$550 / mo rent on $12k condo???

26 Replies

So I am back at it with these low purchase price condos.

This is for a 1br/1ba downstairs unit in a 110 unit complex.

Current owner bought property 6 months ago, rehabbed it and is flipping it (I talked to the maintenance guy on the property who told me how extensive and nice the rehab was).

Monthly rent in complex: $550

Purchase Price: $12,000

Taxes: $40 / month (~$475 per year)

Insurance: $40 per month

HOA: $190 / month

Sewer and Water :Included in HOA

Trash: Included in HOA

Heat/Utilities: Tenant pays

Cap Ex and Ops

Mgmt Fee - 10%

Vacancy- 8%

@Petit Morne

It doesn't look like a deal to me. Nice layout of your expenses :)

Once I throw in a Cap Ex and Ops number, even at $100 per month, this place doesn't seem to make any serious money.

I see your $550 income against the following expenses:

Mortgage Rate 5.00%

Length of Mortgage in years 30

Monthly Mortgage payment $0.00 (at 12k I assumed a cash buy)

Taxes $39.58

Sewer and Water $-

Trash $-

Heat/Utilities $-

HOA $190.00

Cap Ex and Ops $100.00 (this is too low in my mind. This is only $1200 a year for repairs. New carpet for your condo will cost a couple year of savings. Never mind the inevitable water heater and/furnace repairs)

Insurance $40.00

Mgmt Fee $55.00

Vacancy $44.00

Total Expenses $468.58

Total Revenue $550.00

Cashflow/month $81.42

Cash on Cash Return 5.58%

@Aaron Montague

How do you calculations compare to the 50% rule or 2% rule?

2% rule says rent needs to be at least $240 per month

I'm still trying to learn the ropes.

Seems like I will need rent to be at least $575 and better yet $600 to make this thing work.

Although, I think that is at the high end for 1br units in this complex

@Petit Morne The 50% rule says that at 550/mo rent, you'd have 275/mo left over as cashflow. (550/mo rent x 50% expenses = 275/mo)

With my numbers matching Aarons's, you'll be at $81/mo cashflow, with expenses closer to 84%. This is why the 50% rule is a quick rule of thumb calculation to decide if you want to look more closely at a property, but by no means a deal maker.

@Aaron Montague Being a newbie myself and doing dry run calculations like these as much as I can, I'm curious as to what you typically allocate towards upkeep for your properties? I would like to see other BPers comments on this aswell.

High HOA dues mean bad cash flow and low unit valuations. That's reality. At 35% of rent, the HOA dues make this (and other condos like it) a painful investment.

I think your insurance number may be too high. Check the HOA's master policy to see what it covers.

If it has W/D hookups, consider putting in W/D and try to get closer to $600 (e.g. $595.) Or find a corporate rental program where you can offer a higher price with custom amenities (e.g. furnished unit, etc.) Get a copy of the HOA budget and find out why the fees are so high. Expensive Pool? High water bills? See if the HOA board is doing anything to alleviate the high fees....

There is a guy who owns 30 units (of the 110 total) in this complex.

He contested the tax board and his valuations are half as much as everyone else's (10k-12k instead of 22k-25k). I still wonder how he is making this work.

Maybe he is getting a GREAT deal on insurance and his maintenance fees?

Hopefully this does not turn out to be a painful (and expensive) learning experience.

This seems to me a case of getting caught in numbers. Aka not seeing the forest through the trees. 550 a month with a 190 condo fee+repairs? How much will cleanup cost? What if you had to evict? Vacancy? Just doesnt seem worth the headache......and thats only after you pay off the 12g

Originally posted by @Account Closed :
This seems to me a case of getting caught in numbers. Aka not seeing the forest through the trees. 550 a month with a 190 condo fee+repairs? How much will cleanup cost? What if you had to evict? Vacancy? Just doesnt seem worth the headache......and thats only after you pay off the 12g

I know it does not seem like it @Seth Sherman but I wonder how this one guy has had 30 units since 1991 in this same complex and how he is making it work. Like, I doubt he would be in it if there was not a profit involved. I always wonder about these things. This is a "war zone". But there are THOUSANDS of apartments in these several blocks. I would imagine at least 70% occupied at all times.

