All Forum Posts by: Jovani E.

 @Jovani E.

When you say it cash-flows $216 per month - that is after what deductions? Principle, interest, property taxes, property insurance, HOA fee, repair reserve? Make sure you are factoring all of those in. Also realize that the taxes on the unit that you are basing your purchase on - are the current owner's taxes. Let's say your seller bought the condo for $75,000 back in 1993, and today it's worth $300,000 - completely fictitious numbers - but go with it...

Where I live (in Florida) there is a cap on how much the government can raise your property taxes a year... it's like 3.5% a year of the assessed value.  So what happens is there is a differential that builds up over time where you get grand-fathered into a lower taxable value.  But as soon as their is a sale of the property - that differential goes away and the property appraiser is free to tax it at it's "just value" - which is usually some percentage below what you paid for it... like 15-20% less than what you paid.  So the point of this is that what often occurs is that in the year that you close on your purchase you start out at the seller's old property tax rate.  But the following year, a letter comes in the mail that says, "Here's your new tax bill... at a substantially higher rate."  All of this will depend on how long your seller has held the property - but watch out for it - your $216/month can evaporate when you open that letter. 

Another thing to be aware of - that sounds so innocuous, is the HOA you mention. HOA's are generally not a landlord's friend. They are usually run by picky retired people who love to stick their nose into your business (a generalization... but often fitting!). They can quote the by-laws by song and verse... be it the decoration you tenant hung on the door, or the tenant's inoperative car, or noise violations, etc, etc.

I would definitely check into the rules of the HOA. Some have rules that say you can only rent the unit after having owned it for X years. Some say, "Only X % of the units can be rented." Definitely read the by-laws of the HOA!

Another thing that can reach out and bite you in the butt is special assessments. The HOA decides, "it's time to... (fill in the blank)... replace the roof, or resurface the pool, or repave the parking lot, or replace an elevator. Anything that exceeds the current budget becomes a special assessment split between all the owners of the property. It could be building deterioration... where the foundation needs to be repaired, or the gates, etc, etc, etc. I heard of a beach condo where they had to replace all the railings on the building being out of code. It was a $15,000 assessment per unit. Think about what that will do to your cash-flow.... and you have absolutely no control over those situations. For that reason, I personally don't buy properties that fall under an HOA.

Food for thought!

Randy