Could this be a deal?

Question

Vacant  2/1 condo (1072 sq ft) sold as is for $79K.  Not a short sale.  Needs what looks to be from photos as cosmetic repairs to get rent-ready.    Listing says monthly HOA fee is $235.  There is a pending sale on a 2/2 in same complex that was listed at 65K per a short sale.

Sold comps on a 2/2 in the same complex from August of 2012 (ugh) sold at $115K which would make the target property around $108 a sq ft (but it has only one bath and I don't know how to account for that in the comp - what is the "value" of a bathroom).

I've stayed away from really looking at condos because of the HOA/condo fee involved and being subjected to the whims of the condo association,  but I don't know if I should do that or not -- am I blowing opportunities by doing that.  Exit strategy would be to either a) hold myself as a rental or 2) have an investor buy it and try to get 1 or 2k fee out of it (would like to go through the process to see how it works).

An agent has verified rent in this area to be $1400 to $1500/mo.   So the most I would have to have all in would be 70K, but I'm thinking a 50-55K cash offer.

Originally sold over 20 years ago for low 40s.

What questions do I need to be asking?  
Is there any potential here at all?

thnx in advance for any help

*** Update - actually the listing notes say it's a 2/2 ...  in any event, what is the "normal" value of an extra bathroom - say around $10K? I know it's area dependent but looking for a ballpark figure.

Daniel Nield · Answer

Hey Christina,

According to ConsumerReports.org, the national average cost of a bathroom remodel is $16000, so say $20k with a $4k fudge-factor when engineering your deal (I always round up to the next $5000 when planning.  Just a good rule of thumb).

As for whether that's worth it for the deal, that's really up to the buyer, but a 2006 National Association of Home Builder's report says that it averages about 11.5% of the value of the home. (Costs change.  Percentages are usually pretty consistent)

-Dan

http://www.consumerreports.org/cro/2012/03/bathroom-remodeling-guide-trends-and-costs/index.htm

http://www.nahb.org/generic.aspx?genericContentID=62422

Christina R. · Answer

I went and saw it.  It needs complete updating inside.  From what I can see from the tax records it was owned by one person and never updated since purchase (from what I saw today!).  Avocado stove, dark laminate cabinets, both full baths need a complete redo.  Carpet throughout which needs to come up.  Etc, etc.  As a newb I'm probably overestimating repairs but I could easily see putting 20-30K into the place.

But maybe that's because I am unclear on what a 'rent ready' rehab entails vs a rehab to send to an end owner-occupant.

Another thing I found out is that since I wouldn't be going in all cash on this, the project has to be on Fannie/Freddie's approved list for conventional financing or - obviously - I couldn't use conventional financing.

If anything, this is a good learning experience about condos in general.

Douglas Quaid · Answer

You buy this thing for 70 000.

It rents for 1400 a month.

235 HOA fee, anymore taxes and insurance on it? I assume another 300 a month in taxes and insurance.

865x12 without calculating property depreciating over time / 70 000 = 15%

So about low 10s if you throw in repairs and depreciation over time.

If you buy this thing for 50 000, your return will be even better. Why can't you buy this for yourself?

Christina R. · Answer

Ken P. thanks to you and Daniel Nield for your replies and info.  Taxes for 2012 were $2013 for the year.  The HOA fee covers the pool, master insurance policy and exterior building maintenance.  it looks like utilities are the responsibility of the owner/renter.

It IS a 2/2 with 2 full bathrooms.  I couldn't determine the age of the water heater in the unit.  Complex built in the early 80s.  Cosmetics from what I can see but I'm a newbie so . . . .

I'm really thinking of going for this.  It's an standard sale, part of an estate.  I can't do the whole deal in cash so I may be beat out because I'd have to have a financing contingency to c-m-a.   I'd really like to assign this but I don't know how to do that with the standard contract (I have not told the agent that I may assign this)

Now I'm getting the heebie-jeebies because I don't want to be stuck with no exit here - I mean ultimately I would rent it but would like, again, to assign it . . . can anyone tell me what to do?? ha ha!!!

Ken P. · Answer

Christina,

A few more bits of information are needed to assess this deal.  What are the annual property taxes, who pays the utilities (water is usually handled by the HOA, but not always), and does the HOA have adequate reserves to cover major repairs like roof replacements and street resurfacing?

If the taxes aren't too high, the deal looks promising.  We bought a short sale condo last year for $75k with $250/mo HOA and $200/mo taxes that has a retail value of ~$110k that rents for $1250.  After those expenses and financing costs it's giving us about $250-$300/mo cash flow after setting $$ aside for maintenance.  Your numbers should be higher.

One challenge with condos now is non-owner-occupied financing.  Depending on the state, some banks/mortgage companies won't finance rental condos, so you may have to check around.

Could this be a deal?

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