Buy Condo Next Door to Rent Out?

gathermewool

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I'll start by saying that I know it's not as easy as buying another condo in my complex and taking on a tenant. We have lot of research to do before we even consider it. With that being said, we bought the condo were in as a cheap starter home. It was turn-key, but has a lot of room for sweat equity input. That is, unless we buy a "forever" home in 4-5 years and rent this condo out, in which case I don't think upgrading the kitchen and bathroom would really help. But, that's besides the point of this thread. The condo next door is for sale for less than what we paid for ours. Even if some work was needed, we could easily afford to put 20% down and take on the second mortgage. Things would be tight, but we could even afford both mortgages without having a tenant, and probably even pinch pennies and still be ok if my wife lost her job or if I was on disability for a little while. What I mean to say, is that we could afford to hold out for some nice company man or woman, or even a nice couple to rent, and not be forced to rent as quickly as possible, to whomever possible. So, with all of that out of the way, what do you think about purchasing a condo in the same complex and have tenants live right next door? It makes good financial sense, but might end up being a nightmare
 
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I could see it being a worse nightmare if there was someone next door that you had no control over. I'd do it for sure. There is a 1% or under rental vacancy here so I would be stupid if I didn't in my area.
 
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Well being a landlord can always be a nightmare and it's something that people are afraid of. However, I've been a landlord for over 20 years and about 95-98% of the people out there are fine, it's the other small percentage you have to watch out for. No big issue about the tenant next door, just make sure they know you live next door so if they cause trouble, you will know. Usually for condos they also sign some agreement that says they will agree to abide by all condo rules and that typically involves things like noise level, parties etc. Also for investment property, they typically want 25% for a down payment, it's 20% if it's owner occupied. Also when you say tight, would DTI be over 38%? You might not even be qualified. Also what's the owner occupancy of the condo complex? If it's less than 50%, it's tough to get a loan. Also I'm not a big fan of you thinking that you would hold out for a nice company man or couple. I always rent to the first qualified tenant that wants the place. The unqualified ones are rejected. It sounds like you're planning on discriminating against families with children. If you're going to be a landlord, you need to read up on what you can and cannot do. Around here, discrimination is a 10k fine. There are basic federal laws and then additional state laws and sometimes even city specific laws on who is and isn't in a protected class.
 
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I've also been a landlord for well over 25 yrs with numerous properties. I started out by buying 1 townhouse and it snow balled from there. I have had the odd bad tenant, maybe 1 or 2 but for the most part, all of been good. Just remember that it is a business and it requires some discipline. It's very difficult to lose in this business as properties are solid investments. Make sure you know your landlord laws inside out and also it really helps if you have some carpentry skills. Also, don't spread your finances too thin. I always keep min $10,000 for emergencies.
 

gathermewool

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Originally Posted By: Wolf359
Well being a landlord can always be a nightmare and it's something that people are afraid of. However, I've been a landlord for over 20 years and about 95-98% of the people out there are fine, it's the other small percentage you have to watch out for. No big issue about the tenant next door, just make sure they know you live next door so if they cause trouble, you will know. Usually for condos they also sign some agreement that says they will agree to abide by all condo rules and that typically involves things like noise level, parties etc. Also for investment property, they typically want 25% for a down payment, it's 20% if it's owner occupied. Also when you say tight, would DTI be over 38%? You might not even be qualified. Also what's the owner occupancy of the condo complex? If it's less than 50%, it's tough to get a loan. Also I'm not a big fan of you thinking that you would hold out for a nice company man or couple. I always rent to the first qualified tenant that wants the place. The unqualified ones are rejected. It sounds like you're planning on discriminating against families with children. If you're going to be a landlord, you need to read up on what you can and cannot do. Around here, discrimination is a 10k fine. There are basic federal laws and then additional state laws and sometimes even city specific laws on who is and isn't in a protected class.
With just my income alone, the Forester payment, and both mortgages (including insurance) and condo fees would put me at roughly a 40% DTI ratio. That's taking into account what goes into my checking each month (post-tax, etc,) but doesn't include any OT, which usually add up to 10%, and sometimes more, to my gross. // I knew the number of renters at one point, but don't recall now. I believe it's around 1/3 or less, but that's a WAG at this point, so disregard. // I appreciate your opinion, but don't presume to know my thoughts. My comment was general in nature, since my plan is to do what many people at my job do and post on the various boards. Finding a new-hire looking for his or her first place, a young couple (possibly with kid(s), since young couples tend to have them more frequently than retirees hornets Coffee2 ) or an established engineer or tradesman(woman) should be easy and convenient. However, while I see rentals posted at my company all the time by employees that seem to go pretty quickly, that doesn't mean we'll get lucky with some one who will qualify right away or even have any interest in the place. It might be that we'd be stuck paying two mortgages while we try to find a qualified tenant, which was my point: I think we'd be ok indefinity, even if my wife lost her job and I worked no OT. Also, if some one passes the rental posting on to someone outside of the company that wouldn't matter to me; I'm not companyist. Finally, it does seem like I unintentionally struck a nerve. If I'm missing something that prohibits me from selectively initially posting at my company, which may or may not result in a reliable, trustworthy tenant, then please let me know. As above, we may learn a lesson and take your advice and post openly and widely and accept the first tenant who qualifies. For now, since I only found out a few hours ago that the condo next door is for sale and haven't thought about it much, I figured keeping the posting as local as possible would be a good idea. Thanks again for your input. We have a lot to think about before even considering something like this, but I know we have a wealth of K owl edge here, so I wanted to ask in a very general way what your thoughts and experiences have been.
 
