Hi all, I am super new to REI and have been reading these posts for months now. I have decided to take action and out of nowhere, I got word of a Condo/Co-op in Bayside NY that is for sale thru a friend. The owners wish to avoid real estate agents. they own the place free and clear and wish to sell it because their mother no longer lives there. They owned for 15yrs. I went and saw the place, Similar apts, a 1BR 1Bth, are going for 179k - 199k. The seller agreed to let it go for 158k. I was thinking to buy and sublet/rent out, but when i called the mgmt. office, the rules say no subletting for 3 yrs. and a mandatory 15% down. I have the 15%, but do you guys know of any way i can make this work? even a flip is an option, if i can make it work somehow. ANy advice is GREATLY appreciated. This is my very first potential deal and im not quite sure what my next step should be. There is also a $392 maintenance fee,
–TRULY a “NOOB”–
Thanks a million
Let’s always assume that the lowest comp. is the most you can get for a property. (if you get more it’s all gravy)
Considering that you have a potential $21,000 profit on this property if you can flip it. I see two problems.
- I’m in the Northeast too, the market is getting very slow and you are very close to the absolute worst time of the year to be selling real estate(THE WINTER HOLIDAYS)
- If your only putting 15% down and a $300/month fee your holding costs are too high. They will eat away at your $21,000 and that assumes there is absolutely no repair work needed.
My advice is to relax… Ask yourself this question…
How would I feel if I purchased this property and a better deal came along that I had to pass on?
I think when it all said and done, closing costs paid realtor commissions paid ect. You’ll be dissappointed with the return in your $158,000 investment.
Manderson,
There’s really not a lot of “flip room” on this deal…a $158K purchase price on a $189K (median price) property represents a purchase at about 84% – so only a 16% discount off of retail. There is only about $30K room in the deal and that’s before any fees. You might be able to put a contract on it and then flip it to another investor.
The real problem is the ‘no subletting’ rule by the resident Gestapo…one way around this is to deed 1% of the property to the renter so they in essence become a “co-owner”. Along with this, you will need a way to revert back out of the arrangement by them re-deeding to you. You might also look at a 'trust" arrangement. The other problem is going to be the nearly $400 a month HOA fee. What do similar units rent for? By the time you factor in PITI, the HOA, any maintenance, management, vacancy, etc., etc. I’ll bet that you can’t cover and will have a negative cashflow.
Keith
Thanks soo much for your input guys, it truly is invaluable. Risking sounding completely ignorant, I must ask; the HOA is the maintenance cost correct? and what is a trust agreement. Should i just let this one go? or try to negotiate a better price or terms for the agreement? Pretty much is there any real profit from this or am I jumping the gun because I am so anxious to get my first deal under my belt?
You guys are awesome and i will definately keep watching these posts to keep learning and getting ready for my first deal when it comes.
Manderson–the newest noob
PS- the market rent is about 1100-1200 not including maint. of course.
“The HOA is the maintenance cost correct?” Probably, but you need to check what the HOA covers.
“Should i just let this one go?” Probably, but that is for you to decide. As kdhastedt If you can flip it quick, or sell the right to purchase to an investor before you close it could be worth it. But as he also mentioned with no rentals allowed it makes it a hard sell to an investor.
To me it sound like it would be a good deal if you were looking for a house to live in, but not as an investment property.
Deals come and go, learn what the aquisition, holding, and sales costs are before you consider a flip. Most new investors are very dissapointed when they see the bottom line, making comments like “You mean I just spent the last 6 months rehabbing this home, and this is all I made.”
Thanks guys for all your help. It seems that I will have to pass on this one. Do you know what costs if any are attached to signing a right to purchase agreement by the way? Anyways you’re right. deals come and go. and the only reason I haven’t made a deal yet is because I want to make my first deal a sound investment. This one sounds a bit sketchy and I don’t see a clear exit strategy. I will continue watching and learning and waiting for 1st deal. I have been watching multi unit housing in my general area, and I’ve found a 2 family that might be a better option if i can convert it to a 3 fam. the zoning is r3-2 which im not 100% sure of but i think it means that it is ok to convert. the 3 fam will not only bring in better rent, but will also yield a higher MV, or so my noob thinking tells me. Anyways, thanks to all who posted in reply, and I look forward to being an active part of this board and one day have my own success story to post. ;D
“If you want to get somewhere you have to know where you want to go and how to get there. Then never, never, never give up.”
Dumb newbie question; in California, the only time I have ever heard the term “sublet” was a when a renter moves in, and then the leases the place to a new tenant. I can understand anyone blocking a sublease, because you want full control over who’s in your property. But I get the impression that you are using the term “sublet” to cover any kind of renting. Did I miss something?
Well in this case it would be that the Co-op Board wants to make sure that whoever buys the place actually want to live there, thus the no subletting for 3 years. But sublet in this case i think means : they let the owner in to buy the house but the owner “sublets” the place out immediately and the co-op board has no clue who lives there. Im not 100% but thats what i get from it.
if it is a co-op, that would explain why it is sub-letting, because technically the owner owns share of the co-op, and has an exlucsive lease of the unit. Therefore he is leasing from the co-op.
What if I could manage to buy the property all cash( using a HELOC of course) 140k? Would this be a good deal then?
Here is a simply question. What is your exit strategy? Figure out what the worst case senerio would be. Then ask yourself… “Am I ok with this return?”
Also note, it is not all cash if you are using a Heloc. You will still have carrying costs.
Here is an example using a Traditional Mortgage…
Purchase Costs
Closing costs: 4,200 (roughly 3% on $140,000)
Carrying costs: 6103.75(392 Association + 751.55Morgage payment based on 30yr @ 5% = 1142.55/ month * 6mo - the first month, because no mortage payment)
Selling Costs
Realtor Fees: $8,000 (5% on $160,000)
Closing Costs: $1,600 (roughly 1% on $160,000)
so lets add it up… 4,200 + 6,103.75 + 8,000 + 1,600
Thats $19,903.75 in additional costs
Now maybe some can be reduced, and possibly eliminated. But like I said, figure worst case. You run your numbers and see what you come up with.
Im sorry maybe im missing something here. If i purchase the property in full, then how could i have a mortgage payment? I dont see how i would still have a mortgage payment if i paid for the house in full. Then assuming i DONT have a mortgage payment, then my monthly payments will be 392 plus closing costs right? Then I could do like keith suggested and deed 1% to the rentor and make him a co-owner in effect9 reversible of course) right?
If that’s possible then i could sit on the property for a while and ride out the market swings because it will cash flow. the market rent is about 1200.
“using a HELOC of course” To me that sounds like there is financing. I used the numbers as an example… If you really want to figure out how good the return is, calculate the cap rate… for an example, read this… http://www.rentalcashflow.com/forum_topic.asp?TOPIC_ID=15&FORUM_ID=9&CAT_ID=1&Topic_Title=Cap+Rate+Explained&Forum_Title=Money+Money+Money
The next question I have for you is do you really want to be a co-owner with your tenant. I sure as heck would not. Makes it hard to evict if neccessary
Thanks for the link… I will use this formula to calculate the benefits of any investment i encounter.