Start your membership account today...  Access to credit reports, 100's of rental specific forms, agreements, letters, checklists, how-to articles, guides, expert advice and much more!  Even a FREE, 3-day trial!

Not a Member?
Get a Free Trial Membership

  Get FREE Stuff! Run Credit Report Rental Forms  Shop & Buy Forms!  Advertise Your Rental Customer Care

Welcome to Landlord.com's Discussion Forum
Sign up Latest Topics
 
 
 


Reply
  Author   Comment  
r4r

Registered:
Posts: 3
Reply with quote  #1 
Hello All! My first post on this forum.

We have had a couple of rental condos in the same condo complex for a few years. They are paid off and have been generating positive cash flow. However, I am trying to figure out if I need to sell them now and look for better investments elsewhere. The reason is the overall condition of the complex. It was built in the 60s and its infrastructure such as water pipes, sewer, AC units etc is really old and, it seems, is slowly crumbling. The condo management office lives "paycheck to paycheck", that is, condo fees (that are very high by the way since they include utilities) barely cover their expenses and so they have very little in the way of a rainy day fund. The complex already had one weather related emergency a couple of years ago that resulted in prolonged repairs involving insurance. What I am afraid of is that one day multiple such emergencies will happen that will make the condos basically unlivable for a long period of time. So not only will we not be able to collect rent but we won't be able to sell the units at a reasonable price either.

Not sure how realistic this scenario is and how often this actually happens. How do I assess if it's time to sell and find a newer unit in a condo complex whose office manages their funds better? The fact that the properties are all generating income is important so it's tempting to do nothing and hope for the best. But is this the best strategy?

We're in Montgomery County MD if that matters.

Thanks!
AccidentalRental

Registered:
Posts: 122
Reply with quote  #2 
Hi r4r,

You have to watch out for HOA assessments.  At some point, they will need to make a dent in the deferred maintenance and if they don't have the reserves, you will be assessed a big fee.  So you need to take some of your cashflow and put it aside for what is an inevitable HOA expense.

I can't speak to the market values in your area.  I would check with an agent and look for comps on Zillow.  Also, valuations are different if you are planning to sell to an investor versus an owner-occupier.

My advice is to join the HOA board and get a hold of the financials ASAP to see what deferred maintenance plans are and how much they have available in reserves.  

Personally, I don't like investing in Condos for these reasons and more.  I've been burned too many times so I am in the process of liquidating my last condo unit.  You can read more of my thoughts on Condos as rentals if you are interested.

__________________
AccidentalRental - A profitable resource for new landlords

r4r

Registered:
Posts: 3
Reply with quote  #3 
Quote:
Originally Posted by AccidentalRental
Hi r4r,

You have to watch out for HOA assessments.  At some point, they will need to make a dent in the deferred maintenance and if they don't have the reserves, you will be assessed a big fee.  So you need to take some of your cashflow and put it aside for what is an inevitable HOA expense.

I can't speak to the market values in your area.  I would check with an agent and look for comps on Zillow.  Also, valuations are different if you are planning to sell to an investor versus an owner-occupier.

My advice is to join the HOA board and get a hold of the financials ASAP to see what deferred maintenance plans are and how much they have available in reserves.  

Personally, I don't like investing in Condos for these reasons and more.  I've been burned too many times so I am in the process of liquidating my last condo unit.  You can read more of my thoughts on Condos as rentals if you are interested.


Thanks AR. They do send us their budget every year but nobody can explain why certain expenses are so high. I asked them to hire someone to conduct a thorough engineering and financial audit of the complex to figure out what large scale repairs they should make, where they can reduce costs etc, but it never happened. We'll have a board meeting in a couple of weeks so this will indeed be discussed yet again since, as you correctly predicted, they want to add a special assessment for next year to cover replacement of the central HVAC units.

