Author Topic: Please Help Me Analyze A Potential Rental Property  (Read 1774 times)

rabbit

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Please Help Me Analyze A Potential Rental Property
« on: May 07, 2017, 04:27:07 PM »
I read here all the time but rarely post.  Iím in the process of purchasing a new home and have been contemplating whether to hang onto my current condo as a rental property. I've always wanted to own rental property, and this seems like a good investment to me. I'm hoping that the experienced landlords here could weigh in and let me know if this is a good idea.

2/2 garden style condo in a hot rental market
Purchased in 2005 for 109k
Owe 80k @ 3.25%
Worth 95k

Monthly Expenses:
Principal $181
Interest $217
Taxes & Insurance $195
Association Fee $175
Total: $768

Comparable units in my building rent for anywhere from $1150 per month for an un-renovated 2nd floor apartment to $1295 per month for a renovated 1st floor apartment. Iíve just renovated my place and plan to ask for $1250 a month (itís a 2nd floor unit, which is considered less desirable in this area).

Does it make sense financially to keep the condo as a rental? Or does it make more sense to sell the condo? 

SwordGuy

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Re: Please Help Me Analyze A Potential Rental Property
« Reply #1 on: May 07, 2017, 05:17:21 PM »
You going to manage it yourself or pay someone?   Paying someone could cost you $125 to $150.
Even if you plan to do it yourself, life happens, so keep that number in mind.

Vacancy %?   A month every other year will cost you 1/24 of the rent per year, or (rounded up) $55 per month.

What condition is the property in?  Brand new?   Or getting to the point where stuff will start breaking?
Let's assume 10%, or $125 per month..

Basically, if you sell, you'll get almost nothing out of it ($5k to $9k) after you pay the realtor and any other sales costs.  So, in effect, if you keep it, you're investing $5k to $9k into it.

So, for an investment of $5k to $9k, you're in a position to make a positive cash flow of about $152 a month, or $1824 a year.  Not a bad for a $9k investment and damn awesome for a $5k investment.   
And that doesn't include depreciation and mortgage interest which will shelter some of that income from taxes, nor does it include equity paydown by the renters.

If the above supplemental numbers are accurate, I would go for it.

Assuming I could handle a $5k to $10k sudden repair bill.

tralfamadorian

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Re: Please Help Me Analyze A Potential Rental Property
« Reply #2 on: May 07, 2017, 05:21:36 PM »
2/2 garden style condo in a hot rental market
Purchased in 2005 for 109k
Owe 80k @ 3.25%
Worth 95k

Monthly Expenses:
Principal $181
Interest $217
Taxes & Insurance $195
Association Fee $175
Total: $768

... plan to ask for $1250 a month...

Does it make sense financially to keep the condo as a rental? Or does it make more sense to sell the condo?

As a real estate investor this is how I would analyze the property as a rental:

Rent: $1250
PITI: $593
HOA: $175
Management (10%): $125
Vacancy (8.3%): $103.75
CapEx (5%): $62.50
Maintenance(10%): $125
Net: $65.75

Typically I take vacancy, capex and maintenance as 10% each but I reduced the vacancy as a nod to the hot rental market and halved the capex due to the responsibility of the HOA to maintain some of the big ticket items.  I do not invest in condos in most situations due to 1) the risk of special assessments and 2) the lower rate of appreciation compared to SFH in the same market.  Even if it wasn't, I would take a pass as I have a personal minimum of $100/door

SwordGuy

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Re: Please Help Me Analyze A Potential Rental Property
« Reply #3 on: May 07, 2017, 08:17:59 PM »
I wouldn't buy this property (or any condo! or hoa controlled property), but for a primary residence turned into a rental, it's better than most examples on this forum I've seen.  For one, it's actually cash flow positive.

If it's in really good shape and they're unlikely to need a major repair for several years, they might be able to sell in a few years with more equity.  They could cash flow the first $5k to $8k they receive in net cash flow in the market and be in about the same place they would be if they sold.

Now, if it's not in good shape or major repairs are likely in the next several years, ditch it pronto.

waltworks

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Re: Please Help Me Analyze A Potential Rental Property
« Reply #4 on: May 07, 2017, 08:44:45 PM »
Yeah, if you are familiar with the management and the reserve study (should be available to you as an HOA member) that will help a lot.

I'd keep it, as long as there aren't any terrible warning signs from the HOA finances/condition of the property.

-W

rabbit

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Re: Please Help Me Analyze A Potential Rental Property
« Reply #5 on: May 09, 2017, 02:43:03 AM »
Thank you all for the replies. I think I'm going to hang onto the condo and give landlording a shot. If I dislike it, I have the option to hire property management or sell the condo once I have a bit more equity.

adamcollin

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Re: Please Help Me Analyze A Potential Rental Property
« Reply #6 on: June 20, 2017, 03:09:35 AM »
Sounds great. Keep us informed on your progress as a landlord.