I am just wondering if someone can give me the ‘low down’ on having an investment property… it seems to me like properties are way too expensive for the ‘rentals’ in the area…
Here’s the scenario…my friend is living in a really nice 1 bedroom condo…over looking the water and pays $750/ month on rent. (rent’s in area for 1 bedroom are @800 - $950 )
1 bedroom condo’s in the area are going for @145K…and are supposed to go up according to Realtors in the area…(it’s in a really nice part of Clearwater, Florida… this seems to be the avg price… the owner of my friends condo is interested in selling her the condo…he is looking for 140K … if they don’t use a Realtor…and she thinks he would consider 135K… but even at this price…she will still end up paying way more monthly to own this condo…
I am confused as to how the high mortgage payments…don’t correspond to rent’s in the area… and how does one view this as a good investment…
I am a newbie to real estate…so forgive my ignorance…but appreciate the feedback…
One reason for having a high payment is that you have bad credit so when getting a mortgage, you are charged a higher interest rate.
You can earn some positive cash flow on rentals BUT you have to do your homework such as searching for properties with equity and where owner is anxious. In some cases, you can have seller pay you a monthly fee for just taking over their loan and payments.
Thats why due diligence is extremely importatnt in this business. You need to work out the numbers and only if its profitable do you close the deal.
People invest for different reasons. High income professionals used to buy into tax shelters that lost money monthly and hopefully made tons over the long haul in capital appreciation. They were maily looking to shelter the income. 1986 Tax reform changed some of those rules. Investors started looking at cap rates and cash flow. Even today those are getting lower and lower as rates stay down.
Condos are typically bad rentals to start with because of the HOA costs. Especially high end condos like your friends will never cash flow. It will appreciate because of the water and sun.
I just bought another condo and I have posted before to never buy condos. But it is 2 br for less than $30,000 that plan on fixing and selling for $50,000.
My other investments are in low income areas where at least on the surface i have a positive cash flow. Duplexes with 600 payments that rent for $1200 are common when I do a deal. I could buy properties off the MLS but would be paying too much usually. I find abandoned buildings and fix them up.
A great cash flow source i have been working too is tax sales here in Austin. I have seen several deals where the money invested earned 25% ina few months or they get to keep the property and fix and sell for big profits.
You need to decide the amount of risk and hastle you are willing to take and decide what aspect of investing you want to be in. Passive is OK in the condos you are thinking about but do your homework and know the rent you can get and how long might it take to rent and what to expect in appreciation. If you think things will be flat there or go down you may want to put your cash in something else.
Hope I did not ramble too much and you get some good ideas here. Just opening up my mind at 8am Sunday morning.
Since I live in Sand Key and am a real estate agent and investor here, I thought I would throw in my two cents. In our particular area, we have a lot of condo rental opportunities. So many, in fact, that rental prices are rising very slowly and in more than a few cases, they are declining. On the other hand, property values continue to rise due to an extreme scarcity of land (the last available parcel on Sand Key just sold to a developer), desirability, and the fact that many people in our area will pay the price to live on the beach. When you come from an urban area in the Northeast, like me and my husband, you jump at the prices here, so people like us and the snowbirds help keep values rising.
Having said that and reading your post, I am assuming that your friend is looking at this property as a primary residence. Based on your post, I would tell her to buy the condo if it is for a primary residence. Especially since it sounds like she might have a good deal on her hands. Her rent might stay low, but, if she doesn’t buy now, she won’t have the advantages of homeownership, including building equity and when she does get ready to buy, the payments will be even higher due to rising property values. If she is looking at it as an investment property, then forget it, she’ll be in the same boat as everyone else around here-plan to pay the mortgage and don’t depend on the rent money.
Has she spoken to a lender? Perhaps she could look at a loan with graduated payment options to help reduce the blow of the jump from the cost of renting to the cost of home ownership.