Individual units list for 25 but sell for 20.

A guy has 30 units for sale for 450 for the package. THIS IS NOT A SOLICITATION POST (I will not provide any info via PM).

I'm only concerned on how people are making money from these type of deals with figures posted above.

Mind boggling.

Originally posted by @Petit Morne :

So I am back at it with these low purchase price condos.

This is for a 1br/1ba downstairs unit in a 110 unit complex.

Current owner bought property 6 months ago, rehabbed it and is flipping it (I talked to the maintenance guy on the property who told me how extensive and nice the rehab was).

Monthly rent in complex: $550

Purchase Price: $12,000

Taxes: $40 / month (~$475 per year)

Insurance: $40 per month

HOA: $190 / month

Sewer and Water :Included in HOA

Trash: Included in HOA

Heat/Utilities: Tenant pays

Cap Ex and Ops

Mgmt Fee - 10%

Vacancy- 8%

12k condo?

What city is it located in?

Thanks and have a great day.

Originally posted by @Engelo Rumora :

12k condo?

What city is it located in?

Thanks and have a great day.

@Engelo Rumora: pretty much any war zone in the country. Dallas, Atlanta, Mobile, Jacksonville, Orlando, Charlotte, St Louis


Originally posted by @Petit Morne :
Originally posted by @Engelo Rumora:

12k condo?

What city is it located in?

Thanks and have a great day.

@Engelo Rumora: pretty much any war zone in the country. Dallas, Atlanta, Mobile, Jacksonville, Orlando, Charlotte, St Louis


Nice,

I never came across individual units in complexes that can actually be bought separately like that. Normally its a duplex or 4plex.

Thanks

Originally posted by @Engelo Rumora :
Originally posted by @Petit Morne:
Originally posted by @Engelo Rumora:

12k condo?

What city is it located in?

Thanks and have a great day.

@Engelo Rumora: pretty much any war zone in the country. Dallas, Atlanta, Mobile, Jacksonville, Orlando, Charlotte, St Louis


Nice,

I never came across individual units in complexes that can actually be bought separately like that. Normally its a duplex or 4plex.

Thanks

What cities are you looking in?

Many times they advertise for $20k but you can usually get them for $10k-15k

Thanks Petit,

We were very active in the KC market in 2013 and have now started operations in Toledo, Ohio.

Bought quite a few here in the last 10 days.

The Ohio market is very undervalued IMO.

What areas are you investing in?

Thanks and have a great day

@Petit Morne

The 50% rule was explained nicely. The 2% rule, or the 1% rule, or the 1.5% rule, just tells you a place will be worth running the numbers against. If you invest in an area where you routinely see rents at 1.5% of the final selling price, you'll run the 1.5% rule on properties. If a 100k property has $1500/month in rent, then you run the numbers above to figure out exactly how much you stand to make.

Your condo passes the 2% rule nicely. As you said, it would need to be $240 to continue to look at the property. Now that you've looked at the numbers, you can decide if you want to invest. I wouldn't touch that place at those numbers. Your money could be invested elsewhere with much better returns.

@Tyler Wenzel

I allocate 0.1% of the purchase price per month for operations and capital expenditures. I have a minimum number of $150/month per roof. In my experience, it takes quite a bit more money to maintain 2 duplexes than to maintain 1 4 family home.

55k SFH: $150/month

135k 3-famil: $150/month

550k 12 unit complex: $550/month

Obviously this isn't perfect, but it's worked nicely for me for years.

In Excel:

=IF(B2*0.001<150,150,B2*0.001) B2 is the Purchase price.

@Aaron Montague Thanks for the reply. I appreciate you even went the extra mile by giving me your excel formula. I've taken it and put it into my spreadsheet as well. I'm happy users like you like to help others here on BP, that's what makes the community great!