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Buy the condo and rent it. It can be a great investment and an eventual solid money maker. A landlord may refuse to rent to people with pets (with the exception of service animals). A landlord may require: credit references, a security deposit of up to two months rent, references from previous landlords. State in your rental ad that the applicant must provide two months rent as deposit and for first month, pass a credit history check, and will need to supply a previous rental reference. This will filter most deadbeats out when they read the ad. And pay to get a on line credit history check on any serious applicant. And then call the supplied reference to check them out. Reject anyone with no reference or that you have any doubt about. Renting to a bad person is a huge pain and can cost you thousands to get them out. You cannot discriminate but have a right to be very selective about who rents your property as long as you apply that same objective standard to everyone regardless of race, creed, gender, kids, disability, or color.
 
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We sold the condo we had owned since 2004 five weeks ago. Our daughter lived there for the first eight years, and we had it rented for the last two. (We never lived there, but I was the HOA board president the last 20 months.) The adage about the two happiest days for a boat owner comes to mind. Even in suburban Seattle (a booming real estate market) where this condo was, we took a bath not even factoring in inflation. Would you be looking for this "investment" property if you did not live next to it? What does the condo's declaration/by laws and house rules say about rental units? Any additional fees, and/or hoops to jump through? Per cent currently non-owner occupied? (Lender will want to know; but you would be unlikely to get a loan on a non-owner occupied condo anyway.) Turnover ratio? Age of property? (Fifteen years or more is indicative of big ticket maintenance issues coming.) Maintenance reserve situation? Any special assessments your board of directors sense may be coming, but have not implemented? Bottom line: I would not recommend it. The "hassle factor" is too great, and there are better places for your savings.
 

JHZR2

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Makes sense to me to have control over your neighbor this way. Landlord img can't be easier due to proximity. And if it becomes too much of a hassle, or you don't like it, sell, or buy your long term place and rent both. Lots of options here. Seems that the common fees make moneymaking on a condo tougher. But you should be able to assess your market for potential and decide.
 
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I'd consider it if I had a property manager and the tenants didn't know I was the landlord. Otherwise it is too complicated. UNLESS you can find the perfect older couple or something.
 

djb

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Living next door makes a big difference in the situation. You can't be an effective landlord from far away. When you are nearby it takes no effort to monitor the property, and simple repairs are mostly free. (Imagine paying for an electrician visit to reset a circuit breaker.) I agree that 95-98% of tenants are good people. But it won't seem that way. The 2% that are deadbeats and scammers move every few months, while the good tenants stay in the same place for a decade or two. So your impression that half the people are trying to rip you off is true, and it might be more like 90% of the people applying to rent are from that 2%.
 
