Condo - Waterfront

General Real Estate Investing
1

I am buying a condo on the water for a very nice price.

How does insurance work with the condo units? Are they apart of the common charges? I’m going to find this out, I’m just writing it in here because the thought just crosed my mind. The basics of the deal are pretty good.

The unit has a WATERVIEW and the entire complex is on WATERFRONT LAND. The unit basically faces a courtyard and if you turn left outside the sliding glass doors on the patieo, the water is 200 feet away. It’s a dock slip with boats. There’s also a slip available for 20,000.

So I’m grabbing it for 160,000. Putting 75,000 down.

The rents are $1200 and it was rented all of last year. The condo’s are 78 units with just about 55% being owner occup with less than 3 of the units being Section 8 and they’re the front units. Board members who I’ve talked to allowed one of the investors to rent to them in the buildings near the street - not waterview. Almost 50% of them are occupied by about 6 investors with each of them owning like 7 units and a few of the investors own them for summers, keep them empty during winter.

What do you all think? Those are the basics. LLC is purchasing and I’m signing a personal guarantee, but loan will show on LLC. I’m thinking a 7.5% commercial loan? or is that too low. I have fantastic credit and putting down well over 30%. Money is coming from family and myself.

2

Okay so the first problem is the insurance. As a landlord/investment - the commercial insurance is tough because i’m not buying bulk.

the floodd insurance etc, is paid for through common charges - which are a joke (250 monThss) AND THIS INCLUDES HEAT!

Talk to me people.

Putting down 80k too. got another interested party :slight_smile:

So mortgage of 85,000 - 20 year at 7.5%

P and I = 685
Ins (hopefully) = 120
taxes mos = 170
common = 251

Total = $1226.

This sounds like a dumper cuz rents are 1250 - at the most.So we’re operating in red (most likely)for about 12 months before i can raise rents to (most likely) $1325.

Now I pay nothing for landscaping, snow removal, etc. A great thing that’s happening is there is a very nice condo complex being built right next store and the units (they’re talking) will run between 400k to 700k. Brand new fence is being built for our complex (by the builder of the new condo’s cuz they damaged current).

The market here has gone down down and down. But if I can grab this baby now for 160,000, that’s fantastic. That’s a 70k drop in average asking price for these units from January 2006. And at 230,000 price, that price reps the prices for the type of unit I have.

The waterfronts go for about 50k more.

Please give me input! Thanks.

3

What exactly is your question? You’ve tied up $75K into a property that’s dropping in value and will lose money for at least a year. Rents are currently set at the market and at best you will have to wait a year to raise them (if you can).

It’s WATERFRONT (your highlights), which sounds nice, but is also Section 8. Does one outweigh the other? I find Section 8 on waterfront a very strange concept. There’s something more to this story.

Based simply on the four ways to make money in RE, here are my comments:

  1. Cash flow – Currently negative. Maybe break even in one year. No current ROI.
  2. Equity – Comes with none, other than what’s invested. No stated way to force any.
  3. Appreciation – Market for this property appears to be dropping like a rock. Was worth $230K in January 2006. Now $160K. When will it turn around and by how much?
  4. Tax benefit – Not discussed.

Unless I misunderstood, and the unit has a current market value of $230K (that you could sell for now), I see nothing positive either short or long term here.

What is your plan to make money on this deal? Do you have any exit strategies?

4

Exit strategy is Ride The Lightening. Ride it out. It’s NOT section 8. Three units in the front are rented to section 8 and those units are about 20% less in value. While the cash flow will be tight to negative, but with money in the business account, the mortgage will be paid. If we pick the unit up for 160k, based on a an average bank appraisal, it’s worth about 210k (guesstimate based on comps for past 180 days). So that’s 50k equity.

