I 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.
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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