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Updated about 10 years ago, 09/15/2014
High End Condo Rental - First Possible Deal
Hey guys, been lurking for a bit and decided to make an account.
I am looking at a possible deal on a condo in a higher end neighborhood. Let me say that I have a relationship with the HOA and maintenance association that runs the neighborhood. It is a very stable HOA that has not had any recent assessments and have only raised the HOA fee a max of $10 in recent years. The condo is located in an area that has great schools and is a hot-spot for workers who commute to Philadelphia, PA.
Reasons why I am interested in this property:
1. Renting in a well to do area will decrease vacancy rates. Cheap place to live in high end area.
2. Maintence costs (besides HOA) will be lower because of quality tenants.
2. I can get close to top rent in the area.
3. Tenants will be easier to manage (will be managing myself while working full time job).
4. First deal and I have to put down 20% (FHA out of the question). There is not a SFH that I can buy in this high end area so cheaply.
5. Appreciation is likely, condo sold for 40k more than list price in 2006.
Okay so lets skip past the justification and get into the numbers.
Median Rent - Mortgage&Insurance - Taxes - HOA - Vacancy(5%) - Maintenance(5%)
1300 - 570 - 235 - 205 - 65 - 65 = +160
I know I can get this rent by posting fake ad on CL.
I'm looking for peoples thoughts on this deal. I feel like I need some verification to go through and put an offer on this property. I know its not the best deal ever but I think its a solid one with more upside than downside. Thanks!
I have concerns about condos because of the HOA costs, which is an additional cost that you don't have with other residential investments. First, let's calculate the CAP rate: Net Income / Purchase Price. In CA, we are happy with a CAP rate of 6% - 9%, but in the Midwest, you can get CAP rates in the 12% range. The bottom line is you need to calculate the cash-on-cash ROI for the first few years. I only invest in buy and hold investments that generate at least 10% annual ROI after taxes and depreciation. Feel free to contact me if you have additional questions.
God Bless You!
I am a fan if this if you have the capital to make it work. Assuming its a prime RE area, your 20 down probably is going to be pretty hefty. Agree with the investment thesis though. Lower maintenance requirements.
Originally posted by @Michael Evans:
I have concerns about condos because of the HOA costs, which is an additional cost that you don't have with other residential investments. First, let's calculate the CAP rate: Net Income / Purchase Price. In CA, we are happy with a CAP rate of 6% - 9%, but in the Midwest, you can get CAP rates in the 12% range. The bottom line is you need to calculate the cash-on-cash ROI for the first few years. I only invest in buy and hold investments that generate at least 10% annual ROI after taxes and depreciation. Feel free to contact me if you have additional questions.
God Bless You!
In the example that I provided what is my net operating income? List price for the property is 125k.
What you say makes sense but I haven't how cap rate factors in yet.
Originally posted by @Victor Eng:
I am a fan if this if you have the capital to make it work. Assuming its a prime RE area, your 20 down probably is going to be pretty hefty. Agree with the investment thesis though. Lower maintenance requirements.
thank you for the support, yes its around a 25k down-payment. About a quarter of what I am worth. I am interested to hear about the CAP rate issue that a previous poster has mentioned.
