Is this a good deal?

Question

Hi everyone,

I need some help. I am in the process of purchasing my first real estate property which is a 2B2B2G condo about 12 minutes from the airport in Houston 77061. The purchase price is 202K (25%down), 150 HOA, monthly payments will be 1350, and hope to rent for 2K. Since this is a remote investment, I think hiring a property manager is a good idea. As the closing time for the loan approaches, I am getting anxious about the investment. I find myself asking if this really is a good deal? Will I get stuck?

Bruce Lynn · Answer

Now I know virtually nothing of the Houston market, but I do know a lot about condos.  We don't know the name of your condo association or the exact location.  So I could be 100% wrong about your purchase, but in general I just want to pick apart this purchase from what I know.

I will be shocked if you can rent for $2000/month.  That seems super high to me.   I'd think at $2000/month that is probably the rent for a Class A, newer apartment including covered reserved parking and a lot of very nice amenities, in the hottest part of town.  My quick apartments dot com search shows 2bedrooms in that zip for about 1100-$1300/month.    Are you sure that is the right rent?   Did you get a CMA for the development and rent there?   $150 is super low on HOA dues.  How is the exterior maintenance and roofs?   At $150/month HOA dues I can almost guarantee you that you will get a special assessment at some point because there will not be enough money in the reserves to handle projects...pool, roof, exterior paint, fences, parking lots, etc.

Does the HOA allow rentals?   Were you thinking long term rental or STR?  Most condos I know about in the city don't allow STR and some don't allow any or only limited rentals, so make sure you've reviewed HOA docs and rules and regs.

Some people argue about it here, but in my experience and what I see condos typically don't make great investments....for a ton of reasons.  If your tenants don't behave you can get fined and have trouble...putting trash out on the wrong day, putting stuff on the balcony, disturbing the neighbors, parking in the wrong spots, some condos don't allow tenants to have pets, some tenants don't clean up after pets, and on and on and on when you get tenants residing a 2x4 away from the neighbor.   Are the units 2 story, or single levels....with one on top of the other?   If they are one unit on top of another then you can also have leak issues.  Either upstairs is leaking on you or your upstairs unit leaking below....so if you're lucky repairs can be a real issue.  Letting in contractors from above that you didn't hire into your angry tenants unit....or you're sending repair people from issue your tenant caused or is living with to another unit.  Think toilet stopages and overflow, leaks from grout, dishwashers, faucets, ice maker lines, etc.   Easier of course if it is two story where living is down, and bedrooms above it...and less complaints from heavy steps above.

You have to think about exit strategy too.   Are they warrantable?   Can you sell with FHA/VA financing?   How many investors vs owner/occupants in the building....that's on your resale certificate I expect.  Does any one owner own more than 20% of the units?  All those questions can be issue for resale.  If those are a problem or a potential problem, then your resale will have to be to another investor.....who typically want to buy at the bottom of the market, not pay a premium like a retail buyer would.

Where are the other units in the building selling?   How has the past 5 year history been?   Any part of it flood during the last hurricane?  Does your condo look the best in the building?  Totally upgraded with granite, kitchen, bathrooms, flooring, modern paint colors, light fixtures, door hardware, etc....maybe looking awesome might get you closer to the higher rent you want.   If it just looks "nice" but not spectacular then $2000/month might be tough today.

Good news is rents are going up in Houston area.  I'm guessing you have a great demand driver from airport.  Houston like most Texas cities are on fire with population growth.  Not sure if that is your demographic, but Orcale moved HDQ to Houston, you have med school there and MD Anderson and plenty of medical workers, big airline worker population, oil business great today, Exxon just moved HDQ there again, many other companies moving there.  Several colleges and universities.  May get some more LNG terminals to export NatGas around the world, not too far away from there.   So picking landlord friendly state, with high population growth, business friendly environment, and good rent growth might work in your favor.

Good luck and best wishes.

Danny Webber · Answer

check appreciation in the area, dom for leases, and talk to any pm co's that manage condos in the area

Wale Lawal · Answer

Just make sure your agent provided you with rental comps for your property, I will also advise to keep you numbers conservative.

Noni Trotter · Answer

Thanks for the cautionary words and for the encouragement. Despite my trepidation, I will proceed with the deal!

Seth Young · Answer

In my opinion, the management team is equally as important as the asset when investing out of state. The deal may look good on paper, but bad residents and management could turn this into a nightmare. I would ensure the team you are working with has a trustworthy and reliable reputation.

Mackenzie Grate · Answer

Based on what you said about comps, I'd run it with the lower end of that range just to be conservative. HOA fees usually go up in my experience 3-5% every year minimum. So anticipate that. If both those numbers work, then rip the bandaid off and do it! Even if it's not a home run, it will turn into one over time as long as you hold it for the long term. Don't analyze it to death and talk yourself out of it. As long as it pays for itself and a little bit extra, go for it. New construction also should come with some sort of guarantee so there won't be any major cap ex projects in the beginning...

Good luck!

Eliott Elias · Answer

Do you need to put any work into it or is it turnkey? Don't over think it! You got a good deal, you're going to cash flow and kill it

Noni Trotter · Answer

Thanks for responding and you raise good points that I myself have concerns about.

OK, So the Houston market is hot and the proximity of the condo to the highway and airport is a plus. This is a brand new condo with a target completion date of May 31. It has granite in the fully furnished kitchen and the bathrooms with modern paint colors, fixtures, and hardware. This is a 3-story condo that includes the 2 car covered garage below with common living space and bath on the middle floor and then 2 bedrooms on the top floor (1580 sq foot total).

The HoA is confirmed at 150 for at least 12 months but I know this may increase after. HoA will not allow short-term rentals. My ideal renter would be a young professional/s (DINK) in business, tech, or medicine. Rent comps for the condo complex were 1650-1800/mo for 2B  about one month ago.

I don't have all the other details you asked about but I will do more research.

Thanks again

Is this a good deal?

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