Condo Quantitative Analysis - Thoughts?

Question

Had an offer accepted on my first ever real estate deal - a condo which is in inspection negotiations now. Thoughts on my analysis? Any input? Did i miss anything? Property is on a land lease expiring in 2029 where i will then retain the land. I figure i can extra pay down the loan with my income since payment will be about $600 a month, where i can cut the loan in half then start renting out. Would retain as my first residence for about a year or so. HOA is reputable and has maintained the property well, with few properties on market each year. Let me know what you think!

Purchase Price: 128,500

Closing Costs + Working capital assumption: $15k ($7k + $8k, respectively)

Total Basis = $143,500

Rent (operating income) assumption based on past rents: $15,600 annual ($1300/month) ($14,400 @1200/month)

Expenses (annual figures):

Property Taxes: $2,800 (on dwelling)

Land Lease: $519

Tax District (deductible): $1,009

Association dues: $1,500 ($125 / month)

Trash: $500

Insurance: $1,000

Net Operating Income (prior to debt service) = $7,300 approx

Debt service (principal + interest): $7,000

Cash Flow after debt service = +$300

Sean McDonnell · Answer

For properties on leased land, I have heard there is a thing known as a land lease fee which is different from the HOA fee. Have you looked into that?

Also, I would read and reread the surrender clause and make sure you are not at rish of losing all you equity once the lease expires.

Mayer M. · Answer

@Austin Patenaude

Manager has been easy as @Russell Brazil mentioned, condos are great due to only being responsible for the interior of your unit. No landscaping, roof, siding, snow removal, common areas, etc.

I bought mine all in the same complex over the last three years and have completely refinanced out so I have no cash left in the deal. Have a total of $620k or so in debt left on them

Mayer M. · Answer

@Austin Patenaude

Your insurance cost should be around $400-500 per year

Russell Brazil · Answer

I have 2 condos with numbers not that much different from yours. I paid $107k and $111k (Today valued at $150k), similar taxes at about $2k per year each, $200k condo fee, and my initial rents were $1250, now up to $1350.  Theyve been ok for me. No complaints. Lower expenses on condos and easier management I like.

Mayer M. · Answer

@Austin Patenaude

I have two dozen condos with equal or better numbers than this that id sell for $100k a pop as a group purchase. No they’re not in war zones they’re in a B neighborhood

Karen Higgins · Answer

I'm not seeing any expenses listed for repairs/maintenance and vacancy.  Minimally, we expenses out at least 8% for R/M and 5% for vacancy.  Something to think about.

Austin Patenaude · Answer

@Michael Noto hey Michael - the condo is in Avon. Specifically Ponds Place - what condo complexs have you bought in? Any advice on condo investing overall?

My insurance estimate was just a rough one, agree it will probably be lower, and the tax district payment is on top of the prop tax for the dwelling (land lease $500). Condo is actually 800sq ft and has closed consistent rents on MLS of 1200-1300. 2br in the neighborhood rent for upwards of 1450.

Thoughts considering this additional info?

Michael Noto · Answer

@Austin Patenaude I own a couple condos here in CT and based on that here are some of my quick thoughts:

- $1000/year insurance on a condo seems high. How big and what is the bed/bath mix? Is it a detached condo? Even if it is big square footage wise and detached I think you can get that insurance down and if it is isn't you can get it way down.

- When you list the "tax district" as an expense is that a town/city fire district tax you are referring to? With that combined with your property tax I am assuming this property is in a nice town because $3800 combined taxes is a lot for a condo if you are in the Hartford area, Fairfield maybe not.

- Assuming the condo is at least a 2-bedroom unit, I think you can get more than $1300/mo if you update it as you live there

-$125 is a very low condo fee. Even if you add in the land lease you are still under $200 a month which is a good thing.

If you post what town the condo is in I think you will get a lot more informed responses from people who live in the area because a condo can either be a really good idea or a really bad idea almost solely based on where it is located in the state.

Austin Patenaude · Answer

Very true on supply demand side - the 90 residential units actually were denied by the town, so just a the residential that is coming in with the whole foods/retail will come in. So doesnt seem like an immediate supply increase will occur (not to say it wont in next 5). But like you mentioned, while there may be a slight decrease in demand as a result of the oversupply, if the project brings the people it should, then in time rents should actually increase as a result of my place actually being a bit cheaper than the new development. Would you agree this is fairly accurate? I dont want to assume appreciation of course.

Russell Brazil · Answer

@Austin Patenaude Development is not always a good thing. During the time Ive owned those 2 condos, they built a new apartment building down the street. So for a couple years my rents actually dipped from $1250 to $1200 before coming back up, because the brand new apartment buildings similar but much nicer units were $1400 a month.

Development adds to the supply, when supply increases, demand weakens.  People often equate development with good, but its not always that.

Condo Quantitative Analysis - Thoughts?

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