Real Estate... is this a buy?

B

bond tr4der

Brand new construction in Jacksonville Florida. Condo purchased on 12/28/2005 for $138,100. Property gets foreclosed upon September of this year. It's now bank owned and is listed for $70,000. It's in good to average condition.

3 bedroom, 2 bath, in gated apartment community. In a fairly desirable neighborhood in Jacksonville with two major universities within a 5 minute drive and several elementary schools.

Property taxes are $2000 a year, but it's based on $138,000 valuation...

Let's say the HOA would average $125 a month. (I have no idea what the actual may be)

Rents on craigslist for similar apartments in same neighborhood go pretty much at $900. There are a lot of listing which is what makes me suspicious. Nevertheless a renter could be found easily for $800 a month.

Is this a buy? Assuming 20% down, mortgage rates for investment properties, excellent credit, etc...
 
realestate will be a buy when people with jobs can afford to buy houses without using any kind of impractical credit/lending vehicles. When business scale down and become efficient, income will be relative to home prices. People will only buy what they can afford.
 
As an owner occupied unit it screams BUY, but rental real estate is still a crapshoot....obviously you been watching too many infomercials
 
As a property investor, I use this basic rule of thumb for rental properties:

Purchase price * 2% = monthly rent required

It's a conservative formula, but IME it is the safest one to go with, especially when you factor in vacancy, repairs and upkeep, and possible further reductions in general rents or property values, given the current economic environment.

So in your case on a $70k property if you're putting down 20% ($14k) and financing the rest, you'd ideally want to be able to get at least $1120 a month in rent ($56k * 2%). That would give you a guaranteed cash flow and a margin of safety against falling rents, falling property values, vacancy and repairs and upkeep.

So if $800 is safely the most you can get in rent for the property and you can put 20% down, I'd make an offer to the bank of $50k for the property. Otherwise, I'd pass.

Also, as someone else mentioned, before purchasing be sure to check the condo association docs to see what restrictions they have on rentals. Many will restrict you from renting the unit more than once in a 12 month period, so if you get a deadbeat tenant who disappears after 3 months, you're screwed for the next 9 months...:eek:
 
I own some properties in the midwest that I rent out.

I paid around $90-$105K for them and they rent out for about $750-$850 a month.

However, they are houses so there is no HOA fee so that is a plus. Also, they are in a locally popular school district so that is a big plus as well. I don't think my taxes are quite that high either - I think they are more like $1200 yearly.

Since I don't live in the midwest, I have a property management company handle them, which costs about 10%.

So all in all, it's about break even each month, but then there are tax breaks at the end of the year, plus the Principal is getting paid down (which then makes the tax breaks less, since the interest paid goes down).

So, from a pure standpoint of can you make money with a $70,000 home renting out for $800-$900, of course you could if everything worked out, but in reality of course, it depends how easily it would rent out, how good the renters are, in this case what the HOA is, etc,.

Like has been said before and I tend to agree, "All real estate is local", meaning a buy in one area would be bad elsewhere, sometimes just miles away.

With prices continuing to fall and rents in alot of areas staying the same or going up, I wonder how long before people start trying to buy again.

JJacksET4
 
Quote from zboy2854A:

As a property investor, I use this basic rule of thumb for rental properties:

Purchase price * 2% = monthly rent required

It's a conservative formula, but IME it is the safest one to go with, especially when you factor in vacancy, repairs and upkeep, and possible further reductions in general rents or property values, given the current economic environment.

So in your case on a $70k property if you're putting down 20% ($14k) and financing the rest, you'd ideally want to be able to get at least $1120 a month in rent ($56k * 2%). That would give you a guaranteed cash flow and a margin of safety against falling rents, falling property values, vacancy and repairs and upkeep.

So if $800 is safely the most you can get in rent for the property and you can put 20% down, I'd make an offer to the bank of $50k for the property. Otherwise, I'd pass.

Also, as someone else mentioned, before purchasing be sure to check the condo association docs to see what restrictions they have on rentals. Many will restrict you from renting the unit more than once in a 12 month period, so if you get a deadbeat tenant who disappears after 3 months, you're screwed for the next 9 months...:eek:
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20% yield after expenses (assuming the flood insurance is not 1/2 of the rent to back it down to 10%) ? Sign me up.