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I would advise against it. A highschool buddy of mine (works restate) decided to buy 4 condos at Sienna in Gulfport. Really nice place beach front. His thought was to keep 2 for himself. One on ground floor (his son is mental disabled and didn't want him to possibly fall off a balcony). He also had one on 3rd and one on 7th floor. After he bought them he sold one within a month? Said he made 30k off it. He wanted to hold on to the rest since how easy he sold that one (figuring he could make more). Long story short its been 5-6 years since he bought them and has only managed to sell that original one. So for 5-6 years he has been paying near $2000 a month in dues (per condo). He said he regrets ever buying them. He had one where the water heater went out and talked to the front desk. They refused to pay for the repairs (or even look at it). So he had to pay to replace it. It wasn't the fact they refused but the fact that he spends 6k a month on the 3 for dues and maintiance up yet wouldn't replace a water heater. They never get used except on the Miss's birthday and our anniversary (he let's us use the 4th floor one). [img]http://imagesus.homeaway.com/mda01/235bb091-0c52-4a6c-a172-7447ec288c44.1.10[/img]
 
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It's not really that hard to find a qualified tenant if you run your business right. It shouldn't take more than 2-3 months to find a tenant. Normally it only takes me on average about a month or so to find a tenant unless we're in the winter and that might take 2 months. If it takes longer, it's because the apartment is overpriced. I've come to lower my asking price if I have an empty during the winter so it will fill faster. I also keep mine in good condition, usually when I first get them I put in new appliances so it makes it easier to rent. If the apartment rents for $1000 a month, I'd rather put $1000 into the apartment fixing it up than let it go empty for a month, but other people don't see it that way and end up with long vacancies. In terms of your method of finding someone, I guess if there's enough of a demand at your company, I don't think you'd run into discrimination problems. I just normally post vacancies on craigslist and on postlets which cross posts to many other sites like trulia, hotpads, zillow etc. Basically you should define what criteria you're looking for in a tenant. Ideal ones are the ones that have stayed in one place for 3+ years. People who move around every year or two aren't that great as you end up having to fix up an empty unit when they move out and you might lose a month or two worth of rent between tenants.
 

gathermewool

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You guys have given me a lot to think about. I'll reply in more detail when I have time later. Thanks again!
 

gathermewool

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The condo next door is listed for around $50k, and is similarly priced to other condos nearby, of which there aren't many that I know of. Napkin math shows a conservative cost of ~$750/month, and we were toying with listing at > $850. Not a great margin, but would it be safe to say that, while not a money maker now, it may be a great investment for a ways down the road? Condo values in this complex have been halved in the past decade due to the bubble collapse. I don't expect a pre-bubble return, but a steady rise in home value. I can't imagine the market depressing any more, so the risk might be minimal. Heck, the only reason we bought a cheap little condo is because I wanted my wife to settle into the area and have a big say in where our "forever" home might be when we can afford it. The condo we're in now costs about the same as renting for us, and we were surprised how nicely the previous owner kept it. It could use a lot of upgrades, but it's solid, cozy and comfortable. In all of my documents, the only thing other than the obvious (tenant must follow all rules, etc.) is that the lease term must be no less than 6 months and intent to lease must be documented with the management association. I'll have to look through my emails later, because I have nothing printed showing how many renters we have in the complex. We've got an association meeting in less than an hour, so I'll ask then. Another thing to keep in mind, is that I'm only bringing this up out of curiosity. My wife let me know last night that the place was for sale, and we've talked in the past about how cheap the condos are and what the potential for buying a second condo to rent out might be. I knew I'd get some good insight here, which prompted my post.
 
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Doesn't sound very good with your numbers. That $100/month can get ate up quick with repairs, vacancy, eviction, etc. $850 rent in CT sounds low. $850 doesn't get much here, and our costs are low. Maybe you're too conservative on your estimates.
 
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Generally investing in condo's to rent is not a good idea unless your buying enough units to control the complex. Your also paying to much, at $30k it would be a good buy. $850 in CT is also pretty low on the scale so you will be seeing dead beats. My rentals start at more than twice that.
 
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gathermewool

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Again, all preliminary. Two other condos are up for rent @ close to $900/month,though I don't know what that includes, if anything. The cost I quoted is using very conservatively high numbers, with a 15 year mortgage. It seems silly to take out a 30-year for such an inexpensive place, but it would drop the cost of the mortgage down $100/month. I'll call NFCU when I get a chance and get some numbers closer to reality. It could be that I'm off quite a bit. Im waiting to hear back from the association, but they think that > 50% of the units are rented.
 
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