Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
Okay, so I just posted back a couple of months ago regarding a 3 bedroom single family I bought on July 15th. But, I had the opportunity to buy a 3 bedroom townhouse.
This deal actually started back in May! I visited the property as the owner had purchased from an older woman and basically wanted to flip it. So he listed it on Craigslist for $20,000. I went through, and saw that the property needed some work and the HVAC was older as were the appliances, so I offered him $16,000. He said no and that he would list it on the MLS.
So June goes by, he hasn't sold it yet.
July goes by and he hasn't sold it yet.
August comes about and I follow up with him and let him know that I'm still willing to buy it for $16,000. He says no, but offers it to me for $18,000. I say no can do.
September rolls around and I again email him and offer $16,000. He said he would do it for $16,500. I stand firm and say no, $16,000 is my price. (I wasn't budging even for $500!)
Now October rolls around and he says he will agree to my price of $16,000. So we get everything arranged with the title company. There was a slight delay on closing because the condo association didn't get the paperwork to the title company in time, but it wasn't that much of a delay.
After closing I got the contractor in to get the work done that needed to be done (flooring, trim around the door, and some drywall fixes).
Now I'm having some showings (I have one tonight actually). My goal is to get it rented on or before December 1st.
Here are some photos:
Kitchen - stove and fridge were included
Basement - washer/dryer were included
Half bath on main floor
The unit is 1,054 square feet and all 3 bedrooms are large enough to fit king sized beds. The windows are all newer double-pane vinyl. The carpeting is older, but other than being cleaned it should last several more years. The windows all came with blinds or curtains.
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
11y
Dan is absolutely right and that's probably the reason why Dawn saw what others couldn't - they probably just ruled out the category as a total (just like I do to be honest) because of HOA. Congratulations not only to the nice cash flow, but for also for thinking (and looking) outside the box!
I wish I could buy a 3bd townhouse for $16k in our area. This will probably be 400-450k in DC :(
Great job following up and way to stick with your budget.
Generally, both coasts have higher priced properties than that in the Midwest. DC is a hot place for people to live, lots of action and politics and so therefore real estate prices are also much higher.
Investor · Goshen, IN · Member since 2014 · 21 posts · 4 votes
11y
That's awesome, Dawn! Very inspiring. What rules do you go by when you're considering a property? Seems like you have some very strict guidelines for what you'll spend :)
I live in Northern Indiana where housing is pretty cheap, but 16k and hardly any repairs...that's huge win.
Can you explain on the rental part. I still do not get it.
"The condo association does allow rentals, however they are pretty strict on criteria on who they accept (they have their own screening)"
You mean you can sent the renters application to the HOA, they have the final say of whether they will allow this applicant to rent your unit?
You cannot choose who you want to rent it to; or they simply has a rental % restriction on the total units.
Thanks!
Meaning, that the condo association doesn't want people buying the units and throwing drug dealer renters into the complex. Some condo associations do not allow renters. This one is flexible in that it does allow renters. There are a few restrictions.
1) No pets for renters. I don't allow pets anyway.
2) Renters income must be 2.5x rent. I require 3x rent anyway.
3) There are restrictions on renting to people with drug related backgrounds, and other violent criminal history. I would not rent to these people anyway.
4) They do not allow anyone who has been previously evicted from another condo unit. I don't want people like this.
So I suppose "pretty strict" is somewhat of a misnomer as I'm actually MORE strict on my criteria than they are.
That's awesome, Dawn! Very inspiring. What rules do you go by when you're considering a property? Seems like you have some very strict guidelines for what you'll spend :)
I live in Northern Indiana where housing is pretty cheap, but 16k and hardly any repairs...that's huge win.
Here is a blog article I wrote regarding what I try to avoid when looking at a rental property.
Rental Property Investor · San Antonio, TX · Member since 2011 · 513 posts · 290 votes
11y
Dawn Anastasi ,
I have learned a lot from your posts. Thank you for the value you add for all of us here.
I was wondering what numbers you use for repairs, vacancy, cap ex, reserves etc.? Do you use a specific accounting software to see how your numbers compare to reality over time? I am trying to better account for my expenses and historical trends per property.
Thank you!
Dawn Anastasi ,
I have learned a lot from your posts. Thank you for the value you add for all of us here.
I was wondering what numbers you use for repairs, vacancy, cap ex, reserves etc.? Do you use a specific accounting software to see how your numbers compare to reality over time? I am trying to better account for my expenses and historical trends per property.
Thank you!
Will,
Thanks so much for your kind words!
Regarding repairs and future maintenance I typically set aside 15%. I also set aside 8.3% for vacancy but usually my vacancy is less than that. It's better to be conservative than not hold enough back.
I'm big on Google Docs and Google Sheets. I love spreadsheets.
There are 576 units across 59 buildings. I have not thought about getting on the HOA board.
Ah, big community. Any plans to buy more there?
I get wary of putting too many eggs in the condo basket, as I know that condos will not give me as much appreciation as a single-family home. Yet, on the flip side, if I can get them cheap and they give me cash flow, then they're kind of like little "oil wells" that pump out cash. (Thanks to Karen Rittenhouse for that catch phrase!)
