Cities where condos cashflow or breakeven with 25% down??

Question

Hi All,

Am looking to purchase a condo and rent it out as long term investment. Looking for grade A neighborhoods in cities across US.  Goal is to buy and hold long term in good neighborhoods that attract good quality tenants .

Can someone recommend cities across US where it is possible to cashflow or breakeven  on condo investments in grade A neighborhoods?

Budget can be up to $1M but  according to my research, it appears that the more expensive the condos, the more difficult it is to breakeven as a rental property in good quality neighborhoods.

Agents, brokers, wholesalers, all welcome.

Thanks

Marc Jolicoeur · Answer

I would look at townhome condos in A and B class cities with very strong employment markets, and good schools.

The long term maintenance is pretty simple.  An occasional hot water tank, dishwasher, or garage door opener.   You may need some repairs, paint and carpet every few years.  All of this can be handled remotely if you hire a property management company.

I also like townhomes because they are more affordable and builders today are not building as many of them like they did 12 years ago.  Inventory is low and there will always be a strong demand for cheaper housing if ever you decide you would rather not hold your property anymore.

The risks are

1) They crash / correct harder than single family homes in a housing market crash.    The neighbors get foreclosed on more than typical neighborhoods and that keeps values lower for longer.

2) HOA association decides to levy a $20K assessment on all owners in the neighborhood in order to upgrade everyone's windows, decks, roofs, and siding.

3) HOA increases monthly dues by $250 per month in lieu of a large special assessment.

Bruce suggested that Minneapolis might be a good city for this type of investment. I say probably look somewhere else where you can get a better deal.  Right now townhomes in our metro have 1.3 months of inventory and its the tightest market ever.

I was successful in getting one last May that has an 8% cap rate and 11% Cash on Cash return after 25% downpayment, and assuming property management.

However it took me about 100 offers over 14 months in order to get this one.  That would be pretty tough to do remotely.

Chris Martin · Answer

You are thinking like an American. So... American. LOL!

I don't know "Mary Jo" but her post is reflective of foreigners investing in capital preservation investments. I'm sure that's her real name. But my point is that for foreign money coming into the big markets and now the second and third tier markets like Raleigh, Cash flow isn't the goal, it's capital preservation. Parking money. Less volatility. Low beta. I understand their motivation. It will be interesting to see how all this unfolds.

Ray Johnson · Answer

@Mary Joe The Washington DC area, in the Northwest areas for sure will get you those types of returns. I have a few condos in DC and they cashflow well, Just make sure to stay with the low-rise condo's and not the high-rise buildings, those are the ones that have insane HOA dues. @Russell Brazil is a great resource in the DC area and knows which neighborhoods will get you your moneys worth versus the ones that are charging high prices just because its Northwest DC.

Bruce Runn · Answer

@Mary Joe

You miss my point, if you are putting up to $200,000 down, you need to make a healthy return.  There are a lot of things you can invest in relative to real estate and get a good returns with additional appreciation.  My advice is to not settle for breaking even or even a small profit.  We get very good returns in Minneapolis but a condo is not the first thing I would point to  I guess what I'm saying is raise the bar of expectation or someone will sell you something and run-LOL

Bruce Runn · Answer

just wondering why you would buy a condo that just breaks even after putting the 20-25 percent down?

Mary Joe · Answer

I checked Marketplace section on this site and see that there are plenty of houses selling for $70K or less in  B or C class neighborhoods yielding 10% return or more with a management company in place etc etc,  are these the type of properties you are talking about?

What are the downsides of investing in these properties in B or C class neighborhoods?

I suppose:

-they do not appreciate as fast? -it may be difficult to liqidate them if I no longer want to own them?-prices may drop quite substantially in a down market compared to properties in class A neighborhoods?

Also, I know I shouldn't let my emotions affect my investment decision, these are all very old houses and I can't help but think that every time I turn around I will have to deal with repairs of the roof, flooring, stairs, driveway, furnance, so on and so forth non stop.  Granted, it will be taken care of by the management company so I suppose this should be an non issue if I have a good management company.

Numbers wise, these properties make perfect sense.

I would like to hear from all the experts here reasons why I should not consider these properties or if you have any horror stories to share, please do.

Thanks!

Matt R. · Answer

FYI, I used to rent a house in LA. My landlord had a bakers dozen of these 3/2s in LA/SFV. She lived on Park Ave in NYC.

Michael Plante · Answer

You may want to take a look around Orlando.

Not only will they cash flow but a good chance for the property value to appreciate as well

Matt R. · Answer

This can be done in the LA area with some sub 500k condos and townies.

Good luck!

Mary Joe · Answer

Thanks no offence taken.   I already have investments in the stock market, need to diversify.  Besides, I am never a big fan of the stock market, blue chip stocks aren't necessarily low risk, when they tank, all that I have left is a piece of paper.  I always feel that real estate (if you pick a good market) is a safer investment than the stock market.

Cities where condos cashflow or breakeven with 25% down??

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