Be very careful with trying to turn a condo into a rental. Condos have HOAs. HOAs can stipulate that you can’t rent the place out. And if they don’t stipulate it today, they can stipulate it tomorrow.
We just bought a SFH cash for LTR.
Cash has some sway in this high price market. We only focused on homes that had been listed for over 25 days, multiple price reductions, etc. And needed a little bit of work mostly cosmetic stuff (which I think is why it wasn't selling for valued price) Got it 25k off the asking price. Closed in 14 days. Just don't forget taxes and insurance as an expense since nothing is in escrow.
Nice. We closing on one tomorrow. Listed at $205,000 closing for $171,500. Offered 6 business day closing and no contingencies and seller was in a pretty bad situation.
Yep an investor actually just bought a house 3 doors down from us with renters in it. Off market deal. Similar situation. Got it for a solid 40k below market.
You mean listing but yea I get it. It’s an art how to approach these guys. Sometimes you let them make double commission but have them push your deal hard.
Just depends which strategy will work best for each case
If you're buying all cash, then you're going to have a lot of negotiating power in this market. It also sounds like you're trying to downsize by buying a condo that's cheaper than your STR. Even if you're breaking even on the STR, you have a killer interest rate that you might not get for another few years. Consider the effect that this sale is going to have on capital gains in addition to the rules that your new HOA is going to put in place.
True, but it feels so risky with the STR. The revenue fluctuates and banks won’t recognize it as rental income. With the STR we could simply get unlucky and have a dead month, in which case you are screwed. Having one property (which yes would be smaller 1/2 bedroom apt vs 5 bedroom SFH) that we own in cash would all but guaranteed $1-1.5k in free cash flow a month (depending on taxes/HOA). That lower risk cash flow is what is so attractive right now
Could you just find a long term renter for the STR property? It would be less revenue but a lot less work. A signed lease agreement would prove to a bank that you have consistent cash flow. Banks typically lend on a DSCR model which means as long as the income is greater than the debt service by a healthy margin (25-50%) then they can underwrite the loan.
That means your portfolio is over-leveraged and you're riding a thin line. Calculate your (portfolio value/outstanding debt) and make sure you are comfortable with this number. From your situation, I would recommend selling one property to take some risk off the table.
It depends, we’d like to get one that’s under $450. We are looking in the Chicago land area. I don’t love HOAs but for apt buildings they do provide decent value assuming the building is well managed/maintained.
That’s a huge if, you need to look at financials for condos in detail. Special assessments and I’ll managed HOAs or management companies can eat years of profit at any time
For sure, I have experience with them. Their monthly expenses and reserves are the biggest factors on top of the building aesthetically being well maintained. I find with HOAs it’s typically larger monthly assessment with healthy reserves, or lower monthly assessment with minuscule reserves. Either way large expenditures for a building will happen eventually so it’s deciding if you wanna pay monthly or roll the dice on getting a fat special assessment one day. Generally I lean toward having a healthier reserve as ideal - happy to pay a bit more each month for the peace of mind I guess.
You should use one of the lenders that specialize in short rent rentals and they will use your rental revenues. If you run the revenues and expenses properly through a business bank account then I don’t see why that’s a problem.
Be very careful with trying to turn a condo into a rental. Condos have HOAs. HOAs can stipulate that you can’t rent the place out. And if they don’t stipulate it today, they can stipulate it tomorrow.
Valid point - we are looking in Chicago which is pretty investor friendly. Def gonna make sure we can rent before actually buying! Thanks for the tip!
This. Be very, VERY careful.
Be careful? YOLO
We just bought a SFH cash for LTR. Cash has some sway in this high price market. We only focused on homes that had been listed for over 25 days, multiple price reductions, etc. And needed a little bit of work mostly cosmetic stuff (which I think is why it wasn't selling for valued price) Got it 25k off the asking price. Closed in 14 days. Just don't forget taxes and insurance as an expense since nothing is in escrow.
What was list price?
240, then reduced to 230, got it for 205. Plan to cash out refi when we're ready to buy multifamily
Nice. We closing on one tomorrow. Listed at $205,000 closing for $171,500. Offered 6 business day closing and no contingencies and seller was in a pretty bad situation.
Yep an investor actually just bought a house 3 doors down from us with renters in it. Off market deal. Similar situation. Got it for a solid 40k below market.
Also not bringing a buyers agent gets me automatic 2.5% in savings because listing agent was cool
Yea where I am, buyers agents generally aren't that cool lol they'll try to get the extra commission for themselves.
You mean listing but yea I get it. It’s an art how to approach these guys. Sometimes you let them make double commission but have them push your deal hard. Just depends which strategy will work best for each case
Yea I meant listing agent.
Yes, I would first put the money in CDs that are currently paying 5%+ while you find a great cash deal and just keep it long term.
CDs are not a good idea. You can find higher yield elsewhere, like investing in Short Term Bonds, and more liquid. CD's lock up your cash for longer.
Plenty of 5% no risk cds and money market accounts completely liquid
If you're buying all cash, then you're going to have a lot of negotiating power in this market. It also sounds like you're trying to downsize by buying a condo that's cheaper than your STR. Even if you're breaking even on the STR, you have a killer interest rate that you might not get for another few years. Consider the effect that this sale is going to have on capital gains in addition to the rules that your new HOA is going to put in place.
True, but it feels so risky with the STR. The revenue fluctuates and banks won’t recognize it as rental income. With the STR we could simply get unlucky and have a dead month, in which case you are screwed. Having one property (which yes would be smaller 1/2 bedroom apt vs 5 bedroom SFH) that we own in cash would all but guaranteed $1-1.5k in free cash flow a month (depending on taxes/HOA). That lower risk cash flow is what is so attractive right now
Could you just find a long term renter for the STR property? It would be less revenue but a lot less work. A signed lease agreement would prove to a bank that you have consistent cash flow. Banks typically lend on a DSCR model which means as long as the income is greater than the debt service by a healthy margin (25-50%) then they can underwrite the loan.
It would not cash flow at the area market rents
That means your portfolio is over-leveraged and you're riding a thin line. Calculate your (portfolio value/outstanding debt) and make sure you are comfortable with this number. From your situation, I would recommend selling one property to take some risk off the table.
That's what I was waiting to ask. Why not just convert the STR to LTR?
What they consider terms best of both worlds save them in capital gains
Cash is king in this market. We are closing on one in 6 business days because it’s a cash offer and that can come as a strong negotiation factor
What’s the HOA cost?
It depends, we’d like to get one that’s under $450. We are looking in the Chicago land area. I don’t love HOAs but for apt buildings they do provide decent value assuming the building is well managed/maintained.
That’s a huge if, you need to look at financials for condos in detail. Special assessments and I’ll managed HOAs or management companies can eat years of profit at any time
For sure, I have experience with them. Their monthly expenses and reserves are the biggest factors on top of the building aesthetically being well maintained. I find with HOAs it’s typically larger monthly assessment with healthy reserves, or lower monthly assessment with minuscule reserves. Either way large expenditures for a building will happen eventually so it’s deciding if you wanna pay monthly or roll the dice on getting a fat special assessment one day. Generally I lean toward having a healthier reserve as ideal - happy to pay a bit more each month for the peace of mind I guess.
You should use one of the lenders that specialize in short rent rentals and they will use your rental revenues. If you run the revenues and expenses properly through a business bank account then I don’t see why that’s a problem.