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Started By
Message
Cash Flow on Rental Property
Posted on 3/2/21 at 9:09 am
Posted on 3/2/21 at 9:09 am
I'm looking at a 1BR/1BA to pick up for a cheap rental.
Note: $325
HOA: $161 (covers water, trash, maintenance and building insurance
Taxes: $50
Expected rent: $700-725
This unit is a bottom floor end unit, includes a stackable washer/dryer, which not all units do, so those are the main positives. It's also been freshly painted and the electrical was recently upgraded, so it's move in ready. Another similar unit was for rent for $700 with no W/D, and it's been rented.
Am I missing any expenses? It seems like a pretty good low cost investment.
Note: $325
HOA: $161 (covers water, trash, maintenance and building insurance
Taxes: $50
Expected rent: $700-725
This unit is a bottom floor end unit, includes a stackable washer/dryer, which not all units do, so those are the main positives. It's also been freshly painted and the electrical was recently upgraded, so it's move in ready. Another similar unit was for rent for $700 with no W/D, and it's been rented.
Am I missing any expenses? It seems like a pretty good low cost investment.
5
Posted on 3/2/21 at 9:15 am to LSUGUMBO
CAPEX
General rental wear and tear. Typically 15-20% of rent is set aside for these but obviously a toilet costs what a toilet costs regardless of rent price
Just from your listed expenses, you’re talking ~$175/ month cashflow. Seems way to low to me.
General rental wear and tear. Typically 15-20% of rent is set aside for these but obviously a toilet costs what a toilet costs regardless of rent price
Just from your listed expenses, you’re talking ~$175/ month cashflow. Seems way to low to me.
This post was edited on 3/2/21 at 9:17 am
Posted on 3/2/21 at 9:22 am to LSUGUMBO
Repairs and Vacancies.
What's the price?
What's the price?
Posted on 3/2/21 at 9:22 am to LSUGUMBO
Do you have to carry insurance? You are essentially purchasing an apartment for a price then renting it for a profit correct? If thats the case you need to check with the owner of the building and see if its your responsibility to provide insurance for the apartment. Also may want to consult a lawyer to have a rental agreement drawn up and maybe even have a retainer on a lawyer since inevitably you will run into issues if you do it long enough. Also familiarize yourself with eviction process and the new cant evict laws from covid 19 bullshite.
Also it might be up to you to provide maintenance for appliances and such. Ac stoves washer and dryers etc. Personally seems like a lot of hassle for one apartment and 200 bucks a month profit at best.
Also it might be up to you to provide maintenance for appliances and such. Ac stoves washer and dryers etc. Personally seems like a lot of hassle for one apartment and 200 bucks a month profit at best.
Posted on 3/2/21 at 9:29 am to Lucky_Stryke
Yeah I'd double check everything the HOA covers and make sure there's no hidden costs or something that could surprise you. Mainly the building insurance and what it covers. I'd also try to find out more from other owners/tenants or get more information on the building itself. I was looking at a 1/1 at one point, HOA was expensive of course, but they had terrible building maintenance and operations....basically MIA. I sent an email to their office with a few questions when I was in the process of buying (eventually didn't) and they responded 3-4 months later 
Posted on 3/2/21 at 9:35 am to Lucky_Stryke
quote:
Do you have to carry insurance?
The HOA covers the building and exterior, so it would be up to the renter to cover contents if they so choose.
I hadn't considered the COVID eviction thing, so that's definitely something to consider. I've taken maintenance of appliances into consideration.
I know the monthly return isn't much dollar wise, but it wouldn't take a whole lot to build up a nest egg to cover vacancies and/or maintenance/replacement. It's not for immediate income, it's more as an investment to cash flow later down the road. I also think that my MIL will need to downsize sooner rather than later, so my hope is that we can talk her in to moving into it in a few years.
Posted on 3/2/21 at 9:45 am to LSUGUMBO
I was in your boat about 5 years ago, dabbling in those same price ranges. Ultimately decided it wasn't worth it getting around 10% - 15% return, and it was mostly the HOA fees that were killing it. I went with the unpopular "lower income" single family rentals over condos and student housing.
The pros are that the cashflow and yearly return is high, but the cons are that the tenants are hit and miss and the uncertainly of how appreciation/depreciation will be down the road. If the property you're interested in will appreciate greatly, then maybe you can tolerate some low cash flow for awhile and play it as a longer investment and recoup it when you sell.
The pros are that the cashflow and yearly return is high, but the cons are that the tenants are hit and miss and the uncertainly of how appreciation/depreciation will be down the road. If the property you're interested in will appreciate greatly, then maybe you can tolerate some low cash flow for awhile and play it as a longer investment and recoup it when you sell.
