Two similar properties: which is best for long-term cash flow?

Question

Weighing two potential condo acquisitions.

Condo A is proximate to large army base (Fort Meade, in Anne Arundel County, MD). It is a 3/2, 1,032 sf.

Condo B is in a middle-class suburb in Baltimore County, MD. It is a 2/1, 961 sf.

Both have voucher tenants (different kinds of vouchers). Both condos have monthly fees of just under $200. Both tenants would like to stay.

The Condo B tenant voucher pays $1475/month and the listed price is $119.9K.

The Condo A tenant voucher is $1400/month and the listed price is $129K.

At present, Condo B is clearly a better buy, going strictly by the numbers. But how do I evaluate for the long term? Specifically, the cash-flow and liquidity of each investment? Being able to achieve maximum and stable cash flow, or being able to cash out quickly over the long term is really important to me.

I believe Condo A in the long run will benefit from being very close to the army base, a key employer in the area, and will always have a built-in pool of potential tenants and/or buyers.

Am I exaggerating the value of this location? Does the advantage of owning a 3/2 near Fort Meade make Condo A the better value though it costs more?

Having owned rentals since 2012, I know how to work through each scenario strictly by the numbers as each currently stands.

But I would be grateful for counsel on how to compare the longterm cash-flow and liquidity of these alternate investments. I have access to the multiple listing service.

Thanks for your time.

Nancy E. Roth

Washington, DC

Ned Carey · Answer

I would be concerned about how well run the condo association is.  Have they been underfunded and now ripe for a big condo fee increase?  How many rental units vs homeowner units?

Russell Brazil · Answer

I prefer to invest where incomes are higher as that tends to lead to a lower risk asset.   Less downward pressure during bad economic times.

Nancy Roth · Answer

@Ned Carey Hi, Ned! Howz things? Thanks for writing!

Good points all.

Last question first. As I understand it, to qualify for FHA loans the condo community must have no more than 49% rentals. The owners have an obvious interest in retaining FHA approval for loans, so that when they sell they can be exposed to the maximum number of buyers. Both of the condos I'm considering are currently owned by investors, not  owner-occupants, so I would expect the balance would not be altered if another investor bought in. But would check that before moving forward. My guess is, the condo association would NOT let the sale move forward if if alters the balance.

As for the first and second question about how well-run and well-funded the community is, thanks for making me think about this. The key thing, I guess, is how much in reserves the community association has collected for major repairs, and a record of of repairs made on the structure for the last 15 years. The condo fee includes a master insurance plan that covers damage to the exterior and the common space, for example if a disastrous storm blows off the roof. My understanding is that for coverage of the interior of the unit one needs one's own insurance.

From my perspective it seems not that much different from owning a SFH as a rental, if you are using a property manager, except the management is onsite and so is the custodian.

Russell Brazil · Answer

Without knowing the exact locations, I'd take Anne Arundel over Baltimore County

Nancy Roth · Answer

@Jason Wade Hi Jason, thank you. @Russell Brazil was looking at income of the residents of each place, and commenting that the higher the income, the more cushioning you have in a downturn. In general much of Anne Arundel has higher income than much of Baltimore County, but is that true of these two particular communities? I hadn't thought to look that up, so to me it was an insightful comment.

I think you are talking about the advantage of appreciation, but that is icing on the cake to me. My key consideration at my stage in life (kids raised etc.) is cash coming in regularly so I don't have to work so freaking hard all the time. Also, should I need it, I want to be able to liquidate without a huge struggle.

So whatd'ya think?  Is the Arundel property near the base is an advantage for cash flow and liquidity? I appreciate your comment, and will look at the rate of growth of home prices in the two markets.

Jason Wade · Answer

I believe he is saying AA county based on his opinion. However, I believe that Owings mills is a more viable improving area. Severna is a older community (I'm there a lot for baseball games) and I don't see that market going up like owings mills.

Nancy Roth · Answer

@Kyle Quaranta Excuse me, I answered your question but forgot to ding you. It's going out toward Owings Mills, past the beltway from Pikesville.

Nancy Roth · Answer

@Ray Johnson  Excellent point, thank you. Condo B in Baltimore County is 27 years old and has up-to-date appliances and fixtures. Condo A is 42 years old. I haven't gone inside yet. Some wear and tear, I believe.

Nancy Roth · Answer

@Russell Brazil That's interesting. In Anne Arundel it's Severna, just to the east of Fort Meade. Baltimore County, going out we're talking outside the beltway toward Owings Mills. Why do you like Anne Arundel better? I haven't invested there yet.

Two similar properties: which is best for long-term cash flow?

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