Buying an condo conversaion as an investment property

[Coronita]

[quote=yooklid]Hi

Thinking about jumping in. I’ve noticed some “condos” (ie converted apartments) in some fairly decent neighborhoods are now at 50% (or less) of 2005 prices. I’m in a position where I can offer all cash (and will aggressively try to discount any price I see), but before I make my purchase, I want to seek the ever wise opinion of the people here. Note, I intend this to be a cash flow rental property and I am immediately discounting any concept of “appreciation”.

1 – How wary should I be of the state of this HOA of the complex? Is it better to be in a complex with a large number of units or small?

2 – The HOA fees seem reasonable. How much additional costs should I factor in to the property maintenance? I’m assuming that it’s not a simple “well, I can just discount any expenditure due to the property managers watching the building”.

3 – I want to have an LLC to hold the property. I’ve read on separate sites that it’s better to have an LLC for each property held, which a parent LLC that holds all the children. Any thoughts on this?

4 – If I do have an LLC holding the properties, will I have to pay corporate tax on it, and then income tax on any income I generate to get a double whammy?

5 – What have I missed?

-Y[/quote]

I’d wonder about the following

1) How much of the current complex is owner occupied versus investment?

2) How much of the current owners have been are old versus new? I guess for a condo convert or new complex, that would be a moot question, but probably that should raise a few concerns.

3) Is the HOA underfunded? If so, expect special assessments.

4) Any major repairs coming, like a leaky roof,common areas etc? (Did you check out the HOA meeting minutes/etc)? If so, expect special assessments.

5) What exactly is the occupancy rate. Are there a lot of empty units? If so expect special assessments.

In general , condo’s are the last to appreciate and first to depreciate.
Me personally, I don’t like condo converts. Because most of them were done in the 2004-06 range, at the time of the bubble. I ‘d be suspicious that some of the owners would be on solid financial footing or majority of owners be owner occupied or both. And in a shared community, that to me is a red flag, especially on beaten up but fixed up apartment converts.

But that’s just how I feel. Your mileage will vary.

[Coronita]

[quote=4plexowner]I held each of my properties in its own LLC – don’t see any reason to have a parent LLC holding each LLC – I briefly setup a corporation to hold the LLCs but realized that it didn’t make sense for my circumstances – perhaps if your net worth is north of $5 mil having the parent LLC / corp might make sense – keep the properties well insured and have umbrella insurance to cover anything not covered in base policy

LLC tax is $800 per year – each LLC has its own tax return and the bottom line from that return flows into your 1040 – no double whammy – tax only paid on your personal return

That was the easy stuff – now, about purchasing the condo conversion

When I did my condo conversion I did everything right – new roof, fresh stucco, new windows, new water heaters, additional insulation in common walls, etc – this let me feel comfortable about selling the condos and also let me set he HOA fee very low

You’ll have to assess the quality issue yourself or get inspections done – focus on the common areas I listed above

Now, you’ll have to get a copy of the HOA Reserve Review – the review is required at the 2 year point on new condos with an annual follow up – if the condo seller can’t (or won’t) produce this document run (don’t walk) away from the deal – the reserve review will assess the state of the property and then estimate the ongoing expense of maintaining the property – the bottom line on the reserve review is the over/under funding of the HOA – my HOA is currently over funded so we could lower the already low HOA fee if we wanted to

Quality: wow, where to begin – I started with a well constructed 4plex and then did everything right – some of the condo conversions started as poorly constructed apartments and the converter did the minimal amount of work he could get away with and still sell the POS’s – you’ll have to assess this for yourself – in particular, I would look into noise issues inre common walls and floors/ceilings in multi-story properties (hard to imagine that many converters added insulation to these areas)

Utilities are another issue to consider – I’ve seen several horror stories where the HOA is out of money and the property has common utilities that are paid by the HOA – you’re still paying your HOA fees but don’t have utilities because the HOA isn’t paying the common bill – similar story with insurance – if the HOA isn’t paying the insurance bill you won’t get a loan on the property (nor will anyone you want to sell to which means only a cash buyer can purchase)

