College Town Condo-Good Deal??

Question

Hi All - Looking at a potential property that was brought up to me by a co-worker who heard me talking about real estate investing. Just pays to talk out loud sometimes!

Coworker bought for her son when he attended college, has had some renters in there for past few years but she lives very far away and would really just like her equity out of the home to do things to her primary.

Here is the scoop:

* 2bd/1.5ba, 1100sf Condo in the heart of University of Colorado Boulder campus area. Brand new kitchen this year, newer updated full bath a few years ago.

* There is 100% for sure asbestos in the walls, they found it when the kitchen had to be gutted. There is a community heating system through steam pipes that runs underneath the complex, one of the pipe's cracked and a bunch of the condo's ended up with mold. The HOA was responsible, they had the condo abated, the mold removed, and had to pay for the new kitchen, at which time the asbestos was located and had to be dealt with special. 
       (first question here -- what do I need to do to make sure this was all handled appropriately and isn't a problem for me in the future?? and is this automatically a giant mess and I should just walk from here?)

* Asking Price (just in passing at this point but she thinks it's worth $190K, at first glance using just Zillow she's pretty spot on, it says $187K - I am having my realtor actually do real comps on this right now.

* HOA's are $400!!! Apparently it covers all the normal HOA stuff plus electric and heating as well.

* Property taxes are ~$1200/year

* Not sure what landlord insurance would be on this yet - reasonable to presume $1200/year?

* Potential Rent in this college down is $1700 - $2000. She is getting $1700 right now but she did say they are undercharging based on surrounding area and after the upgrades / new kitchen she thinks I could get $2000.

The house has appreciated $30,000 for her in the last 6 years, and Boulder Colorado is one of the most expensive places to own a home.

Please be critical and let me know if this is something that you would buy and why!

Angela

Michael B. · Answer

Understand the financing.

Banks are somewhat leery of lending for condos; scared of older condos; terrified of investor owned condos; and in panic of asbestos. You have a perfect storm of all 4.

I would check with several banks about whether they would consider financing such a condo.  Even if you plan on paying cash you need to understand how hard it will be to sell later.

My thought is this is a risky venture. Maybe OK if you have good real estate experience. But this doesn't sound like a 'first five' investment. Get some deals under your belt first if you don't have them.

Paul Timmins · Answer

Angela,

If you consider another place as a college rental, call the college Off-Campus Housing office. They will tell you where the students like and dislike to live, the going rates whether its per unit or bedroom and what is included.

Paul

David Krulac · Answer

Angela S.

Before buying a condo to rent, make sure that the condo regulations allow for renting.  Many condos limit the number of rental, some around here are 10% rental, 90% must be owner occupants.

Before buying anything in a college town check with the municipal zoning office.  One college town here prohibits college students from living in 3/4 of the town.  And since students are NOT a protected class it is very legal.

There's a suit here in another college town where a returning military from Afgan. can't live where he lived before deployment because zoning prohibits students there and he is using the GI bil to go to the college.

If you intend on renting to students, check the zoning first.

Angela P. · Answer

Thanks everyone, you've certainly given me a lot to think about.

Michael B. - I appreciate you telling me it really is a risky venture, especially for a newbie. I think I will start smaller. I am not interested in getting in over my head.

Thanks everyone!

Matthew Rutledge · Answer

Awesome!  So with the 50% rule we're looking at about 300-500 (depending on rent) left over for actual repairs/maintenance, etc.  That seems very reasonable for a condo.

So I guess the only remaining factor is any mortgage for the purchase.

David Krulac · Answer

Angela S.

we have discussed here condo before.  Things to consider besides expenses are:

1.  % age of renters versus owner occupants
2.  In many areas its still a buyers market and buyers do prefer SFH and TH over condos.  Its likely that it will be harder for you to sell when the time comes.
3.  Is the condo association professionally run or amateurs
4.  Does the condo Assoc. have sufficient reserves for maintenance and capital improvements.
5.  Is there deferred common maintenance

Matthew Rutledge

The condo fee is an expense and is included in the list of expenses just like taxes, insurance, utilities, etc.

Matthew Rutledge · Answer

I would not immediately rule out a place with asbestos.  But I would use that as a bargaining chip.

For this one, look at the numbers VERY closely.  Especially if you plan to finance the purchase.

Being a bit conservative with rent, and assuming your numbers are correct, it looks a lot like a cash flow property on the surface - depending on the finance situation.

Rent in 1800/month (21600/yearly)
HOA 400(4800)
Taxes 100(1200)
Insurance 100(1200)

Remainder - 1200/month

I'm not a pro, and I would love to see one of the better practiced folks take a stab at applying the 50% rule. (Where does the HOA fee land?)

My immediate concern is that $400/month HOA charge.  If you have to finance a good chunk of that 185-190k the cash flow gets really tight really fast.

I spent many years living in the codos at 2707 Valmont Rd up in Boulder.  I was offered the chance to buy the unit I was living in for $120k back about 2002.  I declined because I knew the place wasn't worth that.  (1 bed, 575 square feet, basement model.)  It sold for $109k.  The new owners tried to sell it last year for 104k and couldn't. Zillow says the place might be worth $116k today.  Zillow says the place should rent for about $1100. Reality is closer to $700-800.  (I was at $600.)

My point?  Know the market.  Know the property history.  Craigslist will probably tell you more than zillow.  When you think of college kids trying to find $2k/month for rent, what do you think they do for that money? They invite people over to crash. They venture into other somewhat legal enterprises...  In my opinion, college kid rent is under $1k.  Grad students might be able to push $1500.

Personally, I wouldn't touch a rental in Boulder.  Not only are college kids a pain the county has some rules on deposits and interest that don't really follow market trends.  Unless it changed, deposits are to be returned (assuming they are returned) with a 6% interest rate assuming you were able to invest that deposit money and make more than that.

Just my $0.02.  Not saying don't do it, but run the numbers and understand what your goal is.

-matt

College Town Condo-Good Deal??

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