I’m considering buying a condo as a rental property. I’ve owned a home before, but I’ve never been a landlord (with the exception of renting a room in my residence, which isn’t really at all the same thing).
I’m especially looking for recommendations of books or online resources that lay out the issues and how to deal with them. For example, selecting a rental property, finding and keeping good tenants, dealing with difficult tenants, estimating expenses, staying out of legal trouble, etc. Of course, any info or advice you can offer are welcome.
I’d be buying a unit I wouldn’t mind living in. My motivation for renting it out is that I very much like the neighborhood where I live and the apartment I currently own, but no similar units are available in the immediate vicinity. The idea is to hedge against rent increases by buying a unit with non-negative cash flow where % changes in the rent income will more or less track changes in my current apartment rent. On top of this I’d expect long term appreciation of the owned property as well.
Those of you who know the area may be able to offer more specific opinions, especially regarding the neighborhoods where I might purchase. I live in a Willow Glen 1BR. Currently my search is focused on 2BR units in Cambrian Park and near North Capitol or Blossom Hill Aves.
Thanks, and apologies if I don’t get back to this thread before Monday evening.
We currently own a condo in Atlanta that we are renting out, and are currently renting an apartment from a guy who owns a four unit building. Based on our experience, and witnessing our landlord’s experience, I will go to great lengths to avoid being a landlord in the future.
Our situation as a landlord hasn’t been too bad so far. Living so far away it is completely impractical to manage ourselves, so we have a property management company do it for us. So far they’ve been pretty competent. We’ve had a lot of plumbing problems with the building, and we’ve had to step in a bit to get the HOA to get moving with the work. Nothing we wouldn’t have had to deal with anyway if we were still living there, but it is a pain dealing with this from a distance where I cannot see what is going on. We didn’t deal with finding the tenant, etc directly so I cannot comment on that.
Our poor landlord here in California appears to have had a horrible time: previous tenants that flaked out, plumbing issues with the building, having to replace the fence, the outside electricity breakers being stolen: tons of expenses and he seems to be here all the time doing work. Perhaps you are already doing this, but in addition to the expense of owning the place (buying it, taxes, maintenance, etc) you really need to think of it as an additional job. Perhaps a part time job, but a job nonetheless that will take up a considerable amount of your time.
Thanks, Driver8. I do expect it to be a part time job, as you suggest. At least I’ll only be a few miles away if anything needs to be done.
Did your property manager find your tenant? Can you give me rough idea of the cost structure for your manager’s services? (Obviously, this could be quite different in SJ.)
Had you lived in your Atlanta condo long before renting it out? I’m just curious about what kind of plumbing issues turned up there and in your current apartment.
I used to live in Walnut Creek. We rented a 2-bedroom 2-bath 1000 sf apartment for a rent that I calculated at some point was about the equivalent of a $400,000-some mortgage. Similar units in a new condo building nearby were going for $1 million plus. In that situation, you couldn’t have bought a condo, rented it out, and made a profit. Was San Jose that way, and have the condo prices declined enough by now to be in line with market rents? I would definitely research how much apartment buildings in the area (or other people renting out condos) are charging for comparable units and whether you can buy a condo and rent it out for a profit given those market rents before doing this.
A cool million for 1000 sq. ft. I didn’t know Walnut Creek got so pricey! When was this exactly?
Thank you for the article. That’s just the kind of info I’m looking for. I need to get my landlord to read it: he raised my rent 8% in December.
Of course I’m taking such factors into consideration, and I have been looking at condo prices and rents. If they weren’t in the ballpark I wouldn’t even have started thinking about this.
The prices at the low end of the San Jose condo market have really come down. I looked at a unit that sold for 210k in 2001 then sold at 360k in early 2007. Last week the bank sold it for 150k. At 5.5% 30 years fixed, 20% down the loan payment is $860. HOA is $250. Units in that building are now renting for about $1400; Craig’s list is showing similar units from 1325 to 1450. So there may be enough wiggle room in there to make it worthwhile.
You can actually find units selling for as little as 120k that are getting only slightly lower rents at the moment. However, these are not places I’d consider owning or living.
It’s even trickier getting a grip on what to expect with how long it will take to find a tenant and the standards they can be held to, but you can bet I’m asking around and looking into it.
I note the article also mentions that the number of default notices rose to record levels in the first quarter, so we may see condo prices dropping further as well.
2007, just before we moved to Pittsburgh. I wonder what those condos are going for now, or what the vacancy rate there is…
Good to hear that condo prices are coming down in the Bay Area. It was kind of depressing living there and knowing we would never, ever, be able to afford to buy a reasonably nice place unless we moved to Tracy or somewhere like that where we’d have a hellish commute.
Our property manager found our tenant. Basically the property manager handles everything, and deposits some money in our account every month. The only reason we got involved in the plumbing issues was because as owners we have more sway over the HOA, so we wanted to keep the pressure on them a little bit to keep things moving. Our guy takes one months rent per year, and then 8% of the rent every month. It is a lot, but he was the only guy we were very comfortable with when we interviewed candidates and there is no way we could possibly do this effectively from such a distance (nor would I want to, it sounds like a nightmare to me).
