Condo/Single unit investment??

9 Replies

I have been seeing some single units pop up here and there. (Condos?) I'll post the links below. I know the area pretty well and know what the rent is like for units in the area. Seems like almost a 40-50% cash flow a month. Is this type of investment something you guys/gals would consider a first good rental property? Here are a couple https://www.zillow.com/homedetails/1600-N-Wilmot-Rd-UNIT-194-Tucson-AZ-85712/8527875_zpid https://www.zillow.com/homedetails/1600-N-Wilmot-Rd-UNIT-410-Tucson-AZ-85712/8527904_zpid

Hey Ryan,

For my buy & hold investment deals, we try to have our rents at least 1% of our properties ARV. Do you have that on your deal?

What do the financials look like? 

I would be happy to help!

There are many factors to determine if something is a good rental or not. If you have not done enough research, it is likely you are leaving some things out in your cash flow analysis. you must deduct adequate vacancy reserves, and maintenance/capex reserves before you reach your true cash flow estimate.

as a beginner, condos introduce a new wrinkle, an HOA which must be evaluated in addition to the property, but it also takes many maintenance obligations off your hands, which means a lower capex reserve is needed.

before making your decision, I suggest you do some research in the HOA forum to understand what kind of research is needed on that front, then do some research to determine how to properly evaluate an rental property

I'm going to do some more research on the hoa portion. But I had figured 5% vacancies a month 5% maintenance an 8% for management. Are those percentages too low? Thanks for the quick responses!

Originally posted by @Ryan Rossi :

I'm going to do some more research on the hoa portion. But I had figured 5% vacancies a month 5% maintenance an 8% for management. Are those percentages too low? Thanks for the quick responses!

 i believe most people budget 10% for vacancies but that can depend on the area.

Originally posted by @Etienne Martel :

Hey Ryan,

For my buy & hold investment deals, we try to have our rents at least 1% of our properties ARV. Do you have that on your deal?

What do the financials look like? 

I would be happy to help!

 Why did you adopt this method?  This is something floating around BP, but I can't seem to find it's origin.  This idea of 1% is silly, and I would really like to know the rationale behind it.

The reason why I push back is because taking a % of ARV doesn't provide a consistant figure as it doesn't take into account the equity position for the acquisition cost. For example, I have a unit that I acquired for $128K, put $22K into, and have a $108K loan on. ARV is $165K (reconfirmed by recent appraisal). With your analysis, I would need to have $1,650 per month in order for this to be a good deal. In yet, my mortgage payment is $624 per month, and I get $,1285 per month in rent. That is a SIGNIFICANTLY good cash flow! I would never reject that...and it didn't make your 1% rule.

So, again, please do share how you came up with this concept.  I would really like to pop this bubble floating around BP.

@Cara Lonsdale ,

That is because that is a great return for you. These single family homes have the most potential to have positive cashflow after all expenses. 

Have you set aside money for property management, vacancy, utilities, insurance, and maintenance? That is something a lot of people set aside, lowering your cashflow. You might be  managing it yourself, which would save you some costs but take your time.

Originally posted by @Etienne Martel :

@Cara Lonsdale,

That is because that is a great return for you. These single family homes have the most potential to have positive cashflow after all expenses. 

Have you set aside money for property management, vacancy, utilities, insurance, and maintenance? That is something a lot of people set aside, lowering your cashflow. You might be  managing it yourself, which would save you some costs but take your time.

Yes, I have accounted for all of those things.  I an not a new investor...been doing this since 2002.

I feel like you TOTALLY missed the point. My point is that taking 1% of the ARV is TOTALLY subjective to the market at the time, and does not take into affect the equity position. What if it was an all cash scenario? Why would I need $1,650 in that scenario?

When using a % rule, it has to make sense. Like the 50% rule for expenses. THIS rule makes sense, and it is consistant EVERY time, no matter whether or not the deal is all cash, or not! This 1% rule that someone started floating around BP doesn't make sense because it is not consistant, and any 1 thing can make it different (LTV, ARV).

@Cara Lonsdale ,

Didn't mean to sound rude or anything! 

I'm not saying it's a bad deal, everyone is in their own situation and have their own format on how they invest. This 1% rule is for people using a similar format with expenses of insurance, property management, rent, vacancy, etc.  

I have worked on deals where the expenses are not 50% and I know a few investors that like to do most of the management/repairs themselves, lowering the expenses significantly. My team invests in deals where we have higher than 1% rent/ARV ratio giving us an excellent profit. That is all i'm saying. You definitely will not be able to find this in every single market, but it is still a possible thing in the US market right now.

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