Need Advice on my first deal

Hello Everybody,

There is a condo for sale in my city (Grand Rapids, Michigan) for $25,000. It needs a new carpet and then it would be ready to rent out for about $850 per month. The condo management company does allow renting condos and about 40% of the condos are rented in that complex.

3 Bed / 2.5 Bath
sq ft: 1400
Association fee: $170
Tax: $3000
Year Built: 1968

After Repair Value: $65,000

Would this be a good investment how would I start analyzing this?

Condos are higher risk investments than standard single family homes, because they are harder to sell and tend to depreciate more than appreciate. But they CAN cashflow well.

Mathematically, your numbers add up well, except for the property taxes - which seem really high for a property only worth $25,000. Typically if you buy a property and earn at least 2% of the rent in income per month, you will have positive cashflow (if not very well). You are at 2.7%! Which is a good deal.

But again, I am concerned about paying so much in property taxes. In Texas where we have “0” in income taxes, we pay a slightly higher than normal property tax rate of around 3% of the assessed value of the property per year (though it can vary from 2-3.5% I have heard). By buying a property at 25,000 and paying 3000 in property taxes, you are paying an effective tax rate of 8.333%. I do understand you might be getting a property at an extreme bargain, and that could cause that ratio to go up, but even if you’re paying $25k for a $50k condo, that gives you an effective tax rate of over 4%…and for a state with an income tax that just seems wrong.

If your condo rents for $850, your HOA dues are $170 per month and your property taxes are $250 per month (3000/12) that leaves you a GROSS profit of $430 per month before repairs/maintenance/vacancy/insurance. If you have to replace an A/C condenser, or carpet throughout your whole unit, and you pay retail…you could burn up six months of rent just replacing those single items. Wow.

Personally, I would ONLY buy the deal if your property taxes are likely to be reduced through a formal protesting process (in Texas you can get someone like PO Connor & Assocaties out of Houston - see ) AND if you are willing to take the chance the place may only go down in value.

Good luck!

Thank you very much motivatedceo your advice is appreciated.
The taxes are killing this deal I do agree with that. I will re-check the taxes to make sure I have the right numbers.