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Good deal or bad deal?
Original asking price is $130,000. It needs minimal work, just repainting and renovating the main bathroom. If I rent out this property to a single family this deal will work out. My vacancy rate is low as based on my research, properties stay on the market for 30-40 days on average. It's a townhome so my repairs & maintenance is really low, likewise my Cap Exp.
If I decide to rent this out to students, then it would be different as I would have to budget for electricity in the rent for students.
@Keleisha Carter, I'm not following how you arrived at your vacancy rate? It's really more about turnover. On average tenants stay for ~2 years, factor in 1 month for turnover and 1 month for the lease-up fee and you're at an 8% vacancy rate. This is super local, of course, and could be only 4% in your area. Just make sure you're getting the right data.
Don't expect to actually add $15k of value with $10k of reno. You'll probably add little or no actual value with such a small amount of work.
While $260/month cash flow is pretty darn good for a single unit, your CoC ROI is okay at best. I shoot for mid teens or better. It's really the HOA that's killing you. You're trading slightly lower repairs/CapEx (5% of GSR) for a much higher HOA fee. You're essentially surrendering ~10% of GSR each month for very little in return.
I'm nervous about condos overall because of the HOA and restrictions. One special assessment could wipe out months or years of cash flow. HOA fees can go up and you'll have no recourse. What are the finances like? Have you confirmed that this complex allows rentals? Some only allow a certain percentage of units to be rentals and/or limit the length of time they can be rentals (e.g. 1 or 2 years total).
@Keleisha Carter, I'm not following how you arrived at your vacancy rate? It's really more about turnover. On average tenants stay for ~2 years, factor in 1 month for turnover and 1 month for the lease-up fee and you're at an 8% vacancy rate. This is super local, of course, and could be only 4% in your area. Just make sure you're getting the right data.
Don't expect to actually add $15k of value with $10k of reno. You'll probably add little or no actual value with such a small amount of work.
While $260/month cash flow is pretty darn good for a single unit, your CoC ROI is okay at best. I shoot for mid teens or better. It's really the HOA that's killing you. You're trading slightly lower repairs/CapEx (5% of GSR) for a much higher HOA fee. You're essentially surrendering ~10% of GSR each month for very little in return.
I'm nervous about condos overall because of the HOA and restrictions. One special assessment could wipe out months or years of cash flow. HOA fees can go up and you'll have no recourse. What are the finances like? Have you confirmed that this complex allows rentals? Some only allow a certain percentage of units to be rentals and/or limit the length of time they can be rentals (e.g. 1 or 2 years total).
@Jaysen Medhurst thanks for your feedback. How do you calculate your vacancy rate? I always have a problem with that aspect. And you're right, HOA is killing me. I will have to research to see if the complex allows rentals. I saw a few on the MLS listed for rent.
@Keleisha Carter I don't have the option to view the report, likely because I don't have a Plus or Pro membership.
I do second what @Jaysen Medhurst mentioned - the HOA restrictions, fees and assessments are brutal. I purchased a duplex in an HOA in March and already received a fine by July for "discoloration on the exterior of the building". Cost me $1,000 for the fine and I have to paint the exterior to fix it, another $2,500. I won't buy a property within an HOA again.
@Keleisha Carter, I use 8% as a baseline (works out to ~1 month vacant each year). Average tenancy in the U.S. is ~2 years, so I expect 2 months of vacancy. That breaks out to 1 month empty for turnover and 1 month paid to the PM for lease up.
From there you need to learn your market and adjust. E.g. if average tenancy in your area is 3 years, but PMs usually charge 1.5 months rent for lease up, that works out to 2.5 months "vacancy" every 36 months, or 6.9%