Now the appreciation is interesting. To me, I see a price drop from 230k to 170k (current asking price) - that’s 50k already (21%) and the guy is selling to liquidate some assets (according to him). He boat it 5 years ago for 43k and put about 10k into it, so if he picks it up for 160, he’s making over 100k. Anyhow, here’s the speculation. I believe due to where I live, that dropping prices will continue for another 8 to 10% accross the boarrd. But, young professionals and the like have been and will be looking to owwn and this area is very nice.

This is a steal given it’s location. Tax benefits for LLC will be depreciation claims, etc. Now also, once it picks up in appreciation (beginning January 2009) - within 2 yeers or so, this will be a HOT area. Is this speculaton? Sure it is, but a brand new condo complex is being built next door which will liven up the area even more.

So this is a long term investment strategy. Increase rents 75.00 a year and sell it for 280k by 2012 or somthing. While prices have dropped, I believe it’s more to do with market overcorrection, and a result of scare tactics by the media, a slowing economy somewhat, mortgage market corrections and the like. Business is strong here. Employment is good and young people are STARVING fo a place to live.

Area has great access to highway and is centrally located to bars, nice towns, colleges, and good restaurants. And IT’S ON THE WATER. I hear what you’re saying equity. And I know it kind off loooks like I am convincing myself, but it’s just that from what I see, a lot of people come in here and talk about their prospects and more times than not, people tell them it’s bad. From what I’ve explained, do you (or anyone else) think I’m way off base here?

5

I have another question. How is depreciation calculated for a condo since I don’t own the building?

6

Wow I m just drowning in responzes here. Thanks for all the help. I see lots of people viewing it but noone commenting. What’s really funny is if you really listened to everything on here, you’ll never invest in real estate…lol.

Well Equity, I appreciate your response. Thanks DUDE.

7

50% down and it’s still negative cashflow? I don’t even see why this was even on your radar enough to spend time typing the above. THIS IS A DOG!!! Not a minpin, a full on GREAT DANE of a dog. While it sounds ok to live in for 2+ years and get some nice tax free appreciation I don’t see how this is even a consideration as a rental. Amenities like waterfront are nice for a place to live but only drive the price up and tank cashflow with rentals.

8

What you need to worry about, aside from the fact that your BURIED in this thing the day you close on it is…

How will you feel in 2008 if it’s worth $120K? 2007’s been tough for real estate prices right? The REAL fun starts in 2008 when $900 BILLION worth of ARM’s adjust for the first time. My phone has been ringing of the hook for the last 4 weeks with people who are just walking away from their homes. Think about it… These people owe $280,000 on an ARM for a home now worth $230,000 and the payment just went UP. What choice do these people have? They simply can’t afford the payment, and because the home won’t appraise for what they owe they can’t refi. It adds up to more unsold houses being dumped on an already saturated market. I mention this only because you are obviously in an area experiencing pricing declines based on your info.

Unfortunately that means continued downward pressure on pricing. And as a side note. Condo’s have traditionally taken it the hardest when real estate corrects. Look no further than all the JOY occuring in Florida’s condo market right now. I think you could buy condo’s in Florida right now for 50 cents on the dollar and still be paying too much.

Forget this one. With the capital you were going to put down on this you could actually BUY OUT RIGHT (no mortgage) a single family home in Roanoke VA. I just bought one last week there for $10,000, sold it 10 days later for $30K. Why bother with this condo?

It’s about using your resources to get more bang for your buck. We’re just trying to point you in the right direction. $$$$$
Look at it like this… You dug into this one, good for you. You even went as far as to get some opinions from seasoned investors, even better for you! Now step back and assess the info you have. I think you’ll find that tying up that amount of money in a falling real estate market which cycles at 6- 10 year intervals is not a good way to make money.

Instead, using that same time frame, you could make yourself $100,000 in cash in that same 6 to 10 years by finding distressed property that people have equity in. That house in Roanoke? They didn’t owe a penny on it. PAID FOR! You find yourself some of those and you’ll be writing us back with a big thank you. You can do it, just keep digging.