An Appraiser's Views On Investment Property
Brad Beaulieu said:
I am interested in buying a condo that would serve as a rental property only not my primary residence. Can any 2-coolers tell me what kind of downpayment I might expect to give up and what particular information my bank might need from the person selling and currently managing the property.
Hello Brad & Welcome To 2 Cool!
Don't know where you live but something you should consider in a stable to relatively slowly appreciating real estate market such as Houston in general is that it is
extremely rare for mortgaged investment property to have a postive cash flow. The financial gain is recognized after a substantial holding period with gradual appreciation.
In addition to the debt service (mortgage payment) you will be paying, there are numerous other expenses that have to be considered. If you pm me, I will e-mail or fax you a 2 page form know as an Operating Income Statement which you can fill out regarding the particulars of your property. A sumarized version goes something like this:
Gross Annual Rents
Less: Vacancy/Rent Losss: (usually 1-2 months/year)
Effective Gross Income
Less: Interior Paint & Decorating
Less: General Repairs/Maintenance
Less: Management Expenses
Less: Replacement Reserves: (money you set aside each month for items that will eventually have to be replaced such as: stoves/ranges, dishwashers, a/c &
heating units, water heaters, washer/dryer, roof & carpet, etc.).
Total Operating Expenses
Effective Gross Income - Total Operating Expenses = Operating Income
Operating Income/12 = Monthly Operating Income
Monthly Operating Income - Debt Service = Net Cash Flow
Debt service = (principal/interest/taxes/insurance/monthly HOA)
Based upon a $80,000 +/- property for example, once you do this math exercise you will most likely come out with a $50 -$200 negative net cash flow depending upon how well you did on the purchase negotiations.
Since you are dealing with a condominium purchase you especially want to obtain a copy of the declarations and read them. Make sure you ask the management company if there are any special assessments pending or law suits that are unsettled.
Hope this helps you out some, shoot me a pm and I will get you the form described above. Good luck on you investment and again, welcome to the 2 coolest bunch of fishermen on the planet.
Regards,
Aaron