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Condo as investment (ducking)

Old 08-15-2011, 02:55 PM
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Default Condo as investment (ducking)

Curious what you guys have to say about this. I'm just mulling it over, don't know if I'd say I'm "serious" about it.

Aside from all of the normal condo/tenant/etc pitfalls, I am wondering about the financials:

- Unit costs $70,000. (bank owned)
- Rent for similar units is $900-1100, so let's say $950.
- Building was a condo conversion in 2006 so everything is essentially "new" inc roof, windows, A/C, appliances, etc.

HOA fees I believe around $250 and taxes around $100. So net would be somewhere around $600 a month.

$600 a month return on a $70k investment. Worth it?

Curiously the building is actually pretty nice and is waterfront (!) the current crop of residents are.. a bit uh... well let's just say they seem a bit "unpolished."
Old 08-15-2011, 03:16 PM
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That's about a 10% return per year on your investment. But add in maintenance, remodeling when new renters move in/out, damage from tenants. You may migth be looking at around 7-8% which isn't fantastic. Chances are the value of the condo isn't going to appreciate measurably anytime soon. A descent return in the stock market these days is about 10-15%. 20% is not out of the norm. In the market you won't have any problems with tenants either.
Old 08-15-2011, 03:21 PM
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How many bank owned units are there? Is there any entity that owns 10% or more?

If so, there could be a chance for default on the condo fees which could put the whole complex in jeopardy.

That being said, I have a condo as an investment property in another state....
Old 08-15-2011, 03:22 PM
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I should point out that I'm already renting out my previous home so getting _some_ taste of the pain of being a landlord. Since I have two mortgages I suspect I'd have to buy anything else cash or nearly cash.

I do have the advantage in that this building is practically walking distance from my current home and repairs that would be under MY control (not assessments, etc) would be managable and cheap.

The building is about 16 units, as a condo conversion the units were selling for $180k plus, so I expect every single one to turn over as a short sale or foreclosure within the next few years due to drop in value.

As far as I can tell (I will look more closely) 4-5 of the units are under new ownership, 2 are for sale now, and 2-3 will come up over the next year. There are about 4-5 owner residents and the rest are rentals, I suspect many paid for by the government based on the brief conversation I had with a couple of the residents, who were nice people but.. er.. yeah. (did I mention this was a waterfront complex with granite kitchens and bamboo floors?)

Last edited by Flot; 08-15-2011 at 03:32 PM.
Old 08-15-2011, 03:26 PM
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Originally Posted by Flot View Post
I should point out that I'm already renting out my previous home so getting _some_ taste of the pain of being a landlord.

I do have the advantage in that this building is practically walking distance from my current home and repairs that would be under MY control (not assessments, etc) would be managable and cheap.

The building is about 16 units, as a condo conversion the units were selling for $180k plus, so I expect every single one to turn over as a short sale or foreclosure within the next few years due to drop in value.

As far as I can tell (I will look more closely) 4-5 of the units are under new ownership, 2 are for sale now, and 2-3 will come up over the next year. There are about 4-5 owner residents and the rest are rentals, I suspect many paid for by the government. (did I mention this was a waterfront complex with granite kitchens and bamboo floors?)

Unless the condo board does a major assessment.
Old 08-15-2011, 03:41 PM
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I'm no pro when it comes to real estate investments, but I would want to know how many units were in default on monthly maintenance fees. Someone has to pay to keep the grounds up, insurance, etc. If everyone isn't paying, fees will have to go up.
Old 08-15-2011, 03:44 PM
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Originally Posted by Sprockets View Post
I'm no pro when it comes to real estate investments, but I would want to know how many units were in default on monthly maintenance fees. Someone has to pay to keep the grounds up, insurance, etc. If everyone isn't paying, fees will have to go up.
Agreed. I suspect there could be some short term rough spots there, but as the units turn over I think that will even out. I had made some casual inquiries back in february, and found the management company to be surprisingly straightforward. (I never pursued as the unit I was looking at then sold)
Old 08-15-2011, 04:26 PM
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Where is that 10' pole I keep for things that I wouldn't touch?

There are thousands and thousands of unsold and foreclosed condos in Florida. We are nowhere near the bottom of that pile.
Old 08-15-2011, 04:35 PM
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Originally Posted by ThreeLittleFish View Post
That's about a 10% return per year on your investment. But add in maintenance, remodeling when new renters move in/out, damage from tenants. You may migth be looking at around 7-8% which isn't fantastic. Chances are the value of the condo isn't going to appreciate measurably anytime soon. A descent return in the stock market these days is about 10-15%. 20% is not out of the norm. In the market you won't have any problems with tenants either.
10% is what you should expect with rental units on average. The foreclosure market has really inflated returns on rentals.
Old 08-15-2011, 04:59 PM
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I suspect many paid for by the government

Find a different investment unless you want to become a slum lord ...
Old 08-15-2011, 05:06 PM
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I would not shy away ... but I own some crappy buildings. The only concern I would have is that you say it is a condo conversion. how many units are in the building. It can be a real pia if there are like 10 units and no one gives a crap but you. All of a sudden your dealing with trying to keep the place up with no one else, except you giving a crap.
Old 08-15-2011, 05:14 PM
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Originally Posted by JRS@OBX View Post
How many bank owned units are there? Is there any entity that owns 10% or more?

If so, there could be a chance for default on the condo fees which could put the whole complex in jeopardy.

That being said, I have a condo as an investment property in another state....
Spoken like a true Appraiser!
Old 08-15-2011, 05:15 PM
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nothing wrong with being a slum lord - pays for my boating and travel habit very nicely
Old 08-15-2011, 05:18 PM
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Originally Posted by Seacat FL View Post
Where is that 10' pole I keep for things that I wouldn't touch?

There are thousands and thousands of unsold and foreclosed condos in Florida. We are nowhere near the bottom of that pile.

Yup.
Old 08-15-2011, 06:14 PM
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$70K...............

Unpolished......................

Run.

My son was looking into investment rental properties in Texas. He found some similar ones that were dirt cheap. The management company that was selling them said that they wouldn't even manage them. You're on your own!
Old 08-15-2011, 07:18 PM
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FWIW, I bought a foreclosed home for $36K and expect to put $10K into making it an 1800SF home with a separate 700SF apartment on the property.
Rent for the home should be $1000, and the apartment about $500. That's $18K/year on a $50K investment.

They're out there. Keep looking, because if COA fees aren't paid and R&M goes to hell, then values will drop even further on your investment. It's too skinny to look like a good deal, IMO.
Old 08-15-2011, 07:25 PM
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Now please realize that this is just my opinion. As an appraiser, almost all of the condo conversions I have seen were built extremely fast. Remember they were apartments before, they are usually thrown together as fast as a contractor can get them up. I to am an investor in rental property and I would never ever touch a conversion for that very reason alone! Just my 2 cents.
Old 08-15-2011, 07:27 PM
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Originally Posted by gingersnap View Post
Yup.
Just saw this post.............It sums it up very nicely
Old 08-15-2011, 08:47 PM
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Originally Posted by spraynet 1 View Post
Now please realize that this is just my opinion. As an appraiser, almost all of the condo conversions I have seen were built extremely fast. Remember they were apartments before, they are usually thrown together as fast as a contractor can get them up. I to am an investor in rental property and I would never ever touch a conversion for that very reason alone! Just my 2 cents.

Did you have your data and do you have it in your workfile..........USPAP compliant......????
Old 08-15-2011, 08:49 PM
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I do not work in appraisal, but I have held a license for several years and I am in property management full time. You would be amazed at the maintenance cost and turn costs for poorly constructed properties.......

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