purchasing a single condo unit as a rental

8 Replies

I've been thinking a lot about buying a condo unit 2bed 1bath and using it as a rental unit but the numbers don't work and I'm left wondering what sort of investors actually make these purchases and how it makes sense to them.  Any insight would be appreciated!

A recent 2bed 1 bath condo unit came up last week for $286,000 in a good location (right by the subway station), condo fee @ $654, 925 soft.  I spoke to a mortgage specialist that said roughly my monthly payments would be ~$1000-$1200 over 25 years with 5% down.  So at minimum I would need to charge ~$1854 just to cover these costs and that's already really high for that size condo at that location, they usually go around $1600-$1700 tops.  

I would have nothing extra for when things break or anything for that matter, it would be out of pocket which doesn't seem to make sense to me if this condo is to be an investment.  Is this just a case where the numbers don't work or am I missing something big?

I'm not familiar with condo associations in our neighboring Canadia but I've managed about 50 properties in and around DC.  It sounds like your numbers just don't work on this deal and assuming your mortgage is $1,200 and your condo fee is $650, it sounds like you're already over the market rental rate for that unit.  From what I'm seeing, not only are you not making any money here, you're going to end up losing money on this deal.  No sense in tying up your capital and having to pay into the property on top of that.

Disclaimer: I'm newbie investor but it doesn't take a rocket scientist to do basic arithmetic.  

I am not a fan of single condo units as investments . 

Too many things are out of the investor's control.

You're not missing anything. The numbers don't work. I've had this conversation many times with condo owners who want to turn their condo into a rental, either because they're moving out of town or buying a new home.

When I ask what their monthly expenses are, they'll tell me the PITI is something like $1100, with a condo fee of $400. Then when I pull the comps I discover that the property will get $1600, maybe $1700 in rent.

Basically they're going to break even at best, or lose money every month at worst. And there's no guarantee the condo fee won't go up in the next couple of years.

When I ask why not just put it on the market and get out from under it, the answer is always that they believe the condo will appreciate and they'll make a lot of money when they do sell it. The problem is, condos generally don't appreciate like single family homes do.

So if someone asked my opinion on investing in a condo as a rental, I would tell them to run away as fast as they can.

In NYC people would buy a deal like that (and much worse numbers) because they are hoping for appreciation like what happened 10 years ago. People seem to think that property prices here will double every 10 years. Or it might make some sense to buy if you wanted to live there because you get a big tax break which could make it slightly cheaper than renting & building some equity at the same time. 

condos can make you money If you know your market and do the numbers. I own 2 condos and I cash flow positive on both. Plus I never have issues with tenants because the assoc takes care of almost everything. You just have to find the right deals. With a house you have much higher taxes and many things can go wrong. Single family homes are a money pit pure and simple. I lived in a condo for 7 years and barley spent a dime. I bought a home and all I do is spend money fixing this and replacing that. Houses are more time consuming as well because the tenants could care less about the lawn, landscaping and keeping up with general maintenance. What control do you have in owning a single family home? The furnace breaks you fix it. Gutters leak you fix it. Tree crashes through the roof you fix it. Ect.....

Originally posted by @Steve Kachniewicz :

condos can make you money If you know your market and do the numbers. I own 2 condos and I cash flow positive on both. Plus I never have issues with tenants because the assoc takes care of almost everything. You just have to find the right deals. With a house you have much higher taxes and many things can go wrong. Single family homes are a money pit pure and simple. I lived in a condo for 7 years and barley spent a dime. I bought a home and all I do is spend money fixing this and replacing that. Houses are more time consuming as well because the tenants could care less about the lawn, landscaping and keeping up with general maintenance. What control do you have in owning a single family home? The furnace breaks you fix it. Gutters leak you fix it. Tree crashes through the roof you fix it. Ect.....

 I mostly agree with this statement except for the fact that there are condos out there where you are responsible for the roof/gutters, your individual HVAC, etc.  Having said that, there aren't many where you are responsible for the roof/gutters and I would guess that less than 40% of units (at least in the DC area) have individual HVAC.  But if yours does, you need to start thinking about funding that reserve account for future repairs.

the assoc. has had a few special assessments over the years but for the most part nothing major. I just spent 12k on sewage back flow protection and a new sewer line for my home. I've never had any expense like that with a condo. I just find condos to be so easy. I never get calls from tenants and I get good rent. What more can you ask? 

Thanks everyone, for your input.  I think I'm just getting way over my head and too excited about getting into real estate.  I hadn't even considered whether the I would be responsible for the roof or not, along with probably dozens of other things I am not even aware of!  

It eases me a little that condo investments do positive cash flow for some people, maybe there is hope yet in my city.  I will continue to study and save in the meantime.  

Thanks again

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