Trying to figure out how to run numbers on a condo as a rental??

9 Replies

Hi guys,

I am new here and I am interested in buying a second property (first buy and hold property) and in my area I see a lot of condos that are $60k and under (movie in ready) that have market rents of $1000 and up. I have already done a ton of research and I know I have to get the bylaws before making an offer, check the reserves, look into special assessments, any past due HOA fees and most importantly in my case if they allow rentals on the properties I am looking at.

I have done a ton of property analysis on SFH properties and I use the 50% rule to quickly screen properties for cashflow and I include in the numbers rehab costs. My numbers are usually on the conservative side. I was wondering when running the numbers how does SFH's compare to a condo? By that I mean on a SFH I calculate cap ex, reserves, maint. and repairs, property management, insurance, taxes, and rehab, etc, in the 50% rule then whatever is leftover I subtract the debt service and I am left with an estimate of my cashflow.

In a condo when you pay the HOA I assume it covers a portion of the maint. and repairs (outside the walls of the condo) and I also assume it covers a portion of cap ex ( because the entire exterior of the condo is taken care of like roof life, grounds keeping, snow removal, trash removal, etc).

So my question is do I include the HOA fees in my 50% calculations or do I subtract it after the 50% rule? If I include it in my 50% rule a lot of the properties I am looking at cashflow about $250 and up a month which is what I am looking for in a property right now but if I subtract it after the 50% rule the cashflow as you can imagine is not great at all. Of course I am just asking this question to figure out a way to quickly screen a property to see if it could possibly meet my goals. If it makes it past the quick screening then I will of course do all the due diligence to get the exact numbers afterwards then determine whether or not to move forward with an offer. Thanks for your help!

There is a very good chance that at that price point, the condo is non warrantable.  That means getting a conventional loan on it as an investor is all but impossible. So they would need to be purchased with all cash.  I cant say for sure, but thats typically why a condo drops to that price point in our area.

Condo association is different than homeowner association. CA usually covers all common grounds, common area liability ins, roof, exterior, up to the drywall in ins losses, etc. HOA's do not and each one can included or exclude any or all of the above. Know which type of entity your dealing with first, what is an owner expense/what is not, find out what the rules are for renting and calculate in the association fee with all your other allowances.

I have a condo that I run as an Airbnb rental. From my experience, there has been very little repair costs on the property. My advice would be to add up everything that will probably need to be fixed or replaced over the next 10 years (appliances, floors, water heater if it’s in unit, etc) and divide that by 120.

For repairs, I’d plan on re-painting, and maybe a couple hundred dollars more worth of work each time a tenant moves. Add up the costs associated with turning a unit and divide by 12 (for one year leases). Then add a monthly budget for small stuff ($50-100).

That’s how I’d think about it. The 50% rule is great for quick calculations but properties vary so much it’s important to calculate expenses with reasonable assumptions made based on the properties condition.

Hi @Catalino Rodriguez ,

They are two different animals, so you should look at it differently. 

Income-expenses divided by total investment= ROI.

Your expenses are your P&I, insurance, taxes, monthly dues and management. The maintenance costs are much lower in a condo because as the owner, you're only responsible for what are within the 4 walls. Which is your appliances, air handler, and water heater. 

When I bought mine, I replaced all the things that would have cost me money, so I know I won't have any big expenses for a couple years. 

Your HOA dues should cover the maintenance of all things outside of the condo.

If you're financing this purchase, get a lender who does condos. They are nothing like financing a house, they are much more complicated. You need to write in the contract, or check the right boxes to make it mandatory that the Seller provide you all condo docs, as well as the last 12-24 months of board minutes. Those minutes will tell you if they are planning an assessment of some kind. The contract should be contingent on getting those docs within a certain time, and allow you to cancel the contract within a certain time after receiving them. At least that's how it is in Florida. 

If you are paying cash, still make sure the condo can get Fannie Mae financing. That allows appreciation and allows you to sell to a large pool of buyers when you're ready to sell.

Chose a condo that allows owners to rent right away. Look out for rental caps, and ownership prior to leasing. 

Originally posted by @Russell Brazil :

There is a very good chance that at that price point, the condo is non warrantable.  That means getting a conventional loan on it as an investor is all but impossible. So they would need to be purchased with all cash.  I cant say for sure, but thats typically why a condo drops to that price point in our area.

staying on this same train of thought.... could one in theory replace loan w/ a HELOC on the property?