You are a hard bargainer, Dawn. How much will it rent for? Any HOA fees?
Rent will be $725/month + utilities.
HOA fees are $205.30/month for 10 months, then $188.50 for 2 months, and then the next year cycles.
Property taxes are $306.61/year and insurance is $228/year.
After expenses and putting money away for reserves (repairs, maintenance, and vacancy) I expect to cash flow about $300/month.
Property taxes are $306/year?! Wow..I'm in Lansing, MI (one of the less expensive real estate in the country) and even here property taxes (for rentals) are $1500+/year for the SFH in the worst neighborhoods.
Property taxes are $306/year?! Wow..I'm in Lansing, MI (one of the less expensive real estate in the country) and even here property taxes (for rentals) are $1500+/year for the SFH in the worst neighborhoods.
Great cash flow!
SFH property taxes are much higher, but this is a condo.
I would have said YES at the $500 difference but I'm glad it worked out for you.
Wow! I didn't realize that condo taxes are much less expensive. My SFR in Milwaukee cost about $2400/year but nevertheless it all works out in the end.
Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes
11y
Condo taxes vs single fam home taxes for the same value property in the city of Milwaukee should be the same amount, there's not a much lower rate for condos vs single family homes, they both pay at the same rate. Although, for whatever reason (probably some simple explanation I'm not thinking of right now) they vary slightly for the same value home or condo. For instance, I can pull up several homes or condos all assessed at $99.500 and some will be the exact same amount (just under $3k/year here in high property tax Milwaukee County) but a few will vary a bit, but probably no more than $200.
I just looked on mls and right now we have 18 condos listed asking $20k or less, one is asking $7800! The whole NW side of the city has many wildly contrasting areas, you'll see some areas where people are building new, single family homes that are selling for over $300k in new subdivisions that look just like what you'll see in many of the middle or upper middle class suburbs, but there aren't a lot of them. Then, there are also areas here and there that are downright rough in spots, not quite as rough as some parts of the near north side can get, but close. If you drive down any of the main streets, like 76th st running N/S, Brown Deer Rd, Good Hope, Silver Spring Rds running E/W, you'll see a fair amount of blight in the commercial properties as well, but there are some better areas as well. It is a hard area to classify as nice or not so nice, on the upswing or the downswing, etc. There was a massive indoor mall, Northridge Mall which now stands abandoned and is pretty eerie looking if you drive around the parts of the "beltway" around Northridge that they allow you to drive on now. Yet, at the one end of the mall, they knocked down one of the former anchor store's building and put in a large new supermarket and a large Menards store, along with some other small strip malls, fast food joints, etc. so there is some hope for the future over there.
The condos can sure be cash flow machines as Dawn is laying out for everyone here, that's quite a nice return there! The condo market in that area has some wildly varying extremes as well. There was one huge complex called "North Meadows" that was built around the same time as Northridge Mall (1970 or so) that when it first opened was apparently quite a big thing. (I wasn't born until a few years later, so I wasn't there for it!) It was right next to the gleaming new Northridge mega mall and things were looking great for a while, but then they took a turn for the worse and as THIS story from the Milwaukee Journal explains, things got pretty rough in there for a while: http://www.jsonline.com/news/milwaukee/53312447.ht...
Now they've been fighting hard to turn them around and apparently are having some luck and that complex is where the $7800 unit is currently for sale, so maybe it could turn into the buy of the decade!
One other point, someone asked the obvious question, why would people rent them from an investor if they can buy them and pay a much lower mortgage payment? As @Paul Ewing said, many banks won't bother with mortgages even under $100k, when they add up all of the fixed costs that come with writing ANY mortgage, there's NO profit to be made on their end, so there's no way they'd even consider writing a $20k mortgage! Plus, there's also that all important FICO score as well, we have a large number of people in the US today who have a decent and steady income, but one way or another have trashed their credit scores. Also, ever since the 2008/2009 crash, which hit condos harder or much harder than SFR's in many places that were way overbuilt with condos, banks also want to know all about the HOA for any condo complex someone wants to get a mortgage for. Anyone looking to buy an investment condo with cash ought to do the same thing, analyze the balance sheet of the HOA or have someone who knows how do it for you, because there are still a lot of condo complexes out there with HOA's that are a disaster waiting to happen! When every building will need a new roof in maybe 3 to 5 years and each building's roof is a say, $100k job but the HOA has a grand total of $638.42 set aside to pay for new roofs on all TEN buildings, well that million bucks is going to have to come from somewhere and you can't live there anymore if it starts raining inside every time it rains outside! So, buying a condo now means auditing the HOA as well.
I think this is a great opportunity for someone looking to cash flow and with cash to invest!
Hales Corners, WI · Member since 2013 · 229 posts · 80 votes
11y
Congrats on getting the deal Dawn, you rock!!! :) Way to stick to your guns with negotiating too, that is awesome.
I have been curious about some south side condos but the prices are not $16k. I am thankful that you are forging into this experience of working with condos. Good Stuff!