Should I do a Condo for my First Investment?

Question

First Deal a Condo, Thoughts?

2 bedroom, 1 Bath 940sq ft. Right now it is on a 12 month Lease until January 2021 @ $850/mo (about 70$) below market rents in the area. HOA covers Water, Sewer, Cable, Trash, and Community area and Tenet Pays electricity. Numbers below:

Purchase Price: $70,000, Down payment: $14,000(20%)

Rent: $850/mo or $10,200/yr

Insurance: $1000/yr , Taxes: $2100/yr, HOA: $2500/yr, Mx/Mgmt/Vacancy/Capx: $1400 = $7,000/yr

$10,200 - $7,000 = $3,200/yr cash flow if kept at $850 rent.

Bobby Paquette · Answer

@Jacob Sampson will be 850$ this year. Some indoor MX after tenet’s term ends and it will be able to rent for ~ $950 . I agree with the control over the HOAs, and I would have to look into the insurance policy. Thanks!

Bobby Paquette · Answer

@Brandon Roof Doesn’t have to be owner occupied, there will be no snow(South Carolina) it does cover Lawn Care. Will have to check on the last part

Jacob Sampson · Answer

You should not pay 70k for ~$650 in rent ($850 - HOA).

I don't personally like anything with HOAs because I don't have control over when they are raised and each time they are cuts into your monthly cash flow and (double whammy) puts downward pressure on the asset value.

The HOA doesn't cover any insurance?  I would look into that I bet it does cover the physical buildings.  I think your insurance estimate may be a little high but as was mentioned above I think your $1400 number is a bit low, I would estimate about $2000 -$2500.

I don't see principal and interest as a part of your number?

Brandon Roof · Answer

There are some HOAs that only allow owner-occupants which would certainly bring things to a screeching halt.  I'm hoping the fees take care of lawn maintenance and snow removal but that could be an additional expense.  You may also be held to additional standards which could cost you more money than intended (i.e. some shingles come off or some of the vinyl siding gets cracked.  Maybe you wouldn't immediately remedy cosmetic items that they would require you to fix or face fines).

Bobby Paquette · Answer

@Brandon Roof Looks like a good deal on the outside to me if we’re still talking $2800 for that category, do you see anything else I could be missing to hinder the deal? I would be reaching out asking if there is an assessment planned in the near future, and the current status of the HOA making sure they actually have reserves for big things.

Brandon Roof · Answer

HOA expenses can be a killer and your "Mx/Mgmt/Vacancy/Capx: $1400" is likely much too low.  Doubling that figure likely gets you in the ballpark.  Still likely cash-flows more than $100 per month but may not be the return you're hoping for.  Best of luck!