Condo - What Would You Do?

[Drew Dim]

Would you make this deal?

So I have come across a condo that I am interested in as an investment property but want to know what others would do if in my shoes.

Specifics:

Asking price $55,000 (Has been on the market for some time and I wonder if a cash offer could very well get it down to around the $45-$50k mark (+or -).  So let’s say $55,000 out the door with closing which is about right when I ran the comps. (Not a realtor by the way)

This 1bed/1bath condo could realistically rent for $900 as others are asking $950.

HOA = $390 (includes electric and water etc so basically no living expenses besides internet/cable) Seems really high and I imagine it will only grow

Taxes = $110 (ball park)

Insurance = $50 (Honestly I have no clue, so I’m guessing)

Cash Flow $350 a month

If I did this correctly the CAP rate = 8% and it's pretty close to the 2% rule

I was considering all cash because the $350 per month cash flow – any kind of mortgage payment doesn’t seem to be worth it.

-At what point would it be worth it? Say if I could get it for $45000 out the door etc? It's an older condo and I know when large expenses occur the HOA comes knocking door to door so I would be prepared for those misc. thousand dollar expenses as any given time.

If the numbers make sense and I place an offer, I'll request more info regarding the HOA, like how much $ do they have in reserve, how old is the roof/AC units etc, are there any pending legal actions or other large expenses that could be looming in the very near future.

-***- Lastly, what things should I look for in regards to the property being a condo?What are the Pros and Cons of owning such a property.  Any advice on purchasing a condo for a rental is more than welcome.  

My goal for this particular property would be strictly for cash flow.  Any realized appreciation would simply be viewed as a bonus, and I would plan on holding for a minimum of 5-10yrs (hopefully longer).

Thanks for any and all advice, especially from anyone who has owned/rented out a condo before.

Drew

[Aly W.]

Hi @Drew Dim, congrats on your possible future investment! My husband and I own condos  in 2 states, as well as a couple of SFRs, and we like condos. 

The quickest answers for you first - A/C's are almost always the responsibility of the homeowner, not the association. At least in our experience. So that will be on your dime. Definitely check about the roof. The roof in one of our complexes is 20 years old now, but in very good shape. No near-future assessments there. We had a recent special assessment here in NJ due to the horrible winter we just had, and we exceeded our snow budget. You probably don't have to worry about that in Texas.

We have actually bought several condos in FL in the last few years for between $42K and $68K. The lower end condos rent for $950, so that's in your ballpark. That condo has a monthly maintenance fee of $300, again, close to yours.

Insurance is minimal because we only purchase liability insurance. The condo complex itself is covered under a master policy. That said, whatever we own *inside* the unit that is not the tenant's property is not covered. We did the math, and felt that the premiums would not be worth just rehabbing the interior of the unit in the case of fire, flood, hurricane, theft of appliances, etc. You'll have to do the math and determine your comfort level of risk for insurance. Otherwise, $50 a month might be accurate in your market. You can ask your insurance agent for a quote. We pay about $200 a year for each unit.

Our taxes are similar to yours. 

We are happy with condos because on average, we are spending at least the monthly condo fee amount on maintenance for our SFRs anyway. We have to have full insurance on them because they're financed, the taxes are higher, we pay for lawn care for one of them, we pay for all repairs, and if tenants don't pay the water/sewer bill, we have to. It's lienable in NJ. This winter, we had to repair the roof of one house; condos pay for maintaining the roof unless it's a full replacement, and you can find out if that's coming before you buy one. SFRs are more of a target when vacant, at least where we own them. The copper pipes were stolen one year. 

Condo maintenance fees cover landscaping, amenities, building painting, paving, (again, unless it's a major project that isn't covered in the budget), garbage, and in FL - water/sewer/basic cable. 

Association litigation in our experience has been mostly against owners to collect maintenance fees in arrears. If there is a lawsuit pending for personal injury or against the developer, you'll have trouble financing, and future buyers will have trouble getting approved. Lenders may not approve financing for a development that has a certain ratio of renters to owners. This could be a future problem when you sell, if your buyer needs financing.

In FL, nearly all condo associations have to approve the owner *and* the tenants. There are usually rental restrictions - one year lease required, once a year. They can, and usually do, dictate the type, size, and number of pets you can have. You may only be allowed one or two parking permits. You or your tenant may have to pay an additional security deposit directly to the association. Guests may have to register at the security office. There are more rules and regulations for a condo than an SFR, but we're fine with that.

Hope this helps!