Buying a rental condo

M

MoneyJohn

Joined
Mar 1, 2012
Messages
843
Location
HUdson Valley, NY
I noticed there are a few folks here that maintain the rental properties. I am looking for some pointers to research our plans for buying a condo for rental purposes.

After huge financial setbacks due to our son's health condition since birth, we could never think of buying a dwelling. We went to the brink of bankruptcy and building things back. Even at this moment, we are not in a position to buy a condo in the area where we rent. But we would like to start somewhere.

Our thought process is, we will buy a condo and the rent will pay for the mortgage. What I don't know, if there is any comprehensive source of info on renting a condo, or if there are any services that take care of all rental, maintenance for a fee. I understand I may be paying a month or two worth of rent as a fee to these companies. I would like to research the info before we step into this process. I don't want to go to realtors with absolutely no idea of what I am talking about.

This is a little north of NYC/Stamford, CT. I appreciate any pointers anyone can provide. Thanks in advance.
 
Usually the rent will be less than the mortgage payments; so, you won't be making money in the short run unless the property values and/or rents quickly rise after you purchase the property. On top of that, you pay for maintenance etc. You are probably looking at a rent of about 75% of your mortgage and other payments on the property initially. Moreover, you will be paying tax on the rent income. You may have better luck with Airbnb if you are looking for quick profits, but that requires a lot more effort than renting the property, as you need to manage and clean it on a daily or weekly basis, and then there are occupancy risks.
 
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Myself, I wouldn't want to be a landlord now. There are so many people down on their luck and cannot pay the rent and they have all kinds of protection right now keeping them from being evicted and the landlord suffers.
 
There are property management companies for land lords if you don’t want to deal with renters and managing unit(s) yourself. My parents bought a apartment/condo when my older sis went to Ohio University and have been renting it for nearly 30 years. It makes them money. They don’t deal with issues like a water heater needing replaced.... they just get money deposited into their account from the income.
 
MoneyJohn said:
I noticed there are a few folks here that maintain the rental properties. I am looking for some pointers to research our plans for buying a condo for rental purposes.

After huge financial setbacks due to our son's health condition since birth, we could never think of buying a dwelling. We went to the brink of bankruptcy and building things back. Even at this moment, we are not in a position to buy a condo in the area where we rent. But we would like to start somewhere.

Our thought process is, we will buy a condo and the rent will pay for the mortgage. What I don't know, if there is any comprehensive source of info on renting a condo, or if there are any services that take care of all rental, maintenance for a fee. I understand I may be paying a month or two worth of rent as a fee to these companies. I would like to research the info before we step into this process. I don't want to go to realtors with absolutely no idea of what I am talking about.

This is a little north of NYC/Stamford, CT. I appreciate any pointers anyone can provide. Thanks in advance.
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Stamford is a very expensive area! I am sure you know that already.
 
georgemiller said:
Don't waste your time. By the time you pay HOA, insurance etc it won't be worth your effort. Better off keep saving for a deposit on a home where you have accessory apartment to rent out to reduce mortgage.
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+1. I’d be very wary with condos that have all kinds of fees and an HOA to deal with.

The market in this area is very hot right now, so it’s not a good time to do it, IMO. You need to make money at the buy, which means picking it up cheap enough. When the economy goes through a correction and RE settles down, will be a better chance, IMO. Having more money set aside will get better terms, since it is not a primary residence, and so you can’t get as favorable of rates.

In the end you have to do the math, but don’t count on the rent covering the mortgage unless you have sufficient down payment, and at that time, it’s all because you put more of your equity into it.

Its also very market dependent. Some spots will have lower local taxes and lower RE prices, and might be a better bet. So blanket thoughts given on here will not be as accurate as knowing the market locality by locality.
 
One other thing to watch for is does the association have a limit on the number of units which can be rentals, or do they even allow rentals? You don't want to buy into a place and find out that you can't rent it out.

And as others have said, I don't think this is a good time to be a landlord. It's very possible that you won't get any rent to cover costs and there won't be a thing you can do about it.

Please note, I am not a lawyer, have not played a lawyer on TV, nor did I sleep at a Holiday Inn Express last night...
 
Honestly, I would avoid any possibilities of having to rely on a complete stranger(s) for my financial success.

The people that know what they are doing are making money because they have tons of experience. The people that don’t know are currently losing their #&@*#. The knowledgeable people make rental properties look very easy.

100% of all the financial debt, taxes, association fees, insurance, special assessments, (possible lawsuit) , etc, etc.... is your responsibility. With all the rent moratoriums this will NOT be a good decision to buy a rental condo. Please do not buy, you’ll definitely regret your decision.

If safely building wealth over time is your plan, maybe some high quality ETFs and Mutual Funds is a much safer way to go. Trust me on this....


.
 
Like any business you need to have the cash to back you up for when some thing bad happens . an eviction, repairs vacancy etc . Also being real estate the three basic rules are location. location, location This year I had 4 turnover in some properties I owned ,and repainted carpet and flooring etc came to [rounded figures.] $45,000.00 plus I paid $37,000.00 property taxes. I don't consider my self an expert in any way . Do the math. listen to the Dave Ramsay radio program for a while.
 
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I have a condo in Naples on the beach which I do not rent but those that do, get $6800-$7200 a month for a minimum 3 months. You can't rent in my building for less than three months. That keeps the riff raff out of the place. Those that rent through out the year get around $5,000 a month, Condo fees and taxes run close to $20,000 a year. Prices start in the low $600's and up to 1.3 million for a three bedroom on the upper floors.

BTW I bought in 1987 when prices were resonable and Naples hadn't exploded in population.
 
Over the years I've had a number of rental homes and a few multi family buildings. From my observations, the only way condos make sense as a rental is if you get into them at a very low price.
The culprits are inflated initial price of a condo unit versus the unit cost of an apartment as part of a complex, the monthly HOA fees, and increased rental management and maintenance costs when there is no economy of scale. While these might not seem like a big deal, their impact will make most condo deals unprofitable in the long term.
In Vegas you could pick up condos 10 years ago for a song. Price then would make economic sense for rentals. Now they are at the top of the market and even with the current low interest rates purchase as a normal rental makes no economic sense.
That being said, due to some unique conditions I did just buy a condo here. I'll be able to tell you in 5 years just how bad of a move that was.
 
The basic analysis boils down to the capitalization rate. These days it's really low. The higher the number, the more profitable the investment is. Now the number tends to be pretty low and you'd think you would be better off sticking the money in the stock market, but it only requires 25% for a down payment on an investment property so you get 4x leverage but some of that is gone through interest payments. I see people buying properties where the cap rate is down to 3-4. You'd like 8-10 if you can, but those deals aren't really out there anymore. The ones buying at 3-4 are hoping that the value of the property goes up over time and in a strong market, even those that bought a few years ago have been rewarded.

www.thebalancesmb.com

How to Calculate Commercial Property Cap Rate for Investment Purposes

Divide net operating income by sales price to determine the capitalization rate of income-producing property. The number will guide you in investing.
www.thebalancesmb.com www.thebalancesmb.com

As for maintenance, you can have a company manage the property but you pay for all of it. Profit margins are slim and if you charge too much, you get bad tenants and vacant units when tenants find cheaper properties. Only way to get everything covered for one fee would be to buy a home warranty but the costs of the warranty usually means it's not worth it and they just repair something instead of replacing it.

The easiest way to get started is to buy an owner occupied property which can be bought for as low as 3.5% down with an FHA mortgage. But most brokers hate FHA as it's a hassle so it's the bottom of the pile unless FHA is common in the area. Traditional lenders are about 5% but you get the best rate if you do 15-20%. Investment property minimum is 25%. The lender only expects that you will live there for a year so after you get the first one, you buy the 2nd one the same way and convert the first one into a rental.
 
An acquaintance is a landlord in a 50 unit rental building in Georgia. She states emphatically that being a landlord is a business that makes sense in multi unit apartment buildings, but is not profitable as a business for single condo units. If there are other reasons, such as you want to build up equity in a condo by renting until you retire to move there, than it may make a whole lot of sense. Just remember that being a landlord can involve quite a bit more than just cashing the monthly rent checks. Good luck.
 
SeaJay said:
An acquaintance is a landlord in a 50 unit rental building in Georgia. She states emphatically that being a landlord is a business that makes sense in multi unit apartment buildings, but is not profitable as a business for single condo units. If there are other reasons, such as you want to build up equity in a condo by renting until you retire to move there, than it may make a whole lot of sense. Just remember that being a landlord can involve quite a bit more than just cashing the monthly rent checks. Good luck.
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They have their pluses and minuses. Timing always come into play. I know several landlords with anywhere from 1 to 20 condo units as rentals and I also know several that just do multifamily housing. The condos are actually easier to manage, the association manages the big things like heat, water, roofing etc. You just maintain the interior. That's why you won't make any money having a management company handle it, they will eat up all your profits if there are any. Mostly people who have other people manage their rental units only have one or two rental units. Seems like most people with more rental units just manage it themselves. As I've had many landlords say, what exactly do management companies do? They answer the phone when tenants call. Well it's not that hard to do that yourself. Either you're handy at repairs yourself or you have someone to call to handle repairs. The basics is a plumber, handyman and maybe an electrician. I hardly ever use the electrician but having a good plumber handy is important if you have a lot of units.

This might actually not be a bad time to get into it, but if the OP doesn't have any money now it's probably too late. Condo prices are down in the city because there's no demand for people to share common areas with other people due to the pandemic. But once vaccines get fully rolled out, that depressed market might go away in a few months.
 
JHZR2 said:
Its also very market dependent. Some spots will have lower local taxes and lower RE prices, and might be a better bet. So blanket thoughts given on here will not be as accurate as knowing the market locality by locality.
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this is the key point here. You really have to buy in the right area in order for this to make sense. There are opportunities out there, but you really have to research the specific areas and get input people familiar with the area in which you plan to invest.

Personally, I've had really good success with mid-term furnished condo rentals (periods of one to six months), and have been in positive cash flow immediately w/20% down. But again, it really depends on the area.

Wolf's point regarding margins are really important. If was was paying 8-12% in property management fees along with all of the other costs, I'd be breaking even. On an appreciating property, I could live with that--but I prefer to be in positive cash flow... Note that I don't live near any of my properties and manage them remotely. If you're doing short/mid-term rentals, you need a cleaning person and a handy person you can rely on.

Everyone's threshold for risk is different, but for me, I really want to be able to cover all expenses with 70% occupancy. I'd done that, and I'm happy with the results. And I'm very happy to depend on others to make me money. Beats me working for it!
 
Wolf359 said:
They have their pluses and minuses. Timing always come into play. I know several landlords with anywhere from 1 to 20 condo units as rentals and I also know several that just do multifamily housing. The condos are actually easier to manage, the association manages the big things like heat, water, roofing etc. You just maintain the interior. That's why you won't make any money having a management company handle it, they will eat up all your profits if there are any.
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exactly. I have a colleague who's big on SFH, and he doesn't have to deal with a condo association--but there are benefits as well. If you're managing a property remotely, there is definitely some benefit to having the association handle the exterior maintenance items. You just have to make sure the HOA terms are such that you can live with them.

I give up a little bit of flexibility and margin, in exchange for ease of management. It's a trade I'm willing to make.
 
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