I’ve always been negative on condos – and that was before the latest negatives popped up (common utilities and insurance) – I say that there is only one form of housing investment worse than condos and that is mobile homes – be very careful buying condos as an investment and be extra special when the condo is a conversion

[/quote]

What about condo-hotels? i thought those were 2nd from the worst. And timeshares, I think by far are the worst 🙂

[Coronita]

[quote=4plexowner]I held each of my properties in its own LLC – don’t see any reason to have a parent LLC holding each LLC – I briefly setup a corporation to hold the LLCs but realized that it didn’t make sense for my circumstances – perhaps if your net worth is north of $5 mil having the parent LLC / corp might make sense – keep the properties well insured and have umbrella insurance to cover anything not covered in base policy

LLC tax is $800 per year – each LLC has its own tax return and the bottom line from that return flows into your 1040 – no double whammy – tax only paid on your personal return

That was the easy stuff – now, about purchasing the condo conversion

When I did my condo conversion I did everything right – new roof, fresh stucco, new windows, new water heaters, additional insulation in common walls, etc – this let me feel comfortable about selling the condos and also let me set he HOA fee very low

You’ll have to assess the quality issue yourself or get inspections done – focus on the common areas I listed above

Now, you’ll have to get a copy of the HOA Reserve Review – the review is required at the 2 year point on new condos with an annual follow up – if the condo seller can’t (or won’t) produce this document run (don’t walk) away from the deal – the reserve review will assess the state of the property and then estimate the ongoing expense of maintaining the property – the bottom line on the reserve review is the over/under funding of the HOA – my HOA is currently over funded so we could lower the already low HOA fee if we wanted to

Quality: wow, where to begin – I started with a well constructed 4plex and then did everything right – some of the condo conversions started as poorly constructed apartments and the converter did the minimal amount of work he could get away with and still sell the POS’s – you’ll have to assess this for yourself – in particular, I would look into noise issues inre common walls and floors/ceilings in multi-story properties (hard to imagine that many converters added insulation to these areas)

Utilities are another issue to consider – I’ve seen several horror stories where the HOA is out of money and the property has common utilities that are paid by the HOA – you’re still paying your HOA fees but don’t have utilities because the HOA isn’t paying the common bill – similar story with insurance – if the HOA isn’t paying the insurance bill you won’t get a loan on the property (nor will anyone you want to sell to which means only a cash buyer can purchase)

I’ve always been negative on condos – and that was before the latest negatives popped up (common utilities and insurance) – I say that there is only one form of housing investment worse than condos and that is mobile homes – be very careful buying condos as an investment and be extra special when the condo is a conversion

[/quote]

What about condo-hotels? i thought those were 2nd from the worst. And timeshares, I think by far are the worst 🙂

[Coronita]

[quote=4plexowner]I held each of my properties in its own LLC – don’t see any reason to have a parent LLC holding each LLC – I briefly setup a corporation to hold the LLCs but realized that it didn’t make sense for my circumstances – perhaps if your net worth is north of $5 mil having the parent LLC / corp might make sense – keep the properties well insured and have umbrella insurance to cover anything not covered in base policy

LLC tax is $800 per year – each LLC has its own tax return and the bottom line from that return flows into your 1040 – no double whammy – tax only paid on your personal return

That was the easy stuff – now, about purchasing the condo conversion

When I did my condo conversion I did everything right – new roof, fresh stucco, new windows, new water heaters, additional insulation in common walls, etc – this let me feel comfortable about selling the condos and also let me set he HOA fee very low

You’ll have to assess the quality issue yourself or get inspections done – focus on the common areas I listed above

