2 bed 1.5 bath, 875 sq ft, ground floor townhome in coastal South Carolina

9 Replies

Newbie here, considering taking down this deal and want to share with BP community for feedback, in order to hopefully learn more and allow others to learn from my experience. (And I may need backed away from the edge as I am getting to anxious!) I really appreciate all the input you veteran investors provide and hope to eventually give back to up and comers in the future.

I've found a 2 bed 1.5 bath, 875 sq ft, townhome in coastal Carolina approximately 1 mile to the beach for sale by owner. The unit is in an hoa condo community, made up of long term rentals and owner occupied units (approximately 50:50). I would acquire with the hopes to be a long term hold and rent. 

The numbers:

Thus far, agreed to a $45,000 cash sale price. Seller to pay for closing. 

The hoa just redid the outsides of the units within 2 years, and the inside of this unit needs no work.

Tenant currently in place, on a one year lease set to expire April 2015, paying $900 per month 

LL is currently paying for electric and Internet, approximately $65 and $33 per month respectively (per current owner)

$367 for HOA (hoa includes exterior/grounds/pool/patios/cable/water/trash as well as flood and hurricane insurance

I'm told by current owner that taxes are $606 annually, as investment property 

The owner says she is also paying $15 monthly for Renters insurance.

So in short:

45,000 asking price  

Income -

900 total monthly rental income 

Expenses -

65 electric

33 internet

50.5 taxes

367 hoa 

15 renters insurance 

530.5 total monthly expenses (not including mgt fee, vacancies, maintenance, etc) 

10800 annual income

6366 annual expense 

Conclusion/questions/my thoughts:

1) As seen above, this deal fits neither the 50% rule, nor the 2% rule. Is the margin too thin, and doesn't leave enough room for other expenses? Thus not worth the work or losing the money? 

2) what to do if I can't find a property fitting the 50% and 2% rule, particularly in this area? Do condos apply to these rules?

3) Is it ever possible to find a good return with HOAs like this one?

4) regarding the HOA, I also intend to request a copy of bylaws, as well as past expenses. The owner says the HOA was increased in 2012 for a renovation loan that is expected to be paid off in 2017. Anything else pertaining to the HOA that I should find out?

5) The person I'm doing the deal with says the property is actually in her sons name, with her as POA. She's said that she may owe money to an Ohio probate attorney, which is all a little sketch. Will a title search reveal any of this information? How do I go by doing such, or should I be hiring an attorney to do such work? What are associated fees? Will/how does title insurance protect against such circumstances, and what are associated fees?

6) if I decided to move forward with this deal, or a similar one, should I retain a real estate agent as a buyers agent? Or should I have the same attorney from above draft a contract? 

7) are there any other obvious things I'm leaving out, looking over, or missing altogether? 

Thank you all in advance for your feedback! 

Wanted to provide a follow up, as I've found a comp in the same neighborhood listed for $58,500

If this property is 1 mile from the beach near Charleston or Hilton Head, this is a solid deal. Decent spread for our area.  We can't always get 2% and you are pretty close.  Appreciation is a reality in most of Charleston, but I would be extremely cautious with Hilton Head or Myrtle Beach.

If you decide to pass on it,  I would love to take a shot at it.  I will make it worth your while.  

If you decide to move forward, I may be able to help you get it done.   If this in the Charleston area, I can recommend professionals to help you.  Realtor, Attorney, etc.  Same goes for Beaufort County (Hilton Head Etc.).  I know these markets and I am happy to help you succeed.  I also have some good contacts in Myrtle Beach.

If you would like some local knowledge on your side, send me a private message.

I wish you success!

The HOA fees kill the deal.

The HOA and utility payments put you over the 50% threshold for expenses as a percentage of gross rent. When you add in taxes, landlord's (and in this case renter's as well) insurance, vacancy, PM (since you're managing out-of-state), maintenance, etc., there is no room for cash-flow.

do you need flood insurance? or how much is the annual insurance? what are the planned capital; expenditures for the development?

@William Donaldson thank you for responding. I tend to agree. I'm just having a very difficult, impossible as of this point, time finding properties that match the 50% rule, and are not in high crime/not so good areas and are likely to have decent tenants. Have you had better luck? Even though the HOA is high, is it helpful with avoiding higher maintenance costs, ie: roof, and help keep vacancies lower because the pool and ameneties?

@Steven Picker thank you for responding. As per owner, flood insurance is covered by HOA. Will try verifying with hoa bylaws, or if you suggest another way?

Will I need additional insurance, such as landlord insurance or a property insurance? How much will this be approximately?

Regarding cap exp, the community underwent a total renovation recently, which is why the hoa increased from $290. As per owner, it may go down in 2017 when bank renovation loan is paid off, but I've never heard of HOAs going down. Perhaps I can get in touch with the board to learn more about the HOA, or if you have any other advice?

Thanks again 

Brice, I'm on the coast in SC, If you would like to chat let me know. 

@Brice Hall  

There are some markets where you will not be able to cashflow outside of the C/D areas that will cause more headaches than its worth.  What can make some of those markets attractive is the potential for appreciation.  I'm not interested in appreciation plays, because equities are a better option, in my opinion, given the dramatically reduced time investment and liquidity risk.

There are plenty of markets where you can find cashflowing properties, but it can be difficult for out-of-state investors. You not only have to have a great grasp on the market you invest in, but you have to work harder to find the best deals, because investors who live the market have a distinct advantage.I haven't had trouble finding cashflowing properties in my market, but several of my properties have come from word-of-mouth or other mediums for obtaining properties outside of using the MLS. I'm sure you'll be able to find the right market that fits your risk appetite and investment needs. I've read several success stories on this site from out-of-state investors who bought a turnkey property, but then I've also seen a few horror stories.

My advice:  Don't get impatient and purchase a property that you had to talk yourself into.

Got some pics of the unit, see here. Please share your thoughts!

I would love to hear if this deal felt through or not... We are looking into SC as well for a vacation place / short-term rental...

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