Hey Fellow BPs. I need some feedback (positive or negative - really any would be appreciated) on this deal. It's a 2 bd 1.5 bath condo in a B+ neighborhood that is likely to turn into an A-/A over the next 10 years due to light rail construction and a growing university population. Although I've steered away from condo rent-and-hold properties, I feel this neighborhood in particular provides a bit more upside than a standard condo. The seller is an elder couple that have multiple units within the condominium, but are looking to start an exist strategy as they are travelling too much to self-manage and want the extra cash.
Current tenant has been in the unit for a few years, and really wants it to be her forever home (She's retired in her late 60's and all extended family is close by)
The property is valued at 110K, though I believe I can pick it up at 100K. I'm planning on putting 20% down and rolling closing costs into the loan (82k~ total financed). Current rent is at $900, but is going up to $940 in April (tenant's current agreement is that she pays a 4.5% increase in rent every year and is happy with that arrangement). She also has taken good care of the property - it's in very good shape and doesn't need any upgrades/paint/flooring.
HOA is $180 per month (would be paid by me), but all other utilities are covered by the tenant. Although this deal is relatively slim CoC return now, it has a lot of potential; and I believe it would cashflow on day 1 with existing tenant and the fact that it won't require CapEx for likely several years (previous owner flipped the unit in 2018). I also believe I won't have to budget much for vacancy with the current tenant, at least for a few years (albeit stuff does happen). Contingency Plan is actually just as good though: Tenant will be at $940, and all other comparable units are at $970, and the entire 100+ unit property is at full vacancy. I called and asked to move into anything that was available and they said I could get on the wait list, but nothing is likely to come available for 3 months.
I'm expecting CoCROI Year 1 to be 12%, Year 2 13%, & Year 5 15%. In this neighborhood, I'm also expecting appraisals to average higher over the next 5-10 years as well. Using the BP Rental calculator, the Annualized Total Return at 10 years would be 18.88%.
With all of that said; I'm still hesitant to pull the trigger, as it's a condo, which is something I'm nervous about. Mainly because it's something I'm unfamiliar with. Here's what I'm thinking:
Pros:
- Long term tenant with built in rent increases
- Low CapEx
- Higher expected resale value with neighborhood upgrades
- Low-Cost rental that cash flows
- Can potentially pick up multiple properties within same condominium from same seller
Cons:
- High HOA-to-Property cost ($180 on $100K)
- Not a SFH which is easier to force value through flipping
- Don't own the land, just the unit
- (What am I missing???)
