Please help me analyze this deal for a condo.
Asking Price: $43,000
Offer Price: $40,000
Down Payment: $8,000
Rent: $900 per month
Monthly payment with mortgage, insurance, HOA. $400
Property Management $100 per month
What do you think?
Should have said HOA includes water and some maintenance. Area is not bad, but not great either.
I am new to this myself but I will give it a shot.
Any BP members out there, please correct me if I am off with any of these rough figures.
First, the monthly rent is 2.25% of your offered price, which is good.
For the deal, let's figure a couple thousand for closing costs, due diligence, fees, etc to secure the deal, which puts you at $10k when we include the down payment. If your mortgage, HOA, etc is 400 per month, and your expenses will be roughly half your gross rent, then you will clear $50 per month after everything is accounted for.
Cash on Cash return=$600/year = 6% of your $10k
Amortization of approx $200 per month in mortgage expenses = $2400/year = 24% of your $10k
A more optimistic assumption would be $100 per month cash on cash since some of your expenses will be covered by your HOA fees. This would mean $1200 per year or 12% cash on cash return.
This all assumes that this is a turnkey property with no major rehab needed at purchase. It also doesn't fully account for vacancy rates for the area and other things more experienced analysts can estimate better than I.
That being said, in my own searches for properties, I have aimed for no more than $40k per door, with around a $100 per door cash on cash return after expenses. IMHO, you are in the right ballpark, you just need to run the numbers and make sure you are accounting for all known variables. Be sure to look at as many records as you can get your hands on. Bank statements, monthly expenses and bills, HOA agreements, etc. That way you can double check your figures against historical data.
Thanks for the lengthy reply.
@Justin Matthews you also need to make sure of the condition and location of the property. Read the HOA rules to make sure you can use it as a rental. To check out local prices spend a few hours looking through Zillow, Redfin, etc. Also you might find some local BP members who can help you on determining the class of the neighborhood. With all of that said the deal looks pretty good so far, keep going.
Before you make an offer, make sure you have financing lined up. It can be difficult to both get a loan for a NOO condo and a property under $50k. Be sure to check out the HOA financials. Don't just make sure they are solvent, see if they are building capital reserves. You don't want a special assessment for new siding or roof soon after you purchase.
Matt's calculations are incorrect because he's using the $450/mo as the debt service, when it actually includes HOA & insurance. If you can break out these numbers individually, we could better analyze the investment. Find an insurer who is familiar with the complex, because their familiarity with the HOA's insurance could save you big money on your premium.
Let me know if I can be of any help.
That's looks like a very good deal.
@Matt McConnell mentioned the big thing you left out -- rehab. Most condos need at least a little work done to them before you can rent out. Maybe just paint. Maybe new floors. Maybe new appliances. Maybe major repairs.
Instead of the purchase price the more interesting number is acquisition price. This counts both purchase price and all of the things that need to be done to make it rent-able. Unless all of the other stuff is 0 (a situation I've never encountered) you need to figure out what the acquisition price is.
If the HOA is investor friendly, is in good financial state and has no rental restrictions, you hit a home run! Otherwise, I would pass as HOA's can kill cash flow for any buy and hold investor with all their rules and regulations..
I did not see annual property taxes included in the original post. This is an important expense to consider. I specifically invest in condo rentals and will only purchase units where the HOA/Taxes/Property Management/Debt Service expenses are 60% or less of monthly rent. (I manage my own as there is not much to manage in a condo, and I purchase mostly in cash to keep costs down) Keep in mind that any repairs, vacancy, or special assessments will put you in the red if you do not minimize your fixed costs.
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