We did live in the Atlanta condo. We bought it to live in, but had a great opportunity to move to California when my wife got offered a transfer out here. We’d always wanted to live here for a while. Since the selling market sucks we put our condo on the rental market.
Our tenant reported the kitchen sink backing up and it took many tries by the plumbers to get it working again. The building is quite old, so the plumbing is a little weird (traps and access not in easy locations, strange twists and turns, etc). Luckily in our case the issue is with the common piping so it is not our direct expense.
The plumbing issues here in California were pretty bad. One of the main waste lines under the building was compromised by tree roots, and a sucky plumber got his cable stuck in the line as a result. They had to drill through our concrete floor to get it out and clear out the roots. It is good enough now, but to fix it correctly and properly will cost the owner a huge amount. Be very, very thorough in your inspections of the building! He obviously has it quite bad since he owns the whole building, whereas if you only own a condo in a bigger building you may find the really obscure and difficult jobs being an HOA responsibility. Still, you pay for that indirectly, so make sure the HOA finances are in good order, and try to find out about the assessment history. We haven’t yet had any assessments on our Atlanta property, and the HOA and board appears to be on the ball regarding reserve funds and maintenance (the roof has recently been replaced, etc). But a couple of $10k assessments will change your “is this profitable” math pretty quickly.
If you are going to manage the property yourself I would join the Tri County Apartment Association. They will have a lot of information for you. You can down load blank leases that are current with the laws.
Do not discount looking at houses, maybe small ones. Remember the condo will have a mortgage payment plus HOA. A house will only have the mortage, and may be less that the total for the condo.
Be there for the inspections even if your mechanical skills are limited. Also shop for a realtor, you want one who will listen to you, look out for you, and bring you to places that fit you or offer an explaniation.
Property managers charge from 7 to 10 percent of the rents. They should find you your new tenants, though they may charge additional for placing new tenants.
I am now in the process of preping a house for renting. I have not descided if I want to manage it myself or hire a manager. But I do plan on doing all the repairs. My mortage payment is $1053 a month, I think it will rent for around $1800 a month.
I like the Idea of purchasing a unit you would like to live in. It means it will also have resale value when/ if the market turns.
You make a good point about considering a house. Where is your rental and when did you buy it? How much work did you have to put in to make it rentable?
My rent is currently $1160. If I have to move into the home I buy, that’s about what I can afford to pay monthly for taxes + mortgage + HOA. At 1.5% property tax, 5.5% interest and 20% down and $250 HOA, I can buy a 155k condo – such units exist in what on first look appear to be tolerable condition and neighborhood.
Under the same assumptions, I can pay 200k for a house where I’d be responsible for gardening and exterior maintenance. I haven’t seen a house listed for that in San Jose that looks habitable. If I could pay $1800/mo, that would buy a 310k house – I don’t think I’ve seen anything decent at that price, either.
Of course, a house appreciate better than a condo. I’ll keep an open mind.
I own a 2-unit duplex in Anchorage, AK, that I am now renting, since I am now moving with the military. I cannot agree more with the idea of hiring a property manager to handle the rental side of things.
To start with, unless you know ALL the rules, codes, etc. that govern property put out for rent in your area, you could quickly find yourself on the worng end of eitehr a lawsuit or a tenant with “just cause” to break the lease. Ironically, I know this because I am also a JAG lawyer, and have helped many soldiers get out from under shady landlords over the years…My property manager takes 5% of the collected rent, and handles EVERYTHING. He knows the area and the rental market, the applicable code, and has a lease already written that covers everything I could think of and more. I maintain a certain amount of money in an account to pay for minor repairs, etc, and he clears with me any bigger expenses. He advertises, interviews and screens tenants, and periodically checks up on them to make sure they are taking care of the place and all that. He acts as muscle in collecting rent (on time…he has a one day late + eviction policy, mainly to create a paper trail in case of necessary court action). I consider it a fair and small price to pay for that level of “not having to deal.”
I used to own rental property. Never again. Phone calls from tenants at any time, always with problems. Collecting rent that’s late. Finding a new tenant when someone moved out. Hated it all. That being set, I would be open to owning rental property again, but strictly as a passive investor. Being a hands-on landlord is the pits.
The house is off Senter Road near Monterey Highway. We closed the begining of April. Doing the work ourselfs I hope to have it ready and rented by June 1. I havee budgeted $10,000 for the work, so far I have only used $3,500. We completely painted inside. Took the carpet out of the bedrooms and instaslled pergo like floor. We are 95% done inside. This week we are removing a cracked sidewalk and patio section. I pressure washed the eves and the facia board after removing the rain gutters, after psinting I will contract replacing the rain gutters. Our house was in fairly good condition.
OK, that’s entirely believable. I’m not sure that’s a neighborhood I’d like to live in or that I’m physically up to doing the fix up tasks.
Ignore me if I’m getting to nosy – was this house a regular listing, pre-forclosure, short sale, or REO?
Best of luck to you; sounds like you’ve got a good thing going there. For your sake I’ll cross my fingers that rents stay up and you find a good tenant quickly.
I’d be interested to hear whether you decide to hire a property manager, and if so, who. PM me if you like.