How likely is it to find an investor to buy a condo if the annual ROI is about 7%?

Question

How likely is it to find an investor to buy a condo if the annual ROI is about 7%? I own a Chicago condo with no mortgage. It is not in need of any repairs or maintenance. There is a long-term renter who has just signed a lease extension through Fall 2016. Annual rental income is $10,800 and annual expenses (assessments, taxes) are $4,600 making annual net income $6,200. If my math is correct, an investor who would buy this at $90,000 would make 7% per year plus any price appreciation. My questions are: How likely is it to find such an investor? Are there real estate agents who specialize in this type of situation, or whom would be best to contact to help me find a buyer? Thanks for any suggestions on how to get started with this.

Richard C. · Answer

What exactly are you including in expenses? Just assessments and taxes? Nothing for vacancy, nothing for property management, nothing for the capex (the eventual replacement of flooring, appliances, etc? Presumable the bigger stuff is covered, since this is a condo.)Because if you are not accounting for those expenses, than the ROI is not even 7%. In fact, it would be entirely possible to lose money.

Tyrone Jackson · Answer

Account Closed Let me give you some insight on how I look at financial return hurdles which may be similar to other investors. The return you calculated is before financing costs which would effectively equal the return % if I paid cash. For me, I like to see that number closer to 10%. But most investors, myself included, prefer to use leverage and not pay 100% cash and when calculating the income as a percentage of my cash outlay for downpayment (and renovations when applicable), I want to see that number closer to 20%. So in the end, I want my cash to be generating close to 20% and the investment property overall (before financing) to generate close to 10%. With that said, your purchase price would have to be significantly lower for it to make sense for me to make that investment.As for finding the list of non-resident owners, you can use a service like listsource.comYou are doing the right thing by learning. I would say your best target market after the other owners in the building is likely retired individuals who invests in low maintenance income properties and would be happy to earn in the 7% range. Maybe talk to some brokers to see if they have any buyers in that range.Good luck!

Account Closed · Answer

Will, the tax assessor's website shows the owners of each unit, but it does not show contact information for the non-resident owners, who would probably be my best hope to selling to an existing investor in the building. Do you know if there is such a thing as companies who specialize in this type of situation? By that I mean a firm that would have a list of investors who are looking for the opportunity to buy a Chicago condo that already has a long term tenant under lease? Thank you.

Account Closed · Answer

Thanks Kelly. I'm not sure how I could get contact info for non-resident owners who are renting their units out. I had thought about doing a mailing to the 84 units in the building, but that would only reach residents and in most cases not get to the actual owner of the unit. I did contact the management office but they were not willing to give me contact info for owners who are not living in the building.

Account Closed · Answer

Thank you Ryan. I have had it on the MLS (08928408) for about 7 weeks, but I'm wondering if there is more that I can do to market it to investors rather than people looking for a place to live. I do agree the ROI is not overly impressive. Some positives are that sale prices in the building have been going up about 10% per year since they were at their lowest several years ago; low monthly assessment of $245; the building is fully occupied and about 50/50 owner/renter. It's been a good source of income for me since I moved out about 8 years ago, but I'm at a situation in my life right now where I need the cash, and I'd much rather sell as opposed to borrowing against it. The condo's mortgage is fully paid off. Thanks again.

Tony Hardy · Answer

also did you knock on the door to the people with the condo next door on either side above and below. They may be looking to expand and the unit may be more valuable to them.

Tony Hardy · Answer

Not a bad looking condo and in a decent location. Have you attended the meetup said at Dinos pizza? You may be able to pitch the deal at the shark tank there other meet ups listed in BP have them also. Have you consider reducing the price? The main reason for lack of activity is often a high price. What are other condos in that building in the market for. What were the last 5 sales in your building. Where those Inestor prices or owner occupied prices? I think you're at 99K saying 90K is a 7 cap. You looking for an investor must be priced with some meat on the bone... Can you reduce it any

Ronan M. · Answer

Hi MalgorzataWhy focus on selling to an investor ? An investor will have no emotional attachment and will only want to buy low in order to make money. Maybe focus on potential homeowners (somebody who wants to actually live there) and who will have an attachment to it, make it their home and be willing to pay more money. Maybe spend a little on painting, staging, upgrade appliances if needed. I understand that might be difficult if the unit is currently rented but if you want top dollar (who doesn't) it might not be from an investor. Could you incentivize your tenant to leave ? OK you might lose a month or 2 in rent and some cash to polish the place but that might more than pay for itself in the selling price. Just a thought. Best of luck.

Michael L. · Answer

Listen to this.I think every would-be seller on Craigslist does this. Gross rents minus taxes and insurance does not equal profits.

Shawn Davis · Answer

Hi Malgorzata - I see that you are focused on the owners in your building but don't overlook the renters as potential purchasers. Renters have seen the reality of having their rents increase dramatically over the last few years and are looking for ways to regain control. Drop your letters with the current residents and post the info on the lobby bulletin board if there is one. My last two sales (in Chicago actually) were to my long term tenants.Much success!