Good luck with future deals, Tyler

I am also contemplating a $18k condo which would rent for $695/month with $160/month HOA. Tenant pays for their own utilities. Taxes/insurance about $50/month. This would be a partial owner finance at $10k down with $150/month for 20 months and $5k rehab/closing/holding costs. So, this is a similar situation.

Originally posted by @Aaron Montague :
@Petit Morne

Total Expenses $468.58

Total Revenue $550.00

Cashflow/month $81.42

Cash on Cash Return 5.58%

Hi Aaron,

Can you pass me the formula for the cell where you calculate the CoCR?

Should it not be =(Cashflow/month*12) / purchase_price

so

(81.42 * 12) / 12000 = 8.142%

EDIT: I understand it is not actually purchase price but amount of initial investment (which could be a downpayment) but in my case since I paid cash these two amounts are the same.

@Petit Morne

Your equation is close:

"Should it not be =(Cashflow/month*12) / purchase_price"

On my sheet I use: Should it not be =

(Cashflow/month*12) / (purchase_price + closing costs)

Don't forget to put your inspection costs into the closing costs.

The bottom half of the equation is every dime you put into getting the house. Any expense that isn't rolled into your mortgage payments needs to be part of the closing costs section.

I always estimate my closing costs to be about $5500 using conventional financing. This amount is hotly debated here on BP. I have yet to see closing costs in MA or VT using conventional financing less that $5000.

@Tyler Wenzel

You are most welcome. One of my biggest hopes is that cities and towns start taking a different look at landlords in general. I get the sense that we are still pretty well disliked, so if we make smart decisions on the front...

"You make your money when you buy the property." - famous BP mantra

... we don't end up as desperate, cash strapped slum lords on the back end of the deals.

Originally posted by @Aaron Montague :
@Petit Morne

Your equation is close:

"Should it not be =(Cashflow/month*12) / purchase_price"

On my sheet I use: Should it not be =

(Cashflow/month*12) / (purchase_price + closing costs)

Don't forget to put your inspection costs into the closing costs.

The bottom half of the equation is every dime you put into getting the house. Any expense that isn't rolled into your mortgage payments needs to be part of the closing costs section.

I always estimate my closing costs to be about $5500 using conventional financing. This amount is hotly debated here on BP. I have yet to see closing costs in MA or VT using conventional financing less that $5000.

So you budgeted $5k closing cost on my $12,000 condo?

The condo is in Houston where CC average 4% of purchase price.

Honestly, I think all in the CC will be about $500

$252 title fees

Another $250 or so in city stamp taxes and document fees.

I think I'm around 8% with those figures.

@Petit Morne

I'm psyked for you to get 4% of purchase as closing costs. I've just not seen anything like that. I tried to finance a 34k condo in Philly as was met with $4900 in closing costs, not including pre-paids:

Philly Condo Closing Costs

I have no idea how much it will cost you to close. Are you paying cash? If so, your fees will be quick a bit lower?

Are you buying title insurance? $252 seems quite low for title insurance plus processing.

Originally posted by @Aaron Montague :
@Petit Morne

I'm psyked for you to get 4% of purchase as closing costs. I've just not seen anything like that. I tried to finance a 34k condo in Philly as was met with $4900 in closing costs, not including pre-paids:

Philly Condo Closing Costs

I have no idea how much it will cost you to close. Are you paying cash? If so, your fees will be quick a bit lower?

Are you buying title insurance? $252 seems quite low for title insurance plus processing.

Those are costs outside of downpayment.

On a $200k home expect $8,000 closing costs + whatever downpayment you will have. It is said that Houston has some of the highest closing costs in the country.

And Texas has state regulated title costs.

http://www.frontiertitletexas.com/tools/title-calculator

The closing costs for a buyer on a cash sale in Texas should be in the $300-500 range not including any condo transfer fees

Several years ago, I purchased a few condos in Houston and managed myself from Austin. Section 8 was ok for the 2 bedrooms but the 1 bedroom was always a hassle on a straight rental and the clientele was on the rough side and turnover was super high so factor in leasing fees to your property manager

Property tax protests must be filed by 5/31 in Texas with the exeption if notices were not sent out in time(Rare)

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.