I am no stranger to selling cheap houses. In 2008 & 2009, I sold well over 100 homes that were priced under $50k with the majority under $40k. My cheapest house I sold was $12,500 back in March of 2009 (the bank netted $69 on the deal-read the post on my Saint Paul Real Estate site).
So with that all said, it was amazing to be out with a customer of mine the other day looking at condos in Brooklyn Park. We looked at 4 that were priced at $19,900. I remember saying to him “I can’t believe I am about to say this, but this condo is too expensive.” Wow! I would say even the cheapest new car these days costs more than $19,900. So why did I say that? Here is how the numbers break down:
|
Mortgage cost per month (if you can get one on this little principle) |
$146 |
| Association fees (includes heat, insurance, etc) | $294 |
| Monthly landlord insurance | $20 |
| Total expenses per month | $460 |
| Possible rent on a 1 bedroom condo in this area | $550 |
| Monthly cash flow | $90 |
While $90 is not the worst cash flow I have ever seen, if this customer ever has to replace the flooring in the unit, it would require an entire year to pay back the cost of it! We started talking about offering $15k for the unit and even at that price it is still not enough cash flow to make it worth it. Now you could pay cash for this unit, but is it really that great a use of your money to get $146 per month for your $20k?
You can’t make every deal work. Making it cheaper doesn’t always solve the problem.
5 comments
#1Blaine MN Homes for SaleJuly 16, 2010, 2:52 pm
It is extremely important to consider all monthly expenses when evaluating the ROI of an investment property. Watch out for those association dues! I’ve seen some in Blaine that make you scratch you head as well