Now, you’ll have to get a copy of the HOA Reserve Review – the review is required at the 2 year point on new condos with an annual follow up – if the condo seller can’t (or won’t) produce this document run (don’t walk) away from the deal – the reserve review will assess the state of the property and then estimate the ongoing expense of maintaining the property – the bottom line on the reserve review is the over/under funding of the HOA – my HOA is currently over funded so we could lower the already low HOA fee if we wanted to

Quality: wow, where to begin – I started with a well constructed 4plex and then did everything right – some of the condo conversions started as poorly constructed apartments and the converter did the minimal amount of work he could get away with and still sell the POS’s – you’ll have to assess this for yourself – in particular, I would look into noise issues inre common walls and floors/ceilings in multi-story properties (hard to imagine that many converters added insulation to these areas)

Utilities are another issue to consider – I’ve seen several horror stories where the HOA is out of money and the property has common utilities that are paid by the HOA – you’re still paying your HOA fees but don’t have utilities because the HOA isn’t paying the common bill – similar story with insurance – if the HOA isn’t paying the insurance bill you won’t get a loan on the property (nor will anyone you want to sell to which means only a cash buyer can purchase)

I’ve always been negative on condos – and that was before the latest negatives popped up (common utilities and insurance) – I say that there is only one form of housing investment worse than condos and that is mobile homes – be very careful buying condos as an investment and be extra special when the condo is a conversion

[/quote]

What about condo-hotels? i thought those were 2nd from the worst. And timeshares, I think by far are the worst 🙂

[Coronita]

[quote=4plexowner]I held each of my properties in its own LLC – don’t see any reason to have a parent LLC holding each LLC – I briefly setup a corporation to hold the LLCs but realized that it didn’t make sense for my circumstances – perhaps if your net worth is north of $5 mil having the parent LLC / corp might make sense – keep the properties well insured and have umbrella insurance to cover anything not covered in base policy

LLC tax is $800 per year – each LLC has its own tax return and the bottom line from that return flows into your 1040 – no double whammy – tax only paid on your personal return

That was the easy stuff – now, about purchasing the condo conversion

When I did my condo conversion I did everything right – new roof, fresh stucco, new windows, new water heaters, additional insulation in common walls, etc – this let me feel comfortable about selling the condos and also let me set he HOA fee very low

You’ll have to assess the quality issue yourself or get inspections done – focus on the common areas I listed above

Now, you’ll have to get a copy of the HOA Reserve Review – the review is required at the 2 year point on new condos with an annual follow up – if the condo seller can’t (or won’t) produce this document run (don’t walk) away from the deal – the reserve review will assess the state of the property and then estimate the ongoing expense of maintaining the property – the bottom line on the reserve review is the over/under funding of the HOA – my HOA is currently over funded so we could lower the already low HOA fee if we wanted to

Quality: wow, where to begin – I started with a well constructed 4plex and then did everything right – some of the condo conversions started as poorly constructed apartments and the converter did the minimal amount of work he could get away with and still sell the POS’s – you’ll have to assess this for yourself – in particular, I would look into noise issues inre common walls and floors/ceilings in multi-story properties (hard to imagine that many converters added insulation to these areas)

Utilities are another issue to consider – I’ve seen several horror stories where the HOA is out of money and the property has common utilities that are paid by the HOA – you’re still paying your HOA fees but don’t have utilities because the HOA isn’t paying the common bill – similar story with insurance – if the HOA isn’t paying the insurance bill you won’t get a loan on the property (nor will anyone you want to sell to which means only a cash buyer can purchase)

I’ve always been negative on condos – and that was before the latest negatives popped up (common utilities and insurance) – I say that there is only one form of housing investment worse than condos and that is mobile homes – be very careful buying condos as an investment and be extra special when the condo is a conversion

[/quote]

What about condo-hotels? i thought those were 2nd from the worst. And timeshares, I think by far are the worst 🙂

[Coronita]

[quote=4plexowner]I held each of my properties in its own LLC – don’t see any reason to have a parent LLC holding each LLC – I briefly setup a corporation to hold the LLCs but realized that it didn’t make sense for my circumstances – perhaps if your net worth is north of $5 mil having the parent LLC / corp might make sense – keep the properties well insured and have umbrella insurance to cover anything not covered in base policy

