Renting Out a Condo: Part One
By Steve Gillman - October 2012
My wife and I recently bought a condo as a rental unit, with
the hope of making some decent cash flow. As we go through the
process I will add pages here detailing our experiences and the
lessons learned, along with some tips for those who want to purchase
a condominium as a rental property. At the moment we are probably
a few weeks away from renting the condo, so this page is about
the start of the process.
For several weeks we looked at condos for sale here in Naples,
Florida. We were interested in either buying, fixing and selling
one for a profit, or in keeping one as a rental unit. Even when
you plan to rent out a property, it can make sense to look at
places that need some work. These are the rentals that will sell
the cheapest, and if you plan well you can have a bigger chunk
of equity from the start.
We opted for "plan c," which was to buy, fix and
rent the condo immediately above us. The buildings in our complex
have just two units each, so we would effectively control the
whole building. This particular purchase was not necessarily
the best according to the numbers, but we liked the idea of having
our tenants so close. It makes it easier to be a landlord, and
safer because we can keep an eye (and ears) on the place.
We still bought low enough that we figured we could increase
the value of the place by about $20,000 after spending $10,000
total. That total amount was to include all closing costs, repairs,
and associations dues paid prior to the first renter moving in.
We could rent the place for $1,100 per month, our real estate
agent assured us, and we actually saw a unit for rent in our
complex at an asking rate of $1,100. It appeared on paper that
our investment would pay us about $600 per month in cash flow.
Lesson: Investigate rental rates carefully. As it turns
out, the owner of the advertised unit had been trying to get
$1,100 for a long time, and lowered the rent to $1,000 about
two days after we closed. We hope he gets that, and soon. We
are now thinking to offer our unit for $995 per month, although
our agent still says she can get more for us, so we may let her
try for a higher rental rate for a few weeks to see what kind
of response we get (she is going to work as our rental agent
We eventually had a nice talk with two ladies who own rentals
in our complex. They get $875 for one and $995 for the other.
They both said that $1,100 was too high, but that we could rent
our place for $995 if it was cleaned up well. The conversation
took place at a meeting of the condominium association, where
we learned our next lesson...
Lesson: Check the financial information from the association
carefully. Now, you would think we would be more in touch with
what was going on financially, since we live here. But after
several major projects in the seven months since we bought our
place, the funds were low. Then a line on a map put us in a flood
zone, requiring the association to spend tens of thousands more
for insurance each year, amounting to about $500 more per year
for each owner.
We went to a meeting of the association the day before closing
and discovered that a $600 special assessment was necessary to
catch up on expenses. Since the due date was a month away and
the assessment was levied after we signed the contract, it would
be ours to pay. Also, the dues would be going up by $20 per month.
These surprises would not affect our projected cash flow as much
as the lower rent would, but it was still an unpleasant surprise.
We closed as scheduled and found that the closing costs were
a bit less than projected. It's nice to have a good surprise
once in a while. Prior to closing we had gone through the unit
with a good handy man and we knew what we wanted to fix in preparation
for renting the condo. He gave us some good ideas for saving
money on the repairs, and estimated how long each project would
take, as well as the time frame for the whole job.
Our story continues here: Our
Rental Condo Investment.
If you found this useful or interesting, please share: