Condo With Utilities In The Assoc Fee
I've come across condos that can be financed 100% and still yield 15-30% off the closing costs with vacancy factored in. My property manager cautioned that its likely because the units do not have seperate utilites and therefor the assoc fee is high that appreciation will suffer. He feels appreciation also is held back by financing possibly being tricky since the building averages 55% invester owned and lenders often impose a cap of 33%. That can make selling more difficult. I plan on holding all my properties as long as they yield cash flow. I see his point of view, but like the numbers. Does anyone have experience with this type of rental? Any advice on pursuing or forgetting it? Thanks.[ Edited by wstrouse on Date 04/30/2004 ]
I do not have experience with renting condos of this type, but rather with brokering them.
I agree with your property manager--not having the units separately metered is a BIG negative when people go to sell and I think just creates lots of unnecessary problems for the Association. (People turn up the AC or heat that only drives up the budget item for utilites resulting in increases every year in the condo fee.)
Don't know how old these condos are, but at some point in time, the Association is going to have to bite the bullet, hand out special assessments to all condo owners, and spend the money to install separate meters. This setup plus the investor-owner occupant ratios, in my experience in my area, really can make this type of condo an albatross around an owner's neck come time to sell.
With 100% financing, it is a little hard to get excited about your ROI number.
If your closing costs come to $2000, a 15% to 30% return means that your annual cash flow is only between $300 and $600. How many months of cash flow does it take to recover from one month of vacancy? I am guessing 12 to 18.
I would pass unless you can show stronger numbers.