This week we wanted to get back to one of the basics that we are very familiar with as property managers: How To Buy Investment Properties.
Our next post will focus on Single-Family Homes, but for this post we wanted to focus on Condominiums because it’s where most investors start their portfolio. And there is good reason to start your portfolio with condos since they are a much lower price point then single-family homes and they require less maintenance because the exterior maintenance is left up to the association.
But there are some very important pitfalls that you must avoid to ensure that you generate the most cash flow for your investment and we are here to offer our expertise since we have over a hundred properties that we are currently managing.
Tip 1: Check the comps (both sales and rental) and calculate Cap Rate
Any Realtor who has some sense will show you the comps of a property you are considering buying, if they don’t get a new Realtor. But what most Realtors may not have experience with is analyzing the rental comps. It’s not very difficult so even if your agent is not a specialized agent just ask them to pull all of the current, pending and closed rentals for the last 6 months. This way you can get an idea of exactly what you are going to receive in rent for your property, which will help you decide how much to offer for the purchase price.
Generally you want to be as close to a 10% Cap Rate as possible, if you are over it’s great but in a high market like South Florida anything above 5% is not bad. You calculate the cap rate by taking the Net Monthly income times 12 and then dividing that by the purchase price. So a $1200 a net monthly rental for a purchase price of $150,000 would yield a 9.6% Cap Rate.
Tip 2: Review the Condo Docs VERY Carefully
Once you have the property under contract you should have your agent immediately request the condo documents so that you have time in your typical 15 day inspection period to review the docs. The condo will usually make a big deal about interviewing you and checking your background but it is really much more important that you check their background. Pay special attention to the budget which you are entitled to see, you want to make sure that are spending the association fees wisely. There are countless condos that have horrible management of funds and you do not want to be stuck in one of those.
Tip 4: When was the roof replaced?
I know you think you shouldn’t have to worry about this if you are not buying a single-family home, but the replacement of a roof on a condominium is one of the biggest Special Assessments there is and you need to be aware if the roof is over 20 years old that it may need to be replaced within the next 5-10 years. You don’t want a BIG surprise 6 months after purchasing your property that all of sudden drops your Cap Rate into the basement.
Tip 5: Make sure the property has (or allows) a Washer & Dryer
This is SO important. You can literally charge close to $200-$500 more per month in rent for a condo that has a washer and dryer in it. Think about it…when was the last time you went to a laundromat? People will gladly pay a premium for it. And don’t be discouraged if the property you like does not have a washer and dryer in it, as long as there is a hookup and the condo will allow it then you can put one in and increase your bottom line!
So those are our best tips for buying a condo investment property. Check back soon for our tips on buying a Single-Family home investment property!
Thanks for visiting!
– Real Property Management Miami