I was informed about a condo for sale that I’m considering purchasing. It’s in a relatively nicer area (not great, but certainly not bad). Below are the details. Could you please take a look at it, and let me know if it’s worth pursuing?
Using the above data and the 50% rule, I came up with the following:
CAP Rate: 6.8%
ROI: 9.7%
Rent to Price Ratio: 1.1%
Unit is currently vacant, so my plan is to find out how many of the other condos are vacant and what others are paying for rent. In any case, do you feel this would be a good investment?
It’s impossible to say if this is a good deal, or not, for your market. Only you can say one way or the other. Demography and economy both effect the demand for something this small, and the financing makes or breaks the deal otherwise.
It’s a crap shoot listening to any of our opinions about whether this is a good investment, or not.
Numbers that look OK on paper, don’t reflect the location, demand, vacancy rates, past performance, HOA mismanagement, number of competing vacancies in the complex, etc., which all impact the investment.
The 1.1% rent/price ratio looks good, if that’s the actual market rent. What are the HOA fees? How often is the HOA involved in small claims suits? How many times did it win/lose? How many rentals in the complex? Too many rentals, and NOBODY is gettin’ decent financing to buy.
All things being equal, I would stick with the 3/1’s and 3/2’s that I can buy with a 1.1% rent/price ratio. “Everybody” wants those, including renters and investors.
Otherwise, if it meets your portfolio requirements, buy it.
Thanks for the clarification, Javipa. And thanks for the advice, Bluemoon.
I spoke to the seller last night, and I got all the expense data from her. Turns out, the water, gas, and trash are all included in the HOA fee. Tenant only pays for electricity. I was happy with the taxes and insurance, but it turns out the HOA fee is $290/month!! Sooo…the only way that I would consider this to be a decent investment is if she is wiling to sell at $60,000 and seller pays closing costs. This is significantly less than $75,000, but I honestly don’t think I can make the numbers work at a higher price. The breakdown is as follows:
Selling price: $60,000
Gross: $10,200
(Expenses are per month)
P&I (4.5% interest): $243
Taxes: $55
Insurance: $35
HOA: $290
Maintenance/Repair: $85 (10% of gross)
Vacancy: $43 (5% of gross)
If you don’t think you can make it work, don’t go for it.
The number one thing I see investors die on, is making excuses and exceptions from their regular plans, as they are “distressed buyers” aka desperate for finding a good investment.
I work with a lot of clients helping them to lead generate though out outsourced service and when we help them set their process in stone, the speed of looking at the likes of MLS, Craigslist and the likes really increase and likewise the leads they do get are more solid.
I dont say you cant find good deals, as other would probably be hesitant going for it as well, but for me investment is lowering the risk rather then to take chances on something that “might work” - If the potential payback is huge, its a different story, here it looks to be… doubtful.