Would you do it (Denver area)

Question

So one of my old co-workers is selling her condo, Its 3 be 3 bath 1100+ SqFt. Its off of Illiaff (c to d area) Shes willing to sell it to me for 70k, It has almost been completly remoddled (1 bat kitchen and some other things) and will need about 10 to finish it up. The ARV would only be about 80k or so. Im looking at this as a buy and hold property. From my understanding, Condos in this complex are going for 12 00-1500 per mo including the 400 a month HOA fees (that covers all utilities and basic cable).  was thinking I could move in and live in while I fix it. It would shave about an hr off my drive time and if I rent it for 1200 I would be looking at a positive flow of about 400 pr mo

Linda Weygant · Answer

$400/month HOA?  Do they bring you coffee in bed every morning???

Micki M. · Answer

@Jake Holmes

I'll tag onto Bill's comment about financing, and say it's not difficult to find financing for those properties, especially if you're going to move into it initially.  Owner/renter occupancy rates don't matter if you're moving in as an owner.  However if you want to buy it as an investor you will need at least 25% down.  If you need a conventional loan or a portfolio loan if it's non-warrantable I'm happy to make recommendations.

$400/mo HOA on a $70k condo seems excessive so you definitely want to do good due diligence on what's included and what the financial strength of the organization is.

Jake Holmes · Answer

Sorry works been crazy. A few things. Its not central air from my understanding and has a furnace in the unit, The $400 per mo HOA fees pay for the HOA as well as all utilities and basic cable so to me its not to bad. I would pay the fees but the rent would also reflect that all utilities are included. Since the unit is updated I would assume it would bring in the upper part of the 12-1500 range. I have been told there is a fair number of section 8 renters moving in

@Jean Bolger Thank you, I will ask fo a copy of the finance statements

@Scott Trench I plan to roll some of the rent payments into the principal of the loan to build equity, That or just take the positive rent flow and save on it for my next purchase. Thank you for the link, Ill make sure to read it as soon as I can.

@Bill S. I planned on doing a conventional morgage and live in it for a short time and then go from there.

Micki M. Thank you, Im open to reccomendations as this will be my first ever purchase.

Jake Holmes · Answer

So I have done some more research on this complex. It is a solid D neighborhood. With that said rent is still sky high. They post the monthly statements online and have roughly 400k in a coffer. There are complaints about the water system and the HOA being a good ol boys club. Thats the main complaints I have seen. I have also found a couple of condos in the complex that are 2/2 selling for around 95k so I think there may be more equity in there. I need to do a walk through and get the ball rolling.

@Bob S. I would most likley keep it as cash flow instead of selling

@Brandon Hopkins I woulf be slightly more heasitant but most likley yes. While I know her, How she takes care of things is of more intrest to me.

@Zach Adams Its mostly remoddled. It still needs carpet in some areas, Crown molding (ill prob leave out if I can) and 1 bath finished.

Bob E. · Answer

Once you pay it off, if you want to sell you can do so with owner financing.  that gets around a lot of problems.

Bill S. · Answer

@Jake Holmes based on what has been said, the only thing I would add is, how are you going to finance it? The complex you described is probably largely investor owned and as such many of the low down payment government backed programs won't lend to you for the purchase. At the same time when you turn around and decide to sell, you won't have nearly as many buyers.

Scott Trench · Answer

If I were considering this property, I would want to ask the following followup questions:

1) What are the rents?  $1200 - $1500 is a pretty huge range for condos in a complex and result in a 75% swing one way or the other in your cash on cash return from the low to high end.  Compare the rents for condos of the same square footage and bed/bath.  I'd expect that with some more due diligence you could get much more specific than with that range.

2) Per my understanding, it would be very unusual for the tenant to pay the HOA fees.  Those fees are usually incurred by the homeowner.  I would definitely want to double check that.

3) If the ARV is $80K and you are buying it for $70K with the expectation of putting $10K into it, that creates little value.  Do you expect to create value in some other way?

I've found it so difficult to find strongly cash flowing condos in the Denver area that I've stopped trying.  Aside from the lack of cash flow, there are other factors at play, which I believe put the intrinsic value of condos at risk over the next decade or so.  Those issues have been debated extensively, including in this thread here:

http://www.biggerpockets.com/forums/311/topics/188984-denver-condos-and-construction-defects-law

Jean Bolger · Answer

A 3/2 in Denver for 80k is a good deal right now - BUT _ the strength or weakness of a condo investment depends very much on the state of the HOA. If it is financially sound and well managed you could do just fine. But if it's struggling, you could end up with a deteriorating property and some really expensive special assessments. As a buyer you are entitled to get the HOA financial statements and you should always make approval of them a contingency in your offer. Those condos with the heat included means that the buildings are on central boilers. You need to be sure the HOA is putting aside sufficient reserves to replace those, in addition to addressing all the other repair/maintenance issues.

Would you do it (Denver area)

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