We’ve seen a lot of back and forth on whether the market has recovered or whether we should expect another free fall in prices. We all pull out our crystal balls and say “Here’s what’s going to happen” and in a year’s time we find out if what we said was true.
Well let’s talk about what is happening NOW! Currently the lending environment is making it next to impossible to get financing in many of the condo buildings across the region. We are seeing lenders require 720 credit scores with 20% down payments or require that no more than 15 percent of owners get behind on condo fees and mortgage insurance companies that won’t allow financing to go through because of high default rates. So what does that mean for all these foreclosures in buildings with high default rates on condo fees? Cash is king!
I did a search on condos inside the Beltway under $100k. More than one hundred 2+ bedroom units came up. Rents on these units are at minimum $1,000 per month so you’re getting $12,000 per year in revenue.
So let’s say you pay $75k for a 2BR unit in the DMV. Your annual revenue is $12,000 and you have to pay out $300 per month in condo fees or $3,600 per year leaving your before property tax profit at $8,400 per year. Taxes will be around $1,800 per year on the unit so you’re looking at a profit of $6,600 on your $75,000 investment or an 8.8% return. This is all before your accountant works his/her magic to really make this investment zing!
Now let’s take the rose colored glasses off for a while. You have to be careful who you rent to, watch out for raising condo fees and special assessments and confirm the rules for the condo association for renting. Most importantly, not everyone is cut out to be a landlord and let’s be honest these are not going to be in the best neighborhoods. But with a good property manager you’ll probably never have to visit the place.
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