LLC tax is $800 per year – each LLC has its own tax return and the bottom line from that return flows into your 1040 – no double whammy – tax only paid on your personal return

That was the easy stuff – now, about purchasing the condo conversion

When I did my condo conversion I did everything right – new roof, fresh stucco, new windows, new water heaters, additional insulation in common walls, etc – this let me feel comfortable about selling the condos and also let me set he HOA fee very low

You’ll have to assess the quality issue yourself or get inspections done – focus on the common areas I listed above

Now, you’ll have to get a copy of the HOA Reserve Review – the review is required at the 2 year point on new condos with an annual follow up – if the condo seller can’t (or won’t) produce this document run (don’t walk) away from the deal – the reserve review will assess the state of the property and then estimate the ongoing expense of maintaining the property – the bottom line on the reserve review is the over/under funding of the HOA – my HOA is currently over funded so we could lower the already low HOA fee if we wanted to

Quality: wow, where to begin – I started with a well constructed 4plex and then did everything right – some of the condo conversions started as poorly constructed apartments and the converter did the minimal amount of work he could get away with and still sell the POS’s – you’ll have to assess this for yourself – in particular, I would look into noise issues inre common walls and floors/ceilings in multi-story properties (hard to imagine that many converters added insulation to these areas)

Utilities are another issue to consider – I’ve seen several horror stories where the HOA is out of money and the property has common utilities that are paid by the HOA – you’re still paying your HOA fees but don’t have utilities because the HOA isn’t paying the common bill – similar story with insurance – if the HOA isn’t paying the insurance bill you won’t get a loan on the property (nor will anyone you want to sell to which means only a cash buyer can purchase)

I’ve always been negative on condos – and that was before the latest negatives popped up (common utilities and insurance) – I say that there is only one form of housing investment worse than condos and that is mobile homes – be very careful buying condos as an investment and be extra special when the condo is a conversion

[/quote]

What about condo-hotels? i thought those were 2nd from the worst. And timeshares, I think by far are the worst 🙂

[SD Realtor]

Yooklid I would heed the advice of the people who have posted on this thread and are in the business of owning property rentals.

If you are looking for cash flow then I am curious as to why you would buy a condo rental in San Diego at all. Don’t get me wrong, as prices have fallen there are cash flow opportunities. Yet if you are really serious about making money then you may want to consider out of state.

IMO you should be concerned with the HOA of any complex, regardless of if it is a conversion or not. If the building is a newer building, within 10 years old, then prepare for a possible lawsuit against the builder due to construction defects. This may or may not affect the HOA but it is commonplace for large developments.

You should definitely have all of expenses and anticipated costs mapped out in a spreadsheet and ahead of even looking at a property you should be able to give accurate cash flow forecasts based on your estimates of occupancy, and all other factors.

How you hold the rental, LLC or SCORP, in or out of a trust etc, are important factors but in essence these are necessary expenses that you will need to log and keep track of.

[SD Realtor]

Yooklid I would heed the advice of the people who have posted on this thread and are in the business of owning property rentals.

If you are looking for cash flow then I am curious as to why you would buy a condo rental in San Diego at all. Don’t get me wrong, as prices have fallen there are cash flow opportunities. Yet if you are really serious about making money then you may want to consider out of state.

IMO you should be concerned with the HOA of any complex, regardless of if it is a conversion or not. If the building is a newer building, within 10 years old, then prepare for a possible lawsuit against the builder due to construction defects. This may or may not affect the HOA but it is commonplace for large developments.

You should definitely have all of expenses and anticipated costs mapped out in a spreadsheet and ahead of even looking at a property you should be able to give accurate cash flow forecasts based on your estimates of occupancy, and all other factors.

How you hold the rental, LLC or SCORP, in or out of a trust etc, are important factors but in essence these are necessary expenses that you will need to log and keep track of.

