First foray, insights welcome

18 Replies

I would welcome some insight from this professionals on this.

My mother owns a home in brooklyn NY, and is about to retire next year. I am contemplating selling the home and using the proceeds for a 1031 exchange whereby she would purchase a condo to live in, and another condo for rental income. Both condos will be cash.

For the rental condo, I was thinking about 3 markets where the rents are not bad and there is room for capital appreciation.

I have finalized my list to 3 places

1. Austin Tx

2. Minneapolis MN

3. Richmond Va

I am thinking about hiring a property manager to collect the rent, and pay the HOA fees while depositing the remainder in a bank account for my mom and I to access.

My working budget is $300k and I am looking to get a minimum of $1.5k-$2k per month in rents.

Insights welcome

Hi William, 

Would you be helping and/or nearby where the rental is? If it's a condo I don't think you'd need a property management company since you'd be paying HOA fees that would take care of everything except collecting rent from the tenant for your mother. You can probably set up an online payment system that goes to you and you can transfer it to your mother's account like Venmo. I have a few friends that pay for rent that way on NYC

As far as areas go for a rental, your money will go further in MN or VA as Austin is really been blowing up the past few years but there may also be more available because of that. Those are all very different locations too so it depends on where you want to own. Personally, I would look at which area had the least taxes and then start looking at condos there.

@William Springer , If that home in Brooklyn is her primary residence now then it's not eligible for a 1031 exchange.  And it may not be needed.  She would get the primary residence exclusion of the first $250K of profit tax free if she has lived in it for 2 out of the 5 years immediately prior to sale.

If it's a rental now then you can do a 1031 but she will not be able to move into one of the properties for a year or two since the 1031 is for the sale and purchase of investment property only.  She can't exchange for her primary residence.  But she can buy an investment property and later convert it into a new primary.

thanks for the insight guys. I forgot to mention that the house that my mom is currently in, is a 2 family with the 2nd floor rented. This is why I am keep on the 1031.

@William Springer in the Minneapolis market you should be able to get 2 condos for $300K.  They will be modest condos in B/C areas.  Much better cash flow than 1 great condo in  B area, and hard to find a bottom of the barrel condo in an A area.

The other thing is if you are not managing it then why are you looking at condos?  Honest question, my impression is that condo investors do it to limit the time and complexity of managing the property.  I don't think you get much or any discount from a PM for management of a condo.  Maybe @Amber Gonion can confirm or deny this.

I always look up cities on Sperling's Best Places to Live.  It has a lot of information on things you might care about.  I look up crime stats and housing stats as well as looking at the average price of a home, etc.  For example, the unoccupied rate of rentals in Minneapolis and Austin are 7%, but in Richmond it's 13%.  All else being equal, I'd be less interested in Richmond.  But there are other factors you might want to consider.  For example, the violent crime in Austin is really low.  But do you care?  Perhaps you only care about property crime.  We all have our criteria.  Figure out what yours is and seek the answers.  :-)

One thing to consider is if it's someplace you want to visit year after year.  Even with a PM, you need to check on them.  No PM is perfect and many aren't that good.  You won't know until you physically check on your property.  And just because things were good one year, doesn't mean they will be next year.  Or what they think is good enough might not be to you.  My PM was fine with one of my rental's mailbox being rusted.  I wasn't.  If I hadn't visited the property, I wouldn't have known.  

Good luck!

There is a slight discount for managing condos.  We love investors looking for condos and townhomes.  There are great investment deals out there in this market.  Pm me and I can send you a couple of examples along with the spreadsheet showing the profit potential of these types of properties.

If She is owner occupied on the duplex you cannot 1031 exchange. Personally I would shy away from a condo in any of those cities. I don't think you'll find much cash flow and the Twin Cities or Austin. I'm not sure about Richmond.  If you want to invest out of state and want to keep it small then why not go with a turnkey provider? Your return on investment likely would be better. Also if you're not doing a 1031 exchange your mom could partner on a deal with an experienced  commercial/multi family operator. I guess in my opinion purchasing condos is probably your lowest return on investment and the highest risk.

Thanks for the responses guys. I will be doing my due diligence and will be tapping your expertise as the time gets closer. I'm aiming for June 2018 to finalize everything for my mom.

@Todd Dexheimer , Actually in her case the 1031 and 121 primary residence would both be available on a sale according to the specific allocations.  So she just got the "best of both worlds" scenario!!

@William Springer if you're going to use a PM are you set on a condo? You may be able to get a better return by buying a small multifamily property.

Originally posted by @Jordan Moorhead :

@William Springer if you're going to use a PM are you set on a condo? You may be able to get a better return by buying a small multifamily property.

 I'm trying to thread the needle carefully. Condo fulfills several criteria

1. cheap within the price range with no mortgage

2.Easy to manage

3. Apartment buildings come with several repair  costs . I looked at it several and weighed the risks of taking on a mortgage. Its not worth it, since I have a fulltime job to tend to. The condo can easily bring in the rental income and I can sign 6 month management leases with the property manager.

I think @Jordan Moorhead might have been referring to a duplex, triplex, or quadplex, not an apartment building.  I agree that apartments are too much of a headache, but you may be able to find a duplex or something in your price range.  :-)

@William Springer

If you're buying all cash, you can find a couple of positive cash flowing condos in Austin for $300k total without too much searching. By "positive cash flowing," I mean just that, not necessarily anything impressive. It would be very tough to get the $1.5k-$2k/mo. in rents you mentioned on each condo around the $150k price range.

Just throwing out an idea here; if you have 300k to spend, and you don't want to deal with the headaches of management, have you considered alternatives to landlording? You could do well as a private lender with those funds. You could partner with reputable investors in your area, or use some of the crowd sourcing investment websites that are out there. You might also consider note investment. I know very little about that market, but have heard from several well-informed investors that there is good money to be had there with very little oversight required. 

Once you have tenants, it becomes difficult (but not impossible) to call that investment passive. If true passive is what you want, maybe tenants is not the answer. 

I should note that I'm a buy-and-hold investor with tenants; obviously I think it's a great idea to be a landlord. But I also know that it's not for everyone. 

Originally posted by @Samuel Bavido :

Just throwing out an idea here; if you have 300k to spend, and you don't want to deal with the headaches of management, have you considered alternatives to landlording? You could do well as a private lender with those funds. You could partner with reputable investors in your area, or use some of the crowd sourcing investment websites that are out there. You might also consider note investment. I know very little about that market, but have heard from several well-informed investors that there is good money to be had there with very little oversight required. 

Once you have tenants, it becomes difficult (but not impossible) to call that investment passive. If true passive is what you want, maybe tenants is not the answer. 

I should note that I'm a buy-and-hold investor with tenants; obviously I think it's a great idea to be a landlord. But I also know that it's not for everyone. 

 that's a great idea, 2 things though

1. I am clueless as to how to go about it

2. Since its my mom's money, I wouldn't risk it in something that I am clueless about.

My mom will sleep better seeing regular monthly deposits in an account and two deeds to her name. Also the last thing I want is family gossip.

@William Springer One can hit that target in Austin, Texas. It takes a bit of searching but it can be done. I currently have a loft on the market that is under contract for $124k. It can generate rents of a thousand monthly approximately. Its close to your criteria. There are others that are similar on the market as well. Let me know how I can assist you. I also run a property management company that can help manage it for you as well. 

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