WatchHi,
How does identify a good investment property.
I have 3 properties that I like and the details are as follows
Condo 1
Asking price: $195K
Renovation needed : $10K
Common charges : $360
Property tax: $3216
Possible rental income: $1400 per month
Condo 2
Asking price: $188K
Renovation needed: $50K
Common charges: $614
Property tax: $4020
Possible rental income : $1800 per month
Condo 3
Asking price: $237K
Renovation needed: $30K
Common charges : $395
Proper tax : $3715
Possible rental income : $1400 per month
Any suggestions how to decide which one would be worth or or if none are worth it
Thanks
Ron
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Condo 1 is a terrible investment, by adding your monthly cost they are above the rent. I am assuming that what you call common charges are hoa?. You are already losing money every month and that doesn't include repairs, insurance, management agent (if you use one). You need to have positive cash flow. Is this in over priced California?
Condo 2 and 3 are just as bad.
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Where are these condos located?
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Scottsdale, AZ
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those seem like crappy returns to me.
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The formula we use as a general rule of thumb:
(Rental income for 1 year) - (taxes) - (HOA paid per year)
_____________________________________________ > 0.10
Purchase Price + Repairs
None of yours even come close, but different regions will have different returns. Roberto can probably get at least 0.12 or more where he is. Anything less than 0.08 just isn't worth the effort IMHO though unless you are courageous enough to think the properties will significantly appreciate over time.
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Total rent per year minus - HOA-taxes-insurance divided by purchase price equals 10 percent minimum or more per year. THis is with no mortgage.
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Thank you for your response. Condo 2 is a short sale. Do banks give you the advantage if you are putting all cash down. Depending on the Comps and the reno needed I might get it for $130K and with around $40K work needed the total purchase price would be $170K.
Assuming a 1 month vacancy rate per year the return still comes out to les than 5% a year.
I thought it would be a good return. This is in CT
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ronnieyours says
It's more like the opposite. If you try and finance, they just look at you funny and walk away. But most all short sales we have been involved in you usually lowball a bit. Short sales are weird in that its kind of first come first served. Whatever offer gets to the bank first, the bank considers, even if the next guy offered $20k more. Right now, its about the only way to get a good deal.
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this entire thread shows what an investor shouldn't look like...
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Don't forget to factor in a few more years of depreciation on your pile of aging wood and rusty nails.
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G'Day,
Going by what a banker told me was an historical fact since the Roman Empire:
25% of your net pay should go towards your housing. What do you think? You know of anyone taking home in their pocket $5-6k/month to afford these. They would probably have to make a household income of $100k/year. That's how skewed it is so far.
I remember in Lousiana in 1990, a little-old-lady paid $40,000 for a one year old, four apartment condomium complex. Your's would cost nearly a million dollars. I'd wait a bit.
Regards,
Omerde.
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robertoaribas says
Thank you all, looks like I am missing string here.... I thong 5% returns should be good and considering thy the property will appreciate in value would e an added bonus.
Also if it's a rental property you can take advantage of tax breaks tat you get with deprecation also.
I really appreciate all the feedback but am unable to understand hhow can 5% be bad... Unless someone gets great deals it's not possible to make more than that in the NY tri stare area
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throughout most of history, real estate provided much better than 5% return in terms of rent. Up until about 5 years ago, you could get over 5% from safe/risk free investments.
Real estate is NOT a time and risk free investment. Stocks and bonds don't call you when the toilet upstairs runs over all weekend, don't bounce checks to you, don't have air conditioners that go out, don't have to be evicted at expense...
today, rates on everything are very low, but if you buy homes at a mere 5% (and did you factor in maintenance and vacancy in that calculation?)
You will have locked in a lifetime of a low return, when the likelyhood is that in a few years, return rates increase.
Long term, unless you want to live in these units, I wouldn't view any of them as terribly good, unless they are specially located or something.
In Phoenix you could get homes for $100K that will rent for $1000, with no HOA, low taxes and insurance...
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robertoaribas says
In SF area you could pay 100K in realtor commission and closing costs and end up with a place that can't be rented out for $1000. ;) Oh, it'll have HOA and high taxes and insurance, and probably be lost in the next quake. What a great place to live though. If sitting in traffic for hour after hour is actually called living.
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robertoaribas says
The 5% I calculated is with the assumption that my unit will be vacant one month in a year. Also I factored in the HOA & Taxes as well. 5% if the net yield.
The money that I have is currently fetching less than 0.25% .... this way atleast I can be close to 5% and by the time the rates rise the property would have appreciated and I would sell it for a profit if I wanted to and also when the housing market improves so will the rents
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wow, if you couldn't figure out those are bad ideas, you really shouldn't be investing in properties....read some books, do some research first
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AJ212 says
You know before I got to go over all this outline I immediately thought the same. You couldn't GIVE me a condo I would sell it immediately. That's my take.