I imagine this will generate a lot of discussion. I am looking at my first investment. The Eastside of Seattle is very expensive, but I have found a home built in 2007 for 200K (totally unheard of). I would like this to be a rental. Reasons why I am interested in this property:
1. it is a turn-key property 15 minutes from my house
2. it is in a very desirable area and inventory is low
3. the HOA covers ALL outside maintenance and the roof, siding (as this house is considered a detached condo).
4. comps rent out for $1500-1700/mo. tenant pays all utilities.
5. It has 2 bedrooms/1 bath
I ran the numbers through the calculator and the numbers work out to be 16% Total ROI, total cash flow $5343/yr, considering 8% vacancy and the (choke) $225/mo HOA. I would like the input from investors who have experience with this type of situation.
Would want to check CCR's to see if there is a guidelines for HOA rental restrictions. Sometime's only a certain % of the units can be rented, etc.
I don't rent out condo's so I don't have the exact experience you may be looking for but just please make sure you have all your expenses included. Since you didn't provide a breakdown on the expense side please remember that stuff happens where you have to paint; call a plumber; replace carpeting; wear and tear inside; insurance; taxes; mortgage interest etc. Be careful of those dreaded HOA fee's as you know already you don't want those creeping up. Make sure you have an exit strategy also as if everyone is trying to sell their condo at the same time it could be tough to get out.The ROI sounds good so go for it as long as you did your comp's correctly. Its also a good smaller property to learn the ropes on also if you are a new investor.
In addition to reviewing the CCRs for rental restrictions, ask to see the HOA budget. If they have liquid funds you may be ok. If they're operating really tight and a repair comes up you could be looking at a big special assessment that will wipe out any cash flow you may have.
@Mark Langdon and @Zach Schwarzmiller I agree-this would be an easier type of property to but my teeth on! I have spent the evening looking at FreddieMae listings, an hour away, with a complete rehab needed.....and could probably buy for a song, but that may be way too much to start. This 200K unit was rented out by the prior owner, but I would verify the CC&Rs just in case. Thank you so much for your input. I did run misc. expenses as $100/mo., but everything is very new, so I think in comparison to a well worn duplex, my expenses would be less? I overestimated property taxes and made a guess on insurance to be honest. I will be able to get "exact" numbers soon.
@Matt Devincenzo Holy smokes-I never would have thought of that! Thank you! I am well versed in the "special assessment" for condos as that was the reason I fled my first home-you're right, they can be outrageous.
CUT my teeth on. jeez.
I will take a look at as I know the area well. Send me address.
Here's some thoughts, for what it's worth:
2006 means things are 8 years old, so, if this will be a long term hold, depending on how well it was taken care of, there could be expenses coming up in the not too distant future if it has the original paint, flooring, appliances, etc. Additionally, you can Google "life expectancy of appliances" to get an idea about that. Here's one example - check the average life expectancy column:
The HOA could actually be a good thing if run properly, at the expense of some control. Also, they probably already pay for some insurance, so that could decrease the costs of your coverage. Your expected cash flow will depend on whether or not you're managing the tenants yourself or not, if all the maintenance is outsourced, or if you can do some of it yourself, etc. Seattle is a tenant friendly market, so another thing to take into consideration. It's tough to cashflow well in Seattle on SFRs.
To be conservative, we could use the 50% rule. If gross rents are $1600 per month, over the long term, (50% of $1600) or $800 would go toward expenses, such as taxes, insurance, maintenance, vacancy, etc, not including the mortgage. The $800 that's left would be to cover the mortgage payment. Whatever's left over after that would be your cash flow. If you self manage, you could cut expenses by 10%.
Washington is a Super Lien State allowing HOA's to lien and foreclose when dues are delinquent, sometimes ahead of mortgage position. Make sure to pay your HOA dues with as much priority as the mortgage payment. I only just learned about this and suggest you, everyone, research Super Lien States in reference to HOA's. I can't answer any of your questions but HOA's can be a nightmare if you or your potential tenant don't know what they contain/control.
Partial list of Super Lien States (I think there are 20 states now);
· Arizona *
· District of Columbia
· Massachusetts **
· New Jersey
· New York *
· Rhode Island
· West Virginia
* Takes priority of all liens except first mortgage liens
** has priority over all other liens except municipal liens.
In Rhode Island, my understanding is that it's only "super" to the extent of 6 months' worth of condominium association fees; after that it has normal "non-super" priority ("first in time, first in line"). See RI General Law § 34-36.1-3.16 Lien for assessments: http://webserver.rilin.state.ri.us/Statutes/title34/34-36.1/34-36.1-3.16.HTM
I can’t run your numbers because I don’t see enough detail, but wonder why the property is priced below market?
I echo what others said about checking out the association, including rules and regulations, reserves, etc. Many associations are professionally managed and have documents, meeting minutes, etc. on their web site. These are the associations I most like dealing with.
Condo fees can go up, and assessments happen, but so can costs to maintain single family homes. I’ve seen the biggest annual condo increases happen due to new developments (starter fees, then jumps to reflect actual expenses) and after major storm damage (can’t control that one.) A well-managed association will plan ahead for new roofs, siding and other major expenses.
Talk to condo neighbors to get their opinions of the association and planned or pending projects.
What’s your rental competition? Condos are good for evaluating purchase, sale and rental prices/rates because there are similar ones to compare. Differentiators are condition and location within the community.
Turnkey condition can quickly become non-turnkey due to rental wear and tear.
One bath is not ideal, many renters won’t even consider it.
Confirm utilities; some won’t direct bill rentals. I have one like this.
Check city rental regulations for licensing, inspection or other requirements.
Don’t guess on insurance, call for a quote to avoid surprises.
My first residence was a condo and I wish I kept it as a rental. Due diligence on condos can be straightforward because there’s so much information available.
A newer property, close to home, good location, with minimal rehab – and assuming positive net cash flow – is a great way to cut your teeth. I hope it works out for you.
33723 SE Gove Street, Snoqualmie
Just FYI, in Colorado I believe that the superpriority only applies to 6 months of HOA fees, everything else gets last position.
Looks like a good rental but numbers aren't quite as sweet. With an acquisition price of 200k you are looking at a PITI of 1050 per month. For a newer rental like this I would estimate 20% of the income going toward management and repairs. Then minus the HOA.
1700 (optimistic rent) x80% minus HOA = breaking even. Now add in vacancy... sorry I think its just the market that we are in.
I think your 8% vacancy is a good estimate since its not too populated area.
Overall you would be breaking even. I might jump on this if you had a little more upside with appreciation (if it were in Seattle).
Calling North Bend the "Eastside" is playing fast and loose with the term. I've lived in Seattle/Kirkland for 15+ years and I've seen what happened with the tech boom...and the lion's share of that growth was in Seattle/Kirkland/Redmond/Bellevue. $200K for a condo in Bellevue/Redmond might be more reasonable.
Furthermore, $1700 for a 2br 1ba with 1000 sqft? If these are Zestimate numbers, look elsewhere. A more realistic estimate is $1200. This is still a place in the sticks with a 50 min rush hour commute to Microsoft and the like.
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