BiggerPockets

Are the HOA's monthly, quarterly etc...?

You didn't mention financing so I'm assuming you're paying cash for property?

Break down your numbers and see if they fit within famous 50% rule and post them up.

I've never bought a condo before because I don't like that I don't own any land(cubage only/between the walls, no land) but that's not to say its not a good deal ya know.

That's my thinking as well.

The 50% rule is plastered all over BP. I think there are even some stickies on it. Its more than worth the read if you haven't already. Your expenses don't stop at $336 a month unfortunately, that's where the 50% rule comes into play. Remember, its more rule of thumb than it is bible in landlording.

Also, another big debate among the investing community is paying cash = good or no good

Sure, it makes the fact that you're making X amount of dollars cash a month but you're taking forever to get back to even, let alone positive cash flow right? The idea of having debt is less out of pocket(i.e. loan) and having the rent cover the debt therefor positively cash flowing sooner while debt is being paid down.

No offense, but seriously consider reading up a bunch more through the landlording section of this site. Of course, ask a million questions. The seasoned guys will chime in.

No one is really making much money on a small loan. Look for a private investor, offer a fair for both sides % and you'll have some capital to make more purchases, have reserves etc...

Keep at it, you'll be fine.

My guess is that if the $220 HOA fees are monthly, it's going to take his expenses above (perhaps well above) 50% of the gross income over the long-term. Agreed $220 a month is high for a condo HOA and messes up the inflow ratio. Usually condo HOA's are much lower even if the include insurance etc. The only time I have seen Condo HOA's over $200 a month was in Luxury High Rises.

It seems even with the high HOA payments you will be making positive cash flow at the moment, but you need to consider decreasing rental rates in the future as well.

Some mortgage brokers will not loan less than $40k, others will, you will just have to call around. I was able to get a conventional 15-year fixed loan of $31k ($38.7k purchase price 20% down). The lender might hike the rate up a bit or add a bit to the origination to compensate for the small loan amount, but these are usually negligible. For reference, my 15-year note was at 4.75% with .9% origination (locked in last week) - it probably would have been around 5.25% with .5% origination for the 30-year option.

My hunch is that you're going to have a harder time on getting loan approval for the condo. The waters are extremely muddy with condos today and there are a number of things that can make the unit ineligible for financing, including % of owners vs. renters (can't be less than 51%), % of owners late on HOA payments (can't be more than 10% or 15%), if one individual/entity owns more than x% of the building (I believe it's 10%), etc. These are rules for conventional financing (Fannie/Freddie), but the (super) majority of the loans for residential are going through them. I have heard quite a few mortgage brokers who claim they are able to get portfolio loans in order to get around these requirements, but none of them were able to come through. A couple of condos I entered escrow on fell out of escrow due to these exact reasons.

The lender typically submits the questoinnaire to the HOA, and you might not get a definitive answer until you open escrow. I was fed up after the second time escrow fell apart so I started looking at recent closings of units in the buildings I was interested in to see how they were financed. If the majority were cash deals, then that raised a major red flag.

Victor

I've owned a condo for almost 2 decades now and it's been one of my best investments. I really don't care that I don't own the "dirt" because 1) I didn't pay for the dirt, 2) I don't rent out the dirt, and 3) I won't ever be selling the dirt. Besides, if banks consider condos "real" property, unlike a manufactured home on concrete piers, that's good enough for me.

The important things I've learned with condos are:
- Stick to middle-class developments or better.
- Ask around about the HOA and management company.
- Make sure the HOA owns the land and does NOT lease it.

Hello Lafi S,

Here is a link to the 50% rule as a guide for rental properties:

http://www.biggerpockets.com/forums/52/topics/18371-help-me-understand-this-deal-and-5-2-rule

Raymond

Ok so based on the 2% rule a descent purchase price for this property would be $55,000.

The equity is there b/c short sale comps are upwards of 80k and normal sales can be near the 100k range.

I'm a bit worried though about the fact that the rent is above market, that's great for now but once she's gone I will have to settle for less.

I spoke with the president of the association yesterday and here are the numbers I figured out:

7 Units in the building, 3 are absentee landlords including mine and 4 are owner occupied.

2 Units are delinquent, the one I am purchasing and another b/c the owner passed away recently and the wife wants nothing to do with it.(Probate Opportunity??)

The Condo Fee of 220 actually includes an outside management fee in charge of common areas as well as building insurance, garbage, snow removal and laundry units in the basement.

Replica unit in the building was purchased in 2009 for 159k!

Utilities are covered by my tenant according to the lease which expires this October.

The president of the association also told the reason the fee went up to 220 is to compensate for the 2 delinquent units, the probate one which has been behind for over 2 years now.

The only other fee I am expecting would be my property insurance, since the current owner already has a policy it shouldn't be that difficult to get one as well and that should be around 50-70 a month.