Help Me Analyze Is This Condo Deal or No Deal?

Question

I am new to BP so just getting into swing of things here. I am in Mesquite TX, and we have one single family unit that's showing to potential renters.

Condo is in Dallas Texas, 2BR, 1.5bath. Few basics are - It's listed for $70k, owner agreed to $60k. Market value should be $70-75 atleast. Purpose is to buy and hold. Owner has done quite some work, painting, new carpets upstairs...What remains is much less and I can do that myself, estimate $500-1000. It can rent for $950 (up-to $985). After factoring in costs cash flow is $207, Cash-on-Cash 13.66 & Cap rate 8.4.

There's a new HOA as the previous one wasn't working. The story is an investor with 40 units sued the old HOA for records that they were withholding from people and actually became the new HOA. I understand that the current reserves are low, just $10k. But I am thinking between last November and December that number must be higher now.

We have another single family home that just got ready for rental. Wife is primary mortgage holder. So I was thinking I will do this deal in my name. Previous lender on this rental says $48-60k is too low for banks to consider. Our primary home is paid off but I would prefer to explore other ways of financing before pulling out equity from our primary only as last resort. What financing options/ideas would you consider?

The unit on the left is boarded up, with a code violation posted. My realtor had tried to contact the owner with no response. I like the numbers and the unit. But I am guarding against emotional attachment should HOA & boarded next door be an issue.

I plan to talk to HOA manager this week. Also should I buy this unit I will contact owner of boarded up unit next door and offer to buy it.

Is this a good deal? why not? What would be the concerns of HOA that you would have, and boarded up unit next door? Would this be a deal breaker?

JayCinta Henry · Answer

I got a confirmation from my RE that this condo is not warranted. There are 131 units, with unknown actual unit owners. The one in charge of the hoa has 40 units owned. As I have now come to know, a number that is way > 10% for banks comfort. There are too many variables seemingly pernicious because the just might be. And a big - I don't have complete control over my own unit. So I decided to pass and look for a multi-family unit but they are pretty pricey in DFW market. Nevertheless, I am open to looking elsewhere.I thank you all for the time to educate me on this deal. It's glowing testament to the value added by each person to the BP collective.

Tim Herman · Answer

@JayCinta Henry When were the roofs replaced? When were the parking lots resurfaced? All these costs should be in the HOA's capital improvement fund. You said there is 10k. All of the roofs will be replaced at the same time. Using 42 condos ion the complex and 5k to replace= 210k for roof. To have enough reserves just for roofs (25 year life span) the fund need to grow 8.4k each year. Your $219 assessment on 42 units barely covers the reserve growth. Doesn't leave any money for daily operation of the condo grounds. Someone has to pay for that and it will be a special assessment. This complex is probably non warrantable. Too many rentals and not enough owner occupied. You will be required to put 20% down. Your PM is high, more likely 10%. So how attractive to you think a prospective tenant will want to move into a rental next door to a boarded up property. You might want to adjust income or vacancy.

JayCinta Henry · Answer

@Tim Herman, @Lucia RushtonAp. for lack of info, Year built 1986 I plan to rent it out. "I see a big special assessment on the horizon." Please expound on this. (I am new to BP & RE investing, your insights are immensely invaluable.) HOA covers the usual common area stuff (no pool) plus roofs. This unit has a slight leak stain 1 of the bedroom ceiling upstairs. I am yet to look at that, but inspection will verify. "I am not a big fan of property that I don't have complete control." Me neither, so I am very open to walk away if the outlook does not look promising. I plan to talk to new HOA on Monday to see what they have planned. Price is a strong attractant for me to this condo, rent and potential cash flow. And the limited cash I have at hand right now. If more concerns emerge I am prepared to walk away, keep looking for a duplex and try gather more downpay cash, for a next year Jan/Feb deal via FHA. "Being boarded up next door would concern me. " Me too, but I am thinking within a year the lender, city or HOA will foreclose on this unit due to unpaid bills/fees. Is this logical? It's average maintained, somehow surprising after learning about the previous HOA manager. I am thinking the new HOA will get on the horse gradually. It's assigned parking. My realtor is getting that info this afternoon. Plus one lender wanted to know if it's warrantable and what type of loan it would qualify for, realtor said conventional. What does this mean? My credit union loan partner said if I qualified, todays rate on 30yr fixed would be 4.25% My fico score is 780/790+ range, revolving cards only. I have a few more lenders I am talking to this afternoon but for now is this a good rate in this market? A fifteen year was 3.75. I was gonna get the 30yr due to a lower payment & pay extra on principle but 15 isn't much of a difference. I have adjusted my numbers with this, here are the new numbers with 4% closing costs but no PMI estimate for now...

Lucia Rushton · Answer

@JayCinta Henry. Do you live here in Dallas? If your agent hasn’t already ask for a CMA of all the units sold in the complex for the last 3 years. Just to see activity. I haven’t seen condos for that price recently so am curious where is it ? Being boarded up next door would concern me. How’s the rest of the complex? Well maintained? Cars in garages or assigned parking ? Not having reserves would be a concern for me. DM me if you have any questions.

Tim Herman · Answer

@JayCinta Henry Not enough information. How old are the condo's. How are you analysing the cash on cash. What metrics are you using for vacancy, repairs,capex, and property management. I see a big special assessment on the horizon. You say one owner has 40 units and only 10k in reserves. Assuming 5k for each condo roof and 42 units to pay for roofing you would need 210k only short 200k. A sfh you can control when you do your repairs. What does the HOA cover. What if the HOA decides to limit the number of rentals, Are you moving there to owner occupy or leaving it vacant. I am not a big fan of property that I don't have complete control.