Posted on 3/2/21 at 9:47 am to LSUGUMBO
quote:Don't listen to me then LOL. Lower income single family housing would not be a good choice...unless you hate her.
I also think that my MIL will need to downsize sooner rather than later, so my hope is that we can talk her in to moving into it in a few years.
Posted on 3/2/21 at 9:49 am to LSUGUMBO
Advice
Get a maintenance policy on the place to take care of a/c, stove, hot water heater, and other mechanical items.
Get a maintenance policy on the place to take care of a/c, stove, hot water heater, and other mechanical items.
Posted on 3/2/21 at 9:55 am to SlidellCajun
If your endgame is to sell the property at some point, don't buy a 1/1. Limited resale audience compared to a 2 bedroom or more. just saying 
Posted on 3/2/21 at 9:55 am to Logician
I seriously doubt he's going to find a good cash flow property that is going to be considered very nice for his MIL Lower income will typically net the highest returns.
Lower income will typically net the highest returns.Posted on 3/2/21 at 9:58 am to Logician
quote:
The pros are that the cashflow and yearly return is high, but the cons are that the tenants are hit and miss
My hope is that a 1BR will draw a little old lady or a college student that doesn't want roommates, so the liability is lower. This would likely be a longer term investment, 5-10 years or more, and as long as I can pay the note/HOA, I don't need to take anything profit-wise until it's closer to paid for.
Posted on 3/2/21 at 10:01 am to LSUGUMBO
you realize that if you get your money back you have not made a profit...
Posted on 3/2/21 at 10:11 am to sstig
quote:
you realize that if you get your money back you have not made a profit...
I can leave profits ‘invested’ for any unexpected expenses/vacancies until I have a separate nest egg so that it’s self sufficient is what I mean by that.
Posted on 3/2/21 at 10:22 am to LSUGUMBO
I’m just gonna be blunt here, it sounds like you want us to tell you this is a good idea. You’re looking at maybe $100-125/month after true expenses. If that plus the chance for appreciation (condos typically don’t appreciate like SFH) decades down the road is worth it for you, go ahead.
Posted on 3/2/21 at 10:31 am to jimbeam
quote:
I’m just gonna be blunt here, it sounds like you want us to tell you this is a good idea.
I'm trying to conduct a dialogue. Everything mentioned has been good feedback that I either have already considered or definitely will take into consideration. I am aware, and was before I posted, that the margins are small, but so is the investment in the grand scheme of things. I appreciate your comments.
ETA: I'm not considering this to supplement my income today- I'm making an investment to get a return down the road, and diversify my retirement/nest egg, which is why the low investment/smaller return makes it appealing.
This post was edited on 3/2/21 at 10:36 am
Posted on 3/2/21 at 11:01 am to LSUGUMBO
quote:
The HOA covers the building and exterior, so it would be up to the renter to cover contents if they so choose.
You will want something to cover you for liability. Others that have condo rentals can explain a little better and the type of policy.
Before buying into anywhere that has an HOA ask for a special assessment history and make sure to review their financials. They have to provide upon request. You want to make sure they do not use SAs to "balance their budget" and have enough in reserves to cover major repairs.
Named storm comes through and the deductible is $50k, can they cover, or do they run a SA?
Roof needs to be updated, have they been saving?
Posted on 3/2/21 at 11:07 am to Weekend Warrior79
quote:
Before buying into anywhere that has an HOA ask for a special assessment history and make sure to review their financials. They have to provide upon request. You want to make sure they do not use SAs to "balance their budget" and have enough in reserves to cover major repairs.
Named storm comes through and the deductible is $50k, can they cover, or do they run a SA?
Roof needs to be updated, have they been saving?
I just put in a call to who I now know is the previous HOA manager, who I know pretty well, so I'm hoping to get some information from her. Thanks for this information- definitely would not have considered this.
Posted on 3/2/21 at 11:16 am to LSUGUMBO
quote:
I just put in a call to who I now know is the previous HOA manager, who I know pretty well, so I'm hoping to get some information from her. Thanks for this information- definitely would not have considered this.
That's a pretty good contact to have in this situation if you trust them. Nice. Good luck.
Posted on 3/2/21 at 11:33 am to LSUGUMBO
quote:If this is a condo, the association's master policy typically only covers the building's exterior and common areas and the HOA's liability. Individual unit owners get an HO-6 (condo unit owner policy) to cover the interior of their unit (sheetrock, floors, cabinets, counters, fixtures, etc) and the unit owner's liability. You're most likely going to need an HO-6 policy
The HOA covers the building and exterior, so it would be up to the renter to cover contents if they so choose.
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