Buying a condo as a rental

[HardDrive]

Does anyone out there own a condo that they rent out?

We have been looking at 1 bedroom condos here in Seattle. We could put enough down to make it cash flow right away. We have been focusing on smaller buildings in desirable areas.

Pit falls, advice, warnings?

[Porsche-O-Phile]

Make sure it's allowed per your HOA restrictions.

A lot of condo associations stipulate owner occupancy only.

[HardDrive]

Looking into that.

[Seahawk]

Also look at your tax posture...just a reminder, I am sure you have. It can be as valuable as the monthly rental check.

I have had rental property for almost 20 years. Some advice:

- Background checks are essential. Trust but verify.

- Take pictures before the tenants move in. Then take pictures when they are moved in. Put this in the lease and discuss on signing so no one is surprised.

- No pets. Period. If you're feeling a bit down about that, allow one cat. Nothing more.

- Enforce missed payment penalties. It is easy to get misty, especially in these times, with renter financial woes. Don't.

- Review and understand every aspect of tenant rights in your area, especially getting them out of your property. Cover all aspects of eviction in your lease.

- Have a very comprehensive lease agreement and enforce it. Drop in every few months unannounced do to maintenance checks. Put that in the lease agreement. Maintenance covers a wide variety of access, which is what you want. You need to spot trends.

- Direct deposit. Don't take checks. Bank to bank.

Sounds harsh, but I've lived the dream. I have made many mistakes and have always been way too nice, which is probably when I don't have rental properties anymore. We made good money, but the onerous part, the enforcement of the lease, was always hard for me.

I didn't like it.

[jkarolyi]

All the rental strategy books/advisors say to stay away from condos, but right now condos around here (SoCal) sell for about 50% of the $ per sq. ft. as a house in the same neighborhood. You can literally buy them for 80% off their peak price, even well below what they sold for in the mid-90s SoCal housing crash. People like renting condos as they don't have to worry about yard maintenance and get to use the pool, tennis courts, etc. I know several people who make very decent money renting condos in SoCal.

I have a rental house and two condos, all bought in the past two years, and each condo has about double the cash flow as the rental house. The key is to buy in a financially stable, well located complex. A lot of HOAs are in financial trouble due to banks allowing deadbeat "homeowners" to live in foreclosure limbo for 1-3 years before kicking them out. Deadbeats that don't pay their mortgage typically don't pay HOA dues either. Ask how much their reserve is (should be at least $2,000 per unit, ours is $4,000), and if they are contributing to the reserve each month (positive cash flow).

My condos are in the same complex and are near a hospital and medical school, so I get quality tenants. I'm also the treasurer of the HOA...takes about an hour of my time per month...worth it for my peace of mind.

[krystar]

some things to consider

1) rent fee > mortgage+tax escrow+hoa+maintenance
2) what's situation of hoa's "special" assessments.
3) expected tax increase in the next 5 years or so?
4) expected hoa increase in the next 5 years or so?
5) how you'll deal with possible 2-3month lapses in income when switching tenants.
6) evictions. ugly business.

[red-beard]

There is a block of 8 for sale down the street. Less than $500K for all of them.

[Shadetree930]

Rental condos have been my best performing asset during the recent period.

As stated in previous posts, location and tenant make the difference between an investment and a headache.

[Bill Douglas]

Originally Posted by jkarolyi

and are near a hospital and medical school, so I get quality tenants.

Totally agree. A great place, in a great location and ONLY great people. It can be a pleasure. I've been landlording for the last 25 years and I can quite safely say I have not had a single good tenant from the trash classes.

[Eric Coffey]

If you are considering any type of MFR, I'd personally look for a duplex or townhouse complex with individual meters and attached garages.

Also, be mindful of steep condo dues. Some of the nicer/upscale complexes here have dues in the $400-$800/mo. range. That can seriously eat into your margins as opposed to a SFR that commands the same rent, but either has no HOA, or more managable dues ($50-$75/mo.). As mentioned, make sure the Association is solvent (and not in litigation, which is very common).

Condos can be more conducive to seasonal tenants as well (vacation rentals).
So, you might look for something near a tourist attraction, golf course, resort/spa, etc. (and offer it as furnished). That way you can more easily cover your whole year in the high-season/summer months (higher/weekly rates) if you are vacant in the winter. My $.02, YMMV.

