All Forum Posts by: Susan Gillespie

Hi Sebastian, you found an intriguing opportunity. Your questions/comments are a mix of strategy, financial evaluation and practical advice. I would consider:

-Your strategy. Is the condition livable, or does it need major rehab prior to occupancy? If you owner-occupy, you could get favorable financing, tax treatment and may be able to include money for renovations in your loan. You could live there initially and eventually convert to full rental when you move.

-Your team. If you haven't, make local contacts who can help you asap. This includes a mortgage banker who can walk you through financing options, rates and pre-qualify you; a contractor to help with bid/rehab estimates; an investment-savvy realtor with access to the MLS; and a property manager who can advise on rents, rentability and demand. Even if this deal doesn't go through, you'll learn a lot from each of these contacts and your time will be well spent making connections. Do you know a local investor you trust and could get their opinion?

-Your time. Your full-time job might make the purchase possible, but do you have time to take on a second job as investor/property manager? I worked full time during several investment purchases and sacrificed a lot of personal time and energy on the front end. Be realistic about the time and effort you'll spend.

-Your evaluation. It's critical that you get rehab and startup cost estimates. If there are major structural issues, I might pass as a new investor, but it's critical that you know what you're dealing with up front. Also get numbers for utilities, trash, insurance, closing costs, etc. What utilities do renters pay vs you?

I ran some conservative numbers, and if you live there without paying rent, you're close to break even cash flow, but this depends on your specific expenses. The scenario becomes much stronger if you can collect your full rent as listed above. I can send you my evaluation if you want.

Other thoughts:

-You could argue taxes and probably get a better rates as an owner-occupant, assuming you get a homestead exemption.

-I would pay for an inspection only after you get the property under contract.

-If you owner-occupy, do your own property management and fix this up over time, you have the opportunity to build some nice equity.

Feel free to message me if you have other questions.

Hi Dana, business planning is a process, not just a document. I would start a plan and not worry too much about initial format. You can even use a brief one-pager at first. I would include:

-Strategy: the high level goal you plan to accomplish

-3-5 goals/tasks to work toward that support your strategy

-Dates and milestones, both short- and long-term

-Measures of success: how you know your plan is working

-Next steps: what you'll do immediately to get started and keep momentum

In my humble opinion, focus and discipline are two of the most important characteristics of a successful buy and hold investor. You'll need to keep and manage written documents, especially if you form an LLC or similar and purchase properties.

Start small and build from there.

Many associations are professionally managed and might even have information posted on a web site. I don't think they're likely to fib, but to make sure, I would ask my real estate agent to get numbers for me and I would also check myself.

I've haven't had a problem getting polite questions answered over the phone or by asking future neighbors. You can learn a lot by asking, "Hi, I really like this community, can you tell me..."

I would watch out for associations that don't return calls, are rude, unprofessional, etc. Yellow flags. One downside of condos is that you have less control, so you don't want to deal with bad associations for years to come.

Also, if you end up making an offer, it's your right to review the full association bylaws, rules and regs, budget, etc. If you don't like what you see, you can back out of the deal. A realtor can walk you through the process and what to expect.

Hi Justin, I'm a big fan of condos and townhomes as income properties, but with some caveats. Watch for:

Association fees. These can run from around $100 to over $1000+ per month. Fees are impacted by community amenities (pools, clubhouse, parking, etc.); costs included in fee (landscape, water, trash, cable, internet, security, etc.); and community maintenance issues. High association fees can mean zero chance of positive cash flow. For rentals, we've done well in nice communities with stable, lower fees and fewer amenities. If you're more focused on living in the condo in the future, you might be willing to accept higher monthly fees, but watch your cash flow.

Assessments. As part of due diligence, ask about current or future assessments pending. For example: One of our condos has a perpetual annual assessment for insurance of nearly $800. The condo board doesn't want to up the monthly fee, so they keep the annual assessment. Another condo was hit by a storm and had major damage, so there was an assessment plus the association fees went up $100 month. Again, these eat into cash flow.

Association stability and rules. Make sure the Association is well run and strong financially, with adequate reserves and no major deferred maintenance. This might take some work on your part. Talk with the Association directly and people who live in the condo to pin down any issues. Also MAKE SURE THEY ALLOW RENTALS and ask about lease restrictions (eg, annual lease only.)

Taxes. Typically straightforward. You may get an initial homestead exemption if you buy an owner occupied condo. Check tax records or check with a realtor to determine how much taxes could go up for non-homestead. Some of ours increase by 20-25%.

Insurance. Also straightforward. The Association should have a master policy, you'll need a landlord policy. Ours are inexpensive, except for Florida. Ask how much the deductible is if you have a claim to the master policy. You can also get coverage for this, as it could be thousands.

Next steps. I would talk with a real estate agent to get daily MLS listings of condos you're interested in. Focus on properties you like to get a snapshot of taxes, association fees and also read the comments. The numbers aren't always accurate, but will inform your view and you can verify once you narrow your search.

From there, you'll need to find a good deal and refine your evaluation. That's another topic, but well worth it.

Good luck and feel free to contact me offline with questions. I've lived in condos and rented them out for many years. They're very convenient once you do your homework up front.

Then, once you find a good one, keep buying in the community... Susan

Jaime, a few things to consider:

I don't see start up costs included, like closing costs, upfront repair/updates (painting, cosmetics, etc.) Are renters in place?

You will also want to consider utilities, trash, etc. (who pays?) and property management expense, even if you plan to do it yourself.

I ran a purchase price of $165k, 2% closing costs, $1k startup costs at 5% (closer to rate we would get). I get $700+ net monthly cash flow and internal rate of return 19%. This appears favorable if your stated expenses are not too low and estimated rent not too high.

How did you get an interest rate of 4% as an investor?

Based on your numbers above, this is a strong deal.

Regarding expenses: In addition to utilities questions, I don't see closing costs or property management fees. Even if you manage this yourself, it takes time and effort to find renters and manage 4 units.

If I assume 10% vacancy and 10% management fees, (may be high, but better to be conservative), I get net monthly cash flow of $561 and internal rate of return at 39%.

Can you get and keep this rented? If so, this appears very strong.

I also agree with Matt. Definitely make sure the new spouse is added to the lease.

Good renters who are reliable and pay on time are hard to find. I would tell them congratulations and even send a card with a small gift, like a gift card or housewarming present. A small token of good will can go a long way.

The lease issue is probably causing them anxiety, so address it by adding the name, offering congratulations and moving on. Hopefully, they'll be happy renters, and you'll be happy to retain good renters.