[SD Realtor]

Yooklid I would heed the advice of the people who have posted on this thread and are in the business of owning property rentals.

If you are looking for cash flow then I am curious as to why you would buy a condo rental in San Diego at all. Don’t get me wrong, as prices have fallen there are cash flow opportunities. Yet if you are really serious about making money then you may want to consider out of state.

IMO you should be concerned with the HOA of any complex, regardless of if it is a conversion or not. If the building is a newer building, within 10 years old, then prepare for a possible lawsuit against the builder due to construction defects. This may or may not affect the HOA but it is commonplace for large developments.

You should definitely have all of expenses and anticipated costs mapped out in a spreadsheet and ahead of even looking at a property you should be able to give accurate cash flow forecasts based on your estimates of occupancy, and all other factors.

How you hold the rental, LLC or SCORP, in or out of a trust etc, are important factors but in essence these are necessary expenses that you will need to log and keep track of.

[SD Realtor]

Yooklid I would heed the advice of the people who have posted on this thread and are in the business of owning property rentals.

If you are looking for cash flow then I am curious as to why you would buy a condo rental in San Diego at all. Don’t get me wrong, as prices have fallen there are cash flow opportunities. Yet if you are really serious about making money then you may want to consider out of state.

IMO you should be concerned with the HOA of any complex, regardless of if it is a conversion or not. If the building is a newer building, within 10 years old, then prepare for a possible lawsuit against the builder due to construction defects. This may or may not affect the HOA but it is commonplace for large developments.

You should definitely have all of expenses and anticipated costs mapped out in a spreadsheet and ahead of even looking at a property you should be able to give accurate cash flow forecasts based on your estimates of occupancy, and all other factors.

How you hold the rental, LLC or SCORP, in or out of a trust etc, are important factors but in essence these are necessary expenses that you will need to log and keep track of.

[SD Realtor]

Yooklid I would heed the advice of the people who have posted on this thread and are in the business of owning property rentals.

If you are looking for cash flow then I am curious as to why you would buy a condo rental in San Diego at all. Don’t get me wrong, as prices have fallen there are cash flow opportunities. Yet if you are really serious about making money then you may want to consider out of state.

IMO you should be concerned with the HOA of any complex, regardless of if it is a conversion or not. If the building is a newer building, within 10 years old, then prepare for a possible lawsuit against the builder due to construction defects. This may or may not affect the HOA but it is commonplace for large developments.

You should definitely have all of expenses and anticipated costs mapped out in a spreadsheet and ahead of even looking at a property you should be able to give accurate cash flow forecasts based on your estimates of occupancy, and all other factors.

How you hold the rental, LLC or SCORP, in or out of a trust etc, are important factors but in essence these are necessary expenses that you will need to log and keep track of.

[4plexowner]

“What about condo-hotels? i thought those were 2nd from the worst. And timeshares, I think by far are the worst :)”

I don’t consider those to be investments

An investment sends you a check every month (generalization) – not the other way around

It always amuses me when my brother-in-law tells me what a great investment his timeshare is

[4plexowner]

“What about condo-hotels? i thought those were 2nd from the worst. And timeshares, I think by far are the worst :)”

I don’t consider those to be investments

An investment sends you a check every month (generalization) – not the other way around

It always amuses me when my brother-in-law tells me what a great investment his timeshare is

[4plexowner]

“What about condo-hotels? i thought those were 2nd from the worst. And timeshares, I think by far are the worst :)”

I don’t consider those to be investments

An investment sends you a check every month (generalization) – not the other way around

It always amuses me when my brother-in-law tells me what a great investment his timeshare is

[4plexowner]

“What about condo-hotels? i thought those were 2nd from the worst. And timeshares, I think by far are the worst :)”

I don’t consider those to be investments

An investment sends you a check every month (generalization) – not the other way around

It always amuses me when my brother-in-law tells me what a great investment his timeshare is

[Author]

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