[McLovin]

Like said above, in many areas of the country, the Association fees alone pretty much make a condo not work well as a rental.

I'd be concerned about the lack of control over your investment. You can't control what the fees are going to be in the future, any possible assessments, bad decisions by the Association board that hurt the value of the property or incur crazy costs, fraud by the board or board members, etc. etc. etc.

You have people making decisions that directly impact your property and your cost structure, and these are people that, realistically, you cannot control.

[HardDrive]

Thank you for the input. This condo is in a small, old (well cared for, well updated), 5 unit building. Its sits at the northern tip of the main bio tech area of Seattle. 5 minute bus ride to the University of WA. Very stable area.

[Porsche-O-Phile]

I looked at a few multi-unit buildings but it is extremely difficult to get the rents (check the area for comparable rates) to cover 100% of the carrying costs - particularly if you use a property manager, who either has to be paid salary or given a break on rent (either cuts into your margin). You almost certainly don't want to manage a multi-unit building by yourself - full time job, lots of issues.

Also consider you will have times when you don't have 100% occupancy. Can you survive those times when you're only 80% and have to absorb a roof repair or HVAC issue at the same time? Real world questions. Obviously you have to be willing to accept some risk or you'll just talk yourself out of it, but consider that it's never the up-front stuff that kills people, it's the down-the-road or recurring type costs...

Good luck!

[motion]

I've been a landlord for 13 years, but honestly, there are better, less stressful ways to make money. Can't argue with the tax benefits, though...

[Joel8005]

This thread, except for a couple of post is filled with no factual info. I have been in the landlord and property management biz for many years. First you make your money when you buy...... as a general rule if you buy a home for 100K you need to rent it for $1000.00 per month to cover all of you expences. This includes vacancy, repairs, taxes ins, ect.... Based on that forumla I like to by at a 50 to 1 ratio. Not all deal meet that criteria but if a property can pay for its self in 10 years its a smokin deal. Again, based on my personal deals, my ROI averages about 22%. This is based on the properties that I have mortages on. Try and beat that on the SM, gold or any other ponsie deal!!!!

P.S. I currently own 70+ units and manage another 200 for clients.

[Chocaholic]

Unless you're willing to deal with all the crap, get a property manager on day 1. Then get on with your life. The cost will seem like the best deal in the world when something goes wrong. And something will go wrong.

[HardDrive]

I bumped around on some local forums that have a lot of younger folks (renters). Even though there is public transport a block away, most said that parking was a deal breaker. This place does not have a parking spot. More of a negative than I thought.

[jhynesrockmtn]

Condos are problematic as rentals. Small buildings have the downside of a small base to draw on for major expenses like roofs. Buildings that allow more than a very small % of rentals are the worst for resale. There are too many potential expenses you do not have control over. I've owned multiple single family homes and a commercial retail/apt. building as rentals. I wouldn't touch a condo. My gf lives in one now and can't wait to get the hell out. The politics related to HOA stuff can be a real mess. Her 19 unit building is currently having to decide whether to sue owners renting outside of the HOA rules. That's one issue amongst many.

[Dantilla]

Washington State has a very clear, fair Landlord/Tenant law.

The city of Seattle has its own additional Landlord/Tenant act which is more restrictive for Landlords. Nothing to really worry about, other than to know the difference, and follow every aspect of the law.

I personally will not buy any rental peoperty within Seattle city limits, mostly because I do not want to have to remember both sets of laws.

[epbrown]

Originally Posted by motion

I've been a landlord for 13 years, but honestly, there are better, less stressful ways to make money. Can't argue with the tax benefits, though...

Outside my apartment this morning, I heard one of those dumbass discussions that remind me never to be a landlord. The bulding manager was talking to someone who was refusing to pay rent. Why? He disagreed with extra charges. What extra charges? Well, there's the late fee because he hasn't paid September's rent yet. There's the lockout fee because he lost his key. And there's the replacement for a window screen because, oddly enough, someone ripped out the screen trying to get into the apartment the day he lost his key. "That wasn't me. Someone must have tried to break in." "The same day you lost your keys?" "Maybe they found my keys." "If they had your keys, why break in?" "... look man, I'm not paying. And if you keep hassling me, I'm moving out!"