Originally posted by @Russell Brazil :

There is a very good chance that at that price point, the condo is non warrantable.  That means getting a conventional loan on it as an investor is all but impossible. So they would need to be purchased with all cash.  I cant say for sure, but thats typically why a condo drops to that price point in our area.

Thank you Russell for that info I had no idea about that part of it. However I have done research on non conventional loans that are higher interest and I was somewhat aware that condo's are hard to finance similar tohow mobile homes are but I have not really REALLY thought about it.  Also if it came down to it and I was able to determine if it was a property that met my goals I could pay cash however I would like to avoid that so I can get save the money to buy additional properties! Thanks again for the info I will definitely add that to the list of things to get when doing the due dilgence.

Originally posted by @Sam C. :

Condo association is different than homeowner association. CA usually covers all common grounds, common area liability ins, roof, exterior, up to the drywall in ins losses, etc. HOA's do not and each one can included or exclude any or all of the above. Know which type of entity your dealing with first, what is an owner expense/what is not, find out what the rules are for renting and calculate in the association fee with all your other allowances.

Sam, I had no idea about this. Thank you. I was looking at a few sites and I never seen mention of a CA but for all the condo's I seen they mentioned HOA fees. I will definitely look into this further.

Originally posted by @Frank Manning :

I have a condo that I run as an Airbnb rental. From my experience, there has been very little repair costs on the property. My advice would be to add up everything that will probably need to be fixed or replaced over the next 10 years (appliances, floors, water heater if it’s in unit, etc) and divide that by 120.

For repairs, I’d plan on re-painting, and maybe a couple hundred dollars more worth of work each time a tenant moves. Add up the costs associated with turning a unit and divide by 12 (for one year leases). Then add a monthly budget for small stuff ($50-100).

That’s how I’d think about it. The 50% rule is great for quick calculations but properties vary so much it’s important to calculate expenses with reasonable assumptions made based on the properties condition.

Frank this is awesome info. I was wondering if you would be able to tell me if your numbers come in under 50%. I know they are variable but from a few people that I have talked to if they do in fact do a rehab to a property usually their expenses are around 30%-35% because they replaced all the things that would have a life-cycle expectancy that would be less than a few years. The properties I am looking at are move in ready with new paint and carpets and so I would definitely try to figure out the numbers for the appliances and a water heater and central air units. Ideally I would like to just replace the carpets though with a longer lasting tenant friendly material.  Turnover is another thing that I had considered in my 50% rule but have not dialed it in just yet. 

Originally posted by @Tom Parris :

Hi @Catalino Rodriguez,

They are two different animals, so you should look at it differently. 

Income-expenses divided by total investment= ROI.

Your expenses are your P&I, insurance, taxes, monthly dues and management. The maintenance costs are much lower in a condo because as the owner, you're only responsible for what are within the 4 walls. Which is your appliances, air handler, and water heater. 

When I bought mine, I replaced all the things that would have cost me money, so I know I won't have any big expenses for a couple years. 

Your HOA dues should cover the maintenance of all things outside of the condo.

If you're financing this purchase, get a lender who does condos. They are nothing like financing a house, they are much more complicated. You need to write in the contract, or check the right boxes to make it mandatory that the Seller provide you all condo docs, as well as the last 12-24 months of board minutes. Those minutes will tell you if they are planning an assessment of some kind. The contract should be contingent on getting those docs within a certain time, and allow you to cancel the contract within a certain time after receiving them. At least that's how it is in Florida. 

If you are paying cash, still make sure the condo can get Fannie Mae financing. That allows appreciation and allows you to sell to a large pool of buyers when you're ready to sell.

Chose a condo that allows owners to rent right away. Look out for rental caps, and ownership prior to leasing. 

Tom, Great info! I am assuming that maint. and repair costs would be cheaper and if I do buy an condo I do plan on replacing things that would exceed there life cycle while a tenant is in the property. Basically I was trying to figure out if by using the 50% rule for screening a property whether or not I would be over or under in my projections. I had considered the need for a non conventional lender in this case however the last few thing you said are things I had not considered. I had not considered rental caps or if the condo can get Fannie Mae financing and that to me does change things A LOT in the event that I need an out on the property! Thank you I will add those to my list of due diengence items! 

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