CalculatedCondo is filled with posts on potentially good condo investments. However, keep in mind that being an investor and landlord takes plenty of work on its own. There is usually no such thing as easy money, and even a prudent real estate investment will prove to be the same.
I am a landlord of condominium units in both LA and OC. Some properties were purchased on the cheap whereas others, not so much. It took me a few years to work out the finances to make sure my properties were generating positive cash flow. But even with positive cash flow there are pitfalls. The greatest pitfall is a bad tenant.
I've managed more than a dozen tenants during my ongoing stint as a landlord. But 2010 was the first where I grew complacent on having reliable tenants, so I did the unthinkable: I did not do a thorough background check on a prospective tenant.
This rental applicant was the head of a household. I had a soft side for families with young children so I gave them extra consideration. And frankly, the rental market was soft at the time so I did not have a good pool of applicants to choose from. The monthly rent I asked for was well below comps. He came with his wife and two young children. While he was pleasant and generally seemed like a decent person, I had that strange "gut feeling" that this wouldn't work out. But I gave them the benefit of the doubt. Here were the warning signs early on:
1. They wanted the place ASAP
2. They were initially reluctant to show a photo ID
3. They initially left the social security number on the rental application blank
4. Their reported income was too low for the monthly rent, but they assured me that they did freelance work on the side that would double their reported income
5. Their previous landlord did not return my calls
The problems started only three months after they moved in. I had to constantly remind them to pay their rent and they presented the following excuses that are not unique amongst insolvent tenants:
1. They moved jobs and have a brand new pay schedule
2. They had an unforeseen medical/car repair expense
3. They "lost their phone" and found it after a week
A landlord has to walk that fine line between maintaining a landlord/tenant relationship and becoming more "businesslike" and post the 3 day notice to perform or quit. After six months, I decided on the latter. When they received the 3 day notice, they promptly called me; not to pay the past due rent, but to complain about repairs. Here are signs that you REALLY have trouble in your hands.
1. The tenant goes on the offensive after the 3 day notice rather than giving payment
2. The tenant contacts local housing authorities for repairs that were not brought to your attention before
3. The tenant seems to know the housing codes that he can use against you, even if you were clearly acting in good faith and you were quick to answer maintenance requests
4. The tenant also seems to know the eviction procedures
The tenant said the heater was not working and said that therefore, according to local housing codes, the unit was not habitable. I got that. But I told the tenant that if they had notified me, it would've been taken care of in a reasonable time. I then received a call from the local authorities (fair housing, city code enforcement, etc) and I told them my side and stuck to it. I could tell by their tone that they sympathized with my situation.
Finally, after 5 weeks since the initial 3 day notice, I went to court to seek an eviction judgment. The tenant was there and told the judge that I was not willing to fix the heater and therefore she caught a cold and missed work, and her children got sick so she incurred additional medical expenses. Through my eviction attorney (professional legal help is highly recommended), we presented evidence via email correspondences that I was acting in good faith and the tenant was not giving me adequate access to the dwelling. After 5 minutes, the judge ruled in my favor. And two weeks after that, the tenant was locked out by the sheriff.
The entire ordeal costed me the following:
lost rent: $3,400
legal fees: $1,100
locksmith: $100
sheriff: $25
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Total: $4,625
I can't stress enough the importance of doing a thorough background check to protect your investment and your personal health. I was fortunate that the judge ruled in my favor. I was also fortunate that the tenant did not damage the dwelling prior to leaving.
After the eviction, I went on the county superior court website and found out that the tenant that I evicted had a string of eviction records from the previous 5 years. Check your local court websites and access their online case databases prior to signing any lease.
Good luck to all!
Sunday, May 6, 2012
Wednesday, May 2, 2012
Opportunity in Burbank
Address: 1723 Landis St. #204, Burbank, CA
Bedrooms: 2
Bathrooms: 2
Size: 1,064 sq. ft.
Burbank is an upper middle class city in Los Angeles County. It is home to numerous media firms such as Nickelodeon, Disney, and Warner Brothers. It has good public safety ratings and is patrolled with its own dedicated city police. While the schools are not as highly ranked as Arcadia, it is one of the more desirable locations in the county, being within 15 miles of downtown Los Angeles and major employment areas in Glendale and Pasadena.
This condo unit was built in 1993 and appears to be in decent condition. Here are some pictures to give you a visual:
Bedrooms: 2
Bathrooms: 2
Size: 1,064 sq. ft.