Is there any particular type of rental property you prefer over all others?
LLinVA

Registered:
Posts: 411
Reply with quote  #4 
If you look at this strictly as an investment then you want to buy low and sell high. There is reason to think this is the high. You will regret it if you let it go until it's not profitable and is in even worse condition, which you've already realized. 

I think it would be best to sell these now and invest in properties that you have 100% control over how they're managed and maintained. Buy some single family homes or townhomes with brick exteriors and screen tenants thoroughly to make sure you get the good ones with good credit that will actually take care of the places. Then you create sinking funds to replace the roof, HVAC, etc. and have proper emergency funds to handle all the inevitable but less predictable expenses.
r4r

Registered:
Posts: 3
Reply with quote  #5 
Quote:
Originally Posted by LLinVA
If you look at this strictly as an investment then you want to buy low and sell high. There is reason to think this is the high. You will regret it if you let it go until it's not profitable and is in even worse condition, which you've already realized. 

I think it would be best to sell these now and invest in properties that you have 100% control over how they're managed and maintained. Buy some single family homes or townhomes with brick exteriors and screen tenants thoroughly to make sure you get the good ones with good credit that will actually take care of the places. Then you create sinking funds to replace the roof, HVAC, etc. and have proper emergency funds to handle all the inevitable but less predictable expenses.


Is there any other way of looking at it, other than a potential primary residence for myself or a family member? I view rental property investment as one with a low rate of return and high dividends, as opposed to stocks/mutual funds which are relatively higher return but low dividend.

Reinvesting in a house or a townhouse has its drawbacks. If I sell the condos, I will probably be able to afford only one house/townhouse which makes it a riskier investment. In the neighborhood when I live I've noticed single family houses sometimes being on the rental market for quite a while. By comparison, we have always been able to find new good tenants relatively fast.

I am trying to assess how potentially catastrophic any significant problems with infrastructure may be, and how permanent. So far, while our cash flow decreased somewhat due to the special assessments that were imposed to fix large-scale problems, the decrease was not so bad as to render the condos non-profitable, at least in the short term.
LLinVA

Registered:
Posts: 411
Reply with quote  #6 
I would get out of that condo now. You may not decide to get into a townhome or single family home, but that will be decided on research and seeing how much money you have and what you could get where, how those go as rentals, etc. You may decide to turn around and dump it all in mutual funds and not have the hassle of renting at all anymore. Or, you may find a townhouse or two that should have no problems renting for a good return and go that route. 

This condo isn't your best long-term investment for this money. 

If you buy another rental, do it relatively close to you (within about 30-45 minutes) so that it is easy for you to show, keep an eye on, etc. Higher rents tend to attract more responsible people so you should have less hassle with a single family home compared to a trailer park. Some townhome areas are trashy, others are nice. I'd go stick with the nicer stuff for less hassle. 
AccidentalRental

Registered:
Posts: 122
Reply with quote  #7 
Hi r4r,

I prefer SFH for two reasons. 
I believe renters of SFHs tend to stay in place longer minimizing turnover costs and they have a stronger sense of "ownership" so they take better care of your property.

That's been my experience anyway.  I'm sure others have had different experiences.

__________________
AccidentalRental - A profitable resource for new landlords

Previous Topic | Next Topic
Print
Reply

Quick Navigation:

Easily create a Forum Website with Website Toolbox.

Apartment Finders > > Member Log-in > Free Trial Offer > Free E-newsletter > Customer Service > Get Free Stuff! > Run Credit Report > Rental Forms > Vacancy Center > Do-it-yourself > Evicting Your Tenant > Foreclosure Resources > Landlord Discussion Board > Income Tax Resources > Information Center > Join Landlord.com > Landlord Law > Library > Multi-family > Professional Advice > Rental & Property Mgmt > Rent Collection > Repair & Maintenance > Security Deposit > Software Center > Tenant Screening > Vacation Homes > What's New > Rental Agreements > Free Leases > Inside Our E-store > > Security Deposits > > Landlord Daily News > Rental Agreements >
LandscapingSanJose.net Resources: Cleaner Sunshine coast