Condo Conundrum

[Stephen E.]

So it is winter and I have been searching for bargain priced condos to add to my rental portfolio. Unfortunately there is a severe shortage of townhouses, which seem to be the best kind of rental unit here, in contrast to previous years when there have been plenty available around Christmas. However we did find one, so we put in an offer on a unit that has been for sale since March. It was renovated by the owners (new flooring throughout, new paint, vanities, tile backsplash) but needs all new appliances ($3,000+ here for washer, dryer and stainless fridge and stove). Comparable sales are at $153,000 and we made an offer of $142,000 rising to $145,000, which we said was final. From my spreadsheet the unit would produce $99.42 in cash flow at a somewhat ambitious rent of $1,250 ($1,200 for sure) and financed with a fixed rate ten year mortgage. The location is ideal, right by a major hospital which would be attractive for the many renters who are employed there. It is also immediately adjacent to a planned new transit route. My spreadsheet indicates that at $145,000 the cap rate would be 6.31%, cash on cash is 4.11%, gross rental yield is 10.34%. Units in this development have appreciated 26% since 2015, which is about middle of the pack where condos are concerned.

As noted it needs appliances, the only other thing is blinds for all windows since there are no window coverings and I don't want tenants diy installing the absolute cheapest stuff they can find. One other note, it has a wood burning fireplace, which I don't have in other units and can see being a maintenance and possible safety issue. Parking is at the rear of the unit rather than at the front, meaning the tenant might want to use the unmaintained short walkway and steps through the small rear patio area. Otherwise it is a good unit. The location is ideal and is right within our chosen area of concentration.

The owner has been transferred to the west coast and now lives out there (communication has been slowed as a result). The property has been on the market for six months in its renovated state; it was on the market three months before that in unrenovated condition, beginning in March. So they should be amenable to an offer, but they rejected $142 and we are back with $145. I am minded to call it quits after that. But is there anything else that others see here? It is a nice unit, but experience shows that there will be other nice units...