Condo rental property

[Dave Mazza]

Does anyone have any experience with purchasing and renting out a condo? I am looking at buying one for 74k, 1700 taxes, 175/m HOA fee, and I would get 850/m rent with a tenant already in place. I would need to put 25% down. This would be my first rental property.

[Jeff Bridges]

your gross income is $10,200/ yr- Effective gross income after 8% vacancy is $9384.

Your annual expenses are $4500-5000/ yr depending on age/ upkeep of property. Dont forget to add in your landlord insurance and licensing expenses in analyzing your deals.

Your debt service for a $59.2k loan @ 5% interest for 30 year fixed is $3813/ yr

Your total annual income will be $590-$1000 depending on how many repairs are required throughout the year not covered by condo fee like interior appliances etc. A couple of major service repairs to HVAC, water heater or appliances will wipe out this positive cashflow.

Return on investment is 1k/20k total investment= 5% each year. It will take you 20 years to break even on your investment. Is this return worth the work managing tenants and  collecting rent each month? That's up to you but I wouldn't if I were in your shoes.

This doesn't seem like a good investment or good use of your 18-20k (more since you will incur closing costs/ loan fees/ renovation and make ready costs. Assume closer to 20k for your initial investment. My criteria for buying a rental is about $5000 a year positive cashflow, however others have criteria as low as $2400. I'm a condo investor so they can be a good vehicle but they tend to only be good investment vehicles in cosmopolitan areas where the higher rent can offset the condo fee and other expenses that can wipe out any potential profit in lower rent communities. Your cashflow would be $2100 higher if this was a house and all aspects were the same.

I suggest you look at SFRs or duplex units where you can live in one and rent the other while keeping a owner occupant mortgage. The low prices of condos can seem lucrative, but you need to capture higher rent income to make up for the higher expenses you incur from condo fees and many will not produce good cashflow. My rents are about 65% higher, which is why condos work well for me. pardon the math, I read 20% down by accident, but everything is pretty close to 25% down.