably the best thing you could do is elaborate on exactly what you mean when you say ran the numbers, and what about the result made it acceptable.

Right, I ran the $900 and $750 figures through the 50% rule and the 1% rule and they both came out showing a modest profit of around $200 per month at the lowest end, though I'm not sure how well these numbers work when you have to factor in condo fees.

I haven't done a more precise calculation yet because there are still a few variables like what the taxes and insurance would ad up to. Since the bank currently owns the unit, it's a little more difficult to get these numbers and I'll have to go digging if I want to find them.

Much depends on whether taxes are included in the HOA-- that would be uncommon, but just because I haven't seen it doesn't mean such a thing isn't possible.
You're probably right. The only reason I assumed was because I'd seen it once before in the past (or at least I thought I had) and when I I asked another realtor for information regarding a different unit in the same complex, he sent me a spread sheet that included gas, electricity, condo fees, but not taxes or water. I moved forward with the assumption that both were included in the fees, but I'm probably wrong about the taxes. From what I've seen with condos in the city, water usually is included.

The tax rate in the city is 1.5% for residential areas so I would add $75 at most for taxes, assuming the building is evaluated at 60k.

  Also, based on your anticipated mortgage, I'm guessing you're running based on mortgage rates for owner occupied rather than investor.  Take the consumer rate you think you would qualify for, and then add 1% to get a good approximation of what you may get as an investor-- you might do better, but you might not.
Good point! Hadn't thought of that.

Have you been in the unit to know if it's rent ready, or there would be repairs or improvements necessary, and if so, their costs?  What closing cost, insurance, vacancy, maintenance, and reserve numbers are you using?  Also good to evaluate with the cost of property management (10% of collected rents usually) even if you plan to do it yourself, as you should figure in the time cost to you, and assure yourself that it would still be a good deal if you move away.

All more good thoughts that would occur to a more experienced investor, but mostly escape the attention of a novice like me.

The place just came on the market so we're going to see it this week, but based on the photos it looks to be in decent condition (carpets don't look overly worn, no holes in walls, everything looks more or less clean.) I'd probably spend a hundred or so freshening the place up, but I'll have to wait until I actually go see it to make a real verdict.

As I mentioned above, I used the 50% rule to estimate vacancy, management and insurance.

For closing costs, I mostly used the figures from when I purchased my own home, so they may be off for a non-owner occupied residence. My estimation was basically this:

Lawyers fees: $1000
Inspection: $350
Land transfer tax: $225


Thanks again for giving me all this information to think about. I'm going to try to get more information about the place when we go to see it.

waltworks

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Re: Need help evaluating this condo
« Reply #5 on: April 13, 2015, 05:02:40 PM »
The biggest thing to watch out for with distressed condos (or townhomes, anything with an HOA) is that the finances of the HOA may be in horrible shape (because the owners got foreclosed on and often didn't pay their dues for years before the property went back to the bank). Check that VERY carefully (ie, get a copy of the reserve study and their financials) before pulling the trigger.

Otherwise, sounds pretty decent.

-W