THINKING ABOUT CONDO -- A GOOD DEAL (FOR CASHFLOW)?

Question

Hi,

To get my feet wet, my first buy might be a condo I found. I live in NY so yes, taxes are high in my area . When I use the BP calc it all makes sense on paper.  Any advice would be much appreciated. Especially after reading

Condo in very good shape in desirable community with a good reputation.  1/1, 970 sq ft. Can purchase for 58K as is. Would put in 10-12K for reno (kitchen and bath). Units with updates have sold for 78-83K in the past 18 months.  Updated units are currently renting for 1175-1200. Even if I rented for 1100 it's positive CF.

Attached is screenshot of BP calc. Like I said taxes are high in my area. HOA is 268. Development has great pool and it's a very clean property, well maintained, with many units (in the event of special assessments).

After reading Ben Leybovich's article, I'm being cautious.

Thanks, all!

Steve

Brian Garrett · Answer

You said you can buy it for $58k but your spreadsheet shows purchase price of $56k.  You also said rehab is $10-12k but your spreadsheet shows the rehab at $10k.  It seems you are planning based on a "best case scenario" and not a "worst case scenario" when crunching your numbers. I would suggest doing the opposite and playing more on the side of conservative and cautious.

Steve Heffner · Answer

This has all been very helpful, everyone. Thanks much. I made an offer and I'll see how it goes. If anything goes awry, I'll pull back the offer.

Thanks, again...BP community is clearly a great asset to this experience.

Steve

Steve Heffner · Answer

Tom, Michael, and Frank: Thanks so much for the great info. This will all be brought up tomorrow and will play into my decision-making process.

One last thing: is it out of line for me to ask to speak to the head of the HOA, if need be? And I demand the 12 months of minutes, HOA bylaws, etc. after making an offer, correct? Then if things are going as planned, I revoke the offer?

Thanks, again!

Steve

Frank Chin · Answer

That would be a good idea if it could be arranged. But get the paperwork first.

When I went to one of my closings, the attorney insisted on a board resolution the unit was a rental. We never got it in writing. Good thing the condo was 15 minutes walk away, so I had to go to his home of the HOA president where he wrote up the board resolution. He is a retired attorney.

Good thing too, several times over the years, the PM company sent a letter asking me who gave me the authority to rent, I produced the resolution and the cover letter, and they said "oh, its good, so and so approved it."

Frank Chin · Answer

One more thing.

If you ask for minutes of the HOA, make sure there's no mention of special upcoming assessments. The condos I owned had historic designation. so when its time to replace the roof, it'll cost over a million. With 104 units, that'll run about $10,000 a unit.

While I was happy with the $150/month cash flow, $10,000 will wipe that out very quickly. And the HOA is real fussy about what color you can paint the front door, decorations you can hang during the holidays. It finally got to be a little much for me when they start to approve my tenants.

Michael Bracken · Answer

Pay close attention to expenses on this one. I have to file with the city, pay fees and have an inspection to meet code before I can legally be a landlord in my city.

Steve Heffner · Answer

Frank,

Thanks for the advice. The realtor mentioned there can only be a certain amount of rentals in a complex but is sure this is good as a rental. To be on the safe side, I'm checking this all out on Monday morning before proceeding.

Thanks, again...

Steve

Frank Chin · Answer

Did you check the HOA bylaws regarding rentals? That's the most important thing if you do condo rentals. I invested in condos a while back but don't anymore.

Some condos want to restrict the rental units at or below 20% of the total units so buyers can qualify for conventional mortgages. To do that, they have to approve it as a rental unit.  I did OK for a while with my rentals till they came out with another rule where they have to approve each tenant. They didn't do that originally, but require it 10 years after the purchase, which is bad for me because tenants can't sign a lease with me unless the approve it.

It gets a little tricky if you want to owner occupy for a while, and move on and rent it out. They may or may not approve it as a rental depending on whether the rental units overall is over 20%.