Burbank is an upper middle class city in Los Angeles County. It is home to numerous media firms such as Nickelodeon, Disney, and Warner Brothers. It has good public safety ratings and is patrolled with its own dedicated city police. While the schools are not as highly ranked as Arcadia, it is one of the more desirable locations in the county, being within 15 miles of downtown Los Angeles and major employment areas in Glendale and Pasadena.
This condo unit was built in 1993 and appears to be in decent condition. Here are some pictures to give you a visual:
The numbers below indicate a high return on investment. Most portfolio managers wouldn't be able to maintain a 20% ROI year over year. From an investor's perspective, this property makes sense.
Listing price: $156,000
Down payment (20%): $31,200
Expected monthly rental income (based on Zillow.com rent estimate): $1,686
Monthly mortgage (30 year fixed @ 4%): $598
Monthly maintenance and repair budget: $100
Monthly vacancy budget: $100
Monthly HOA dues: $200
Monthly property tax: $175.50
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Monthly profit: $512.50
Monthly profit: $512.50
Annual return on down payment investment (not including mortgage principal gain) : 20%
Tuesday, May 1, 2012
Bad buy in Torrance
Address: 22821 Nadine Cir. Unit A, Torrance, CA
Bedrooms: 2
Bathrooms: 2
Size: 1,117 sq. ft.
Like Arcadia, Torrance is another upper middle class area with good schools and public safety. Torrance is also located fairly close to the ocean, so temperatures stay mild even during the summer months. Los Angeles and Orange County are both within a 30 minute drive.
But also like Arcadia, this property is an example why the popular mantra, "location location location" doesn't always constitute sound investment advice.The pictures show that the building is on the older side for a condo, but the unit looks clean with an updated kitchen.
..the numbers however, don't look too encouraging.
Bedrooms: 2
Bathrooms: 2
Size: 1,117 sq. ft.
Like Arcadia, Torrance is another upper middle class area with good schools and public safety. Torrance is also located fairly close to the ocean, so temperatures stay mild even during the summer months. Los Angeles and Orange County are both within a 30 minute drive.
But also like Arcadia, this property is an example why the popular mantra, "location location location" doesn't always constitute sound investment advice.The pictures show that the building is on the older side for a condo, but the unit looks clean with an updated kitchen.
..the numbers however, don't look too encouraging.
Listing price: $359,000
Down payment (20%): $71,800
Expected monthly rental income (based on Zillow.com rent estimate): $1885
Monthly mortgage (30 year fixed @ 4%): $1371
Monthly maintenance and repair budget: $100
Monthly vacancy budget: $100
Monthly HOA dues: $269
Monthly property tax: $403.90
----
Monthly loss: $358.89
Monthly loss: $358.89
To make matters worse, this is a senior community so the potential for finding renters is severely limited. With that said, the rent (from Zillow.com) might be optimistic.
A bad investment in Arcadia
Address: 18 Fano St. #6, Arcadia, CA
Bedrooms: 3
Bathrooms: 2.5
Size: 1,801 sq. ft.
Arcadia is an upscale neighborhood that boasts highly ranked schools. But the prestige of the zipcode does not necessarily mean that every property there is a good buy. Arcadia, like some other affluent, well established neighborhoods in Los Angeles county, remain overpriced relative to historical norms. This property on 18 Fano St. was sold for $558,000 at the peak of the housing bubble in 2005, yet it is currently listed for $579,000. Many of the "lesser" neighborhoods in LA and OC have come down roughly 40% from the 2005/2006 peak.
This is a fairly new property that probably won't require as many big ticket repairs as those that are 50 years old, but that does not hide the fact that the numbers just don't add up.
Bedrooms: 3
Bathrooms: 2.5
Size: 1,801 sq. ft.
Arcadia is an upscale neighborhood that boasts highly ranked schools. But the prestige of the zipcode does not necessarily mean that every property there is a good buy. Arcadia, like some other affluent, well established neighborhoods in Los Angeles county, remain overpriced relative to historical norms. This property on 18 Fano St. was sold for $558,000 at the peak of the housing bubble in 2005, yet it is currently listed for $579,000. Many of the "lesser" neighborhoods in LA and OC have come down roughly 40% from the 2005/2006 peak.
This is a fairly new property that probably won't require as many big ticket repairs as those that are 50 years old, but that does not hide the fact that the numbers just don't add up.
Listing price: $579,000
Down payment (20%): $115,800
Expected monthly rental income (based on Zillow.com rent estimate): $2540
Monthly mortgage (30 year fixed @ 3.875%): $2211
Monthly maintenance and repair budget: $100
Monthly vacancy budget: $100
Monthly HOA dues: $150
Monthly property tax: $651.38
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Monthly loss: $672.38
Monthly loss: $672.38
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