First Time Investor: Connecticut Condo Investing

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First Time Investor: Connecticut Condo Investing

Dilman R.
Property Manager · Fairfield County, CT · Member since 2019 · 27 posts · 6 votes

Hello BP,

I am currently under contract for a 2 bed, 1.5 bath condo (recently rehabbed) as my first investment. I offered $267,000 (25% down payment) with seller to pay all closing costs. The HOA is $350 and will eat into any profit margin I was hoping to have. I can market this unit for around $1,800 - $1,900 (high end).

I have reached out to the management company and asked for community policies and any relevant information but nothing from the seller. Closing is set for Aug 26. 

So far, my estimated monthly payment is $1,535.16, which includes P+I, INS, RET, and HOA. If I rent for $1,800, I'm pocketing $264.84 each month but i'm not taking into consideration vacancy cost, capex, repairs + maint. (recently rehabbed), and management (I'm managing it myself).

Only thing is, I have a decent amount of equity tied up. Does it seem worth having $66,700 tied up earning me 4.78% CoC or 11.84% 5-year annualized return? Does this seem realistic for a condo in the northeast?

Also, should I start marketing the condo for rent even though I have not received the financial budget and documents from the Association?

All feedback is welcomed.

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Jaysen Medhurst
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y

@Dilman R., this is not a good deal and you are setting yourself up for trouble. You are not accounting for Vacancy, Repairs, CapEx, or Management in your expenses. Those can easily eat up 25% of rent on a condo. That puts you ~$110 in the red each month.

  • Even if you squeak out a bit of cash flow, what happens if there's a special assessment by the condo association and years of cash flow gets wiped out? 
  • Is there a limit to the number of units that can be rented in the complex (there often is)? 
  • Is there a restriction on how long a unit in the complex can be rented, e.g. 2 years?

Condos in general are very hard to cash flow due to the HOA fees. Those that don't hit the 1% rule and have relatively high taxes are sure to be a mistake. @Jeff Lamothe is right, your price point can go a long way in many parts of the state.

Find a way to pull out of this deal, tout de suite.

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  • Jeff LamothePro Member
    Member since 2019 · 91 posts · 66 votes
    6y

    Thanks for sharing this deal @Dilman R. I would certainly finish your due diligence and understand all of the costs associated with this condo. How often does the condo association changes their HOA fees because if they decide to raise it, that would eat into your cash flow. Will you or the tenant pay the water bills, because it can put you at a disadvantage based on other rental properties in the area.

    I am not a condo investor but at that price point, you could get a multi family house in a B or C class neighborhood and earn better cashflow.   Does  the condo association even allow for owners to rent their condos?     

    Definitely check out some of the BP podcasts, where they discuss investing in condos.  I recall listening to an episode of an investor who specializes in condos, but I cannot remember the episode number.   

    Best of luck in your investment journey.  

    1Reply
  • Ryan AllisonPro Member
    Investor · Connecticut / Massachusetts · Member since 2019 · 65 posts · 38 votes
    6y

    @Dilman R. You'll get money on this deal but I think you can get a LOT better return elsewhere.  Where's the condo located?  

    To me, the pros of renting a condo are that you typically have way less maintenance.  However, the cash on cash returns typically are way lower than other investments because of it.  It depends on your appetite for investing, would you rather have a lower return and less maintenance or a higher return for more involvement?  

    If you're looking to make money and don't mind being more involved, I agree with Jeff that you can make way more money elsewhere.  To me, rent to value of .6% is too low, even if it is in a GREAT area of CT with lots of appreciation potential.  

    1Reply
  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    @Dilman R., this is not a good deal and you are setting yourself up for trouble. You are not accounting for Vacancy, Repairs, CapEx, or Management in your expenses. Those can easily eat up 25% of rent on a condo. That puts you ~$110 in the red each month.

    • Even if you squeak out a bit of cash flow, what happens if there's a special assessment by the condo association and years of cash flow gets wiped out? 
    • Is there a limit to the number of units that can be rented in the complex (there often is)? 
    • Is there a restriction on how long a unit in the complex can be rented, e.g. 2 years?

    Condos in general are very hard to cash flow due to the HOA fees. Those that don't hit the 1% rule and have relatively high taxes are sure to be a mistake. @Jeff Lamothe is right, your price point can go a long way in many parts of the state.

    Find a way to pull out of this deal, tout de suite.

    4Reply
  • Craig Bellot
    Property Manager · CT · Member since 2014 · 687 posts · 329 votes
    6y

    Hey Dilman, 

    Your first investment... How exciting! As an investor, you need to know your numbers, cold.

    Whether you hire out everything or are more involved, plan from the beginning to be able to step away from the business if you need to.

    That requires careful analysis of the property BEFORE you buy, to determine if it meets your financial goals AFTER including all expenses.

    If any turn key company sends you a cashflow analysis without at least TIMMUR:

    1. Taxes,
    2. Insurance,
    3. Management,
    4. Maintenance,
    5. Utilities,
    6. Repairs

    Then run for the hills.

    In Bridgeport, Connecticut and many North East regions we also include Snow Removal and Pest control.

    Explore all markets but do your research, as to where net migration and jobs are heading. 

    If you have any questions, feel free to reach out.

    -Craig Bellot

    1Reply
  • Mat O'Grady
    Investor · North Stonington, CT · Member since 2014 · 393 posts · 228 votes
    6y

    @Dilman R.

    What are your goals for real estate? What is your risk tolerance?

    I ask because this seems like a "safe" deal because it has been recently rehabbed and it is in a good area. Is this a appreciation play? Do you think you can keep this condo for 10 years and it will be worth $700k?

    It does not seem like this deal will give you very much, if any cashflow, but it sounds "safe" in the sense that there shouldn't be many repairs and the tenant pool sounds good. It could be an opportunity to practice being a landlord....

    Financially, 4.78% return is not very good when you can invest your money into an index fund and earn 6% easily.

    1Reply
  • Oscar Rodriguez
    Investor · San Diego, CA · Member since 2014 · 11 posts · 5 votes
    6y

    @Dilman R.  First I would like to commend you on taking the leap.  That is the first and most important step.  Now that you have done it and have the courage to do it, back out of this deal.  This is not a good deal for an investor.  If you were going to buy this to live in it as your primary, it might make sense.  But to leave that kind of money in the deal, to make no cash flow, is a no go.  There are much better opportunities in CT you can get into with that kind of money.  Like others have said, you have left no accounting for the major things.  Hopefully you have some contingencies that can get you out of this purchase.  Feel free to PM me if you need any recommendations.  I invest in CT.  Good luck.

    2Reply
  • Dilman R.
    OP
    Property Manager · Fairfield County, CT · Member since 2019 · 27 posts · 6 votes
    6y

    I didn't think this post would get as many responses as it did but thank you everyone for the great advice. Glad to be part of this community.

    1Reply
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