All Forum Posts by: Jason Kosowan

Hi Jeff

This is a tricky area. On the one hand, the ROI on a condo vs. a house can be a lot better. But, any increase in HOA fees or even a one-time special assessment can kill the profitability very quickly.

Also, many complexes (at least around my area) have either litigation, delinquency, or a very large investor-to-owner-occupied ratio. This can make the prices really low, which is good from a short-term perspective.

But, if you ever needed to sell and these issues have not resolved themselves, it can be tough. I just was talking with my lender and he says that any of these conditions will make it very difficult to fund an FHA or VA loan. So, your pool of potential buyers are much lower.

If you are planning to get a condo as an investment, I'd say to keep your margins thick and have a larger "rainy-day" fund than you would with a SFH. This can help protect you from increases in the HOA fees, rent drops, and special assessments.

All that being said, I own some condos and they outperform SFH... for now. :) I am looking more toward SFH and MFH these days, though.

Just a quick comment to this very interesting thread. If/When the sale goes through, have you thought about setting up an annuity for Bob rather than just giving all of the money over to him at once? I'm not an expert, but it may be better for him if he has that money over a longer period of time. Bob doesn't sound like he's financially savvy enough to make the best choices with a larger amount of cash.

At any rate, my heart goes out to him and I'm glad you're giving him a fair shake.

Related to the laundry in the basement idea, this could be worth discussing again. I've heard that there are companies that specialize in multifamily coin laundry machines. They do the installation, service, collection, basically everything and in return, they give you a percentage of the profits.

Once I get my first multifamily, I'll definitely be going this route.

An alternative is to use the basement and put together a series of storage units. This would be an upsell to your existing tenants and for $X/month, they can rent one from you. This may require an initial investment, but I'm sure it will recoup quickly. Additionally, if you don't have water hookups, storage units could be an alternative to laundry.

I don't have enough properties to warrant full-time employees. I do all my own property management too, so there's not even that expense on the books.

What I strongly recommend, though, is to get a home warranty for each of your places. This is basically my one-stop-shop for any contracting work I need in case of breakage or property emergencies. It's very inexpensive for the convenience and peace of mind. If you have a realtor license, you can even get a discount on the yearly fee.

For situations that are not related to actual breakages, I do work with several different smaller people located close by. A lawn guy, a handyman, a carpet guy, all are great to have on speed-dial. As things come up, I ask my current people for recommendations and build my network that way.

During vacancies and new purchases, I usually do the cleanup, painting, and other small refurbs myself.

Hope that helps

This is a really good thread. I try to look at cash-on-cash return when debt service, taxes, and insurance are factored in. I have no "rule of thumbs" for COC numbers but you can get a feel for what COC you get for different neighborhoods by manually running numbers.

I've seen that COC has a tendency to really favor properties in the below-100k range. Even a nice quad that's in the 300s will not have as good of a COC as a lower-priced single-family residence. Furthermore, even these better-returning SFRs will be blown out of the water by a cheap condo, despite all of the HOA fees and even taking into account rehab costs! (with a rehab, I tend to factor in an extra 100/month for rent. I've found it works. )

So, when I look at properties, I sometimes take the COC with a grain of salt. It seems a little lopsided and if I followed it exclusively, I'd only have really cheap condos on the edge of town. LOL. Have other people seen this?

I'm curious that no-one has discussed cap rates when evaluating a deal. I'm still pretty new to the "math" side of investing - how does that work into your decision? Or does it?

Thanks!

Hi Al

Thanks for your replies. As suggested, I've found a local lender that I like and they have no problem with going past the 4 limit. I'm now working on my fifth property. Full steam ahead!

Hi Bienes

That's a good question. From what I've seen, condo complexes sometimes put a limit to the number of rentals they can have. So, before you buy, you must make sure that you can even start to rent it out.

As far as the grandfathering, it's a good question and one that I don't know the answer to. (I will investigate) But, I suspect that they can't just turn around and lower the number of investors allowed. If they did, which ones would they target? I suspect they'd have some sort of fight on their hands if that were to happen.

The financials for the board need to be disclosed to you before you buy, but you may need to ask for it. As for a lawyer, I'm not sure what kind of help they would be. They could interpret the CC&Rs a little better, but they wouldn't be able to do anything official with the financial data. It may be better to talk with an accountant, though in my case, my realtor was knowledgeable enough to make the assessment and I was ok with the numbers as well.

My biggest worry these days is special assessments. I've been to the board meetings and I think they do a good job of doing the maintenance, but for large emergencies, they could ask for thousands of dollars, due immediately.

Rob, that's an interesting perspective. I've never considered that rentals could be considered more risky than flipping.

I sleep pretty well at night knowing that my rentals are there but I certainly would be very worried if I had to get into the fix&flip game.

To me, the comparison of F&F vs. B&H is like comparing apples-and-oranges. F&F seems to me like a full-time job rather than an investment whereas B&H is more like what Arthur says, a side income stream that will grow over time.

Hi Brian

I'm just curious - why did you choose to pay off the first property if it was cashflow positive?

From my own experience as well as what I've read, if you're working full-time, a F&C property is not as powerful in as a leveraged one. Most folks in this position choose to use the extra cashflow to grow their net worth (i.e. acquire more properties) rather than pay down the mortgage. It's a weird way of thinking about it, but the mortgage actually helps you in many ways. It's leverage, which increases your cap rate and it's a tax shelter, because of the mortgage deduction. (There's other benefits as well, can't remember them offhand)

If you compare someone who uses cashflow to acquire new properties vs. someone who puts cashflow back into the mortgage, the net worth at the end of, say, 10 years is big, especially considering the low interest rates out there right now.

The downside, of course, is that you're at more risk with more debt.

To play it conservatively, you can always put some of the cash in as extra payments and use the reduced income for acquisitions.

Michael, it sounds like you bought correctly - congrats on your success!

It is addicting to have that extra money coming in!