First time buyer! Going rental

[Michael Lanci]

Hello I’m attempting to get into the world of real estate through long term rentals. 

The unit I’m interested in is currently sold turnkey and the tenant plans on staying for another 2 or so years and have been consistently renting for the past 3. The current owner brags about how there has been barely any issues with the tenant. 

Since it’s my first time buying I’m a little bit nervous about if all my numbers are working and if I’m missing anything. 

I plan on putting 35-40k down and have around 10k left for closing costs. 

This is a 2 bed 2 bath condo in an HOA. I'm trying to come in at 230k.

Here are some additional numbers, I think should be accurate. These are monthly-
83$ insurance 

432$ HOA/Condo fees

183$ Property taxes

I can likely get 1700$ rent. 

When I put these numbers through the BP calculator I'm getting around a 180$ cash flow with 4.8 CoC ROI, if I put 35k down.

I know it’s all about what I’m comfortable with but I guess I’m nervous about some unexpected costs during closing that I didn’t account for which makes the cash flow lower. Like taxes are higher or insurance isn’t what I thought.. or I get a 3.5% mortgage instead of 3%. 

Someone tell me to just do it! I think this is a great deal.. new roof less then a year old. Great tenant,  turnkey in a great community. Getting cold feet because of fear of unknown. 

[Brenden Mitchum]

Hey @Michael Lanci, welcome to the BP community!

Warning: I am going to be very blunt here. 

This does not sound like a great deal to me, at all. The reasons you listed that make this a great deal are:

1. new roof: wouldn't the association pay for this anyways if it's a condo?

2. turnkey: you've been inside the unit and know this for sure? chances are you will have some turnover to do when the tenant moves out in a couple years. Even if it's just paint and cleaning, there goes about a quarter of your $180/mo cash flow from the past two years.

3. great tenant: how do you know this? have you seen rent roll or anything to prove on time payments every month? have you met them? what about the lease - is that solid if they aren't great tenants after all?

4. great community: maybe but chances are if it's a desirable community, they're going to raise that HOA fee at some point, right? What if they just bump it $50? There goes over a quarter of your cash flow.

Maybe if you were buying in an area highly likely to see appreciation, this might make sense. But, condos don't typically appreciate like SFRs. Are you at least buying at a discount? What is the exit strategy if HOA fees go up or there's some other hidden cost that quickly drops you into the red on cash flow?

You just don't have much, if any, wiggle room here. Maybe I am missing something, but no way I'd invest tens of thousands of dollars into a deal like this. Obviously, we all have different criteria and goals but chances are good you can find a better deal than this. Shoot, you can get better returns investing in the S&P500 (obviously you won't learn jack about real estate but still).

This is definitely not what you wanted to hear but I hope that it helps regardless. Please, feel free to reach out anytime if you have other questions or just want to chat!