Regardless, any area with a moderately healthy economy (ie not Michigan) won't have these #s. And if they do, tell me about it.

I just did 2 rentals in the 1% value range and am doing well with them (in San Diego) ... Our prop tax and insurance rates don't eat too much into the monthly nut.

I can only advise two things: You find a way to buy single family where there are no mello roos (big prop tax additions) and no HOA fees. Then find an area with minimal dwellers policy cost, and finally no requirement for flood insurance that eats into all of your profits. 1% is a more realistic number after expenses, and you should do fine considering the cost of money is now half of that.

The only place I could imagine you collecting 24% of the property price on an annual basis is somewhere you'll have to manually collect the rent and worry about getting shot every month doing it.
 
Quote from bond tr4der:

Brand new construction in Jacksonville Florida. Condo purchased on 12/28/2005 for $138,100. Property gets foreclosed upon September of this year. It's now bank owned and is listed for $70,000. It's in good to average condition.

3 bedroom, 2 bath, in gated apartment community. In a fairly desirable neighborhood in Jacksonville with two major universities within a 5 minute drive and several elementary schools.

Property taxes are $2000 a year, but it's based on $138,000 valuation...

Let's say the HOA would average $125 a month. (I have no idea what the actual may be)

Rents on craigslist for similar apartments in same neighborhood go pretty much at $900. There are a lot of listing which is what makes me suspicious. Nevertheless a renter could be found easily for $800 a month.

Is this a buy? Assuming 20% down, mortgage rates for investment properties, excellent credit, etc...
More...

The HOA will be much higher likely. Here in CA even without landscaping, esp. with a smaller HOA it is $250-$300 starters. Find out. Ziprealty will show you the HOA fee (free to sign up). And HOA fees are hard to pass to your tenants. Often they include water, but you can't pass the water component (since it isn't divided by actual use of your unit) to the renter directly.

And find out whatever coverage you have to do for flooding. In CA, most often the HOA covers the physical building, but in FL things may be different considering the hurricane risk ... Regardless you must still cover your part of personal contents (likely drywall, flooring, lower level of cabinets, etc) esp. if this is a lower level condo.

Go single family.... Where do you live btw? I know some great deals in Socal I can guide you to and have experience with this (have done 3 of them recently, including renovations etc). (heh, i'm not a real estate agent if it sounds like that... i just have some enthusiasm about it)
 
Quote from scriabinop23:

20% yield after expenses (assuming the flood insurance is not 1/2 of the rent to back it down to 10%) ? Sign me up.

Regardless, any area with a moderately healthy economy (ie not Michigan) won't have these #s. And if they do, tell me about it.

I just did 2 rentals in the 1% value range and am doing well with them (in San Diego) ... Our prop tax and insurance rates don't eat too much into the monthly nut.

I can only advise two things: You find a way to buy single family where there are no mello roos (big prop tax additions) and no HOA fees. Then find an area with minimal dwellers policy cost, and finally no requirement for flood insurance that eats into all of your profits. 1% is a more realistic number after expenses, and you should do fine considering the cost of money is now half of that.

The only place I could imagine you collecting 24% of the property price on an annual basis is somewhere you'll have to manually collect the rent and worry about getting shot every month doing it.
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Question--how long have you been a rental property owner?

IME, the 2% formula as I said is a conservative formula, but it is conservative for a reason. I've seen the majority of landlords get burned out or sell out because they were too optimistic with their numbers, or didn't fully account for vacancy, repairs and upkeep and all the other unforseen stuff that inevitably comes up to eat into your cash flow over time.

My mentor taught me this early on, and while yes, you do have to look hard for the right bargains to find properties that will meet this formula, they are out there. Especially now, where rents and property values will most likely continue to fall, it is more important than ever to be conservative.

I personally have 3 rental properties that fit this formula that are professionally managed (and no, they're not in war zones), and I'm glad that I did because it's the unforseen crap that kills you, but because I put in a large enough cushion I've never been in danger of having negative cash flow.

The key is to not be afraid to make a lowball purchase offer. My most recent purchase was a SFR with guest quarters that the owner was asking $299k, and I offered $150k, and he took it. Cash flows easily.

This isn't to say that you can't cash flow with a smaller percentage in the formula (1 or 1.5% of purchase price), but especially in this environment I prefer to be extremely choosy about what I purchase. YMMV.
 
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