1280903_1I caught the bug a day after I wrote about “Why I should not be a Landlord”. Buy a property and make passive income – so tempting. I found a condo that was (and still is) in desperate selling status. 2 Bedroom / 1 Bathroom condo (894 sq. feet) with HOA of $147 a month and taxes only only $1034 a year, in a great school district. The cost of the unit: Listed $40,000 and I believe a 95% chance of obtaining it for only $30,000. Approximate carrying cost if you finance the entire thing: $400. What they are renting for: $705.

I went to check out the unit and it was renter ready condition. The furnace/ac combo was function and cheaper to replace than a conventional furnace/ac (maybe $800 – $1000 to replace). It had appliances in the unit and everything was freshly painted and cleaned. The only thing I spotted that could be a problem was one of the windows needed to be replaced because of a bad seal and one of the cabinet drawers was broken. Also the unit had a patio with a fence that probably needed to be painted.

After factoring in some maintenance costs, I think the positive cash flow would be about $250+ a month if you managed the property. This is literally the perfect rental unit. No lawn to mess with, no snow shoveling, ready to go unit.

Does it get any more perfect for a want to be landlord? l

Well I did what I always do – I put a pencil to it.
Assuming that I finance 100%, maintenance costs of $840 a year, and rented 11 out of 12 months, I think the cash net would be roughly $2,000 with approximately $700 more in equity and tax benefit. So in a good year – a net of $2,756.49. Sounds like a pretty sweet deal doesn’t it?

But lets not forget some of the downsides that ultimately pushed me away from this property.

  • Closing costs: $1,800.
  • Drafting a lease
  • Repairs are expensive. Even just panting the place for the next rental can be costly. Even paint has gotten fairly expensive. Might cost you $300 – $500 plus your time to prepare the unit for the next tenant. .
  • On call 24/7
  • Disastrous repairs can destroy your margin. Although this condo had a very cheap furnace and ac unit; I don’t want to do have to spend time or money dealing with a broken stove, fridge, water heater, or furnace.
  • These condos are now mainly rentals. When you go to finance or sell this condo – you are going to hit a wall. If a condo development is less than 51% owner occupied it is marked as an “investment condo.” In the State of Ohio, approximately 90% (non scientific guess) of banks will not give loans out for an “investment condo”, because condos have burned banks pretty badly in the last decade by condos.
  • Biggest Turn-off was that there were two individuals who owned oven a dozen of these units each – and neither of them picked up this unit. One individual owned 16 and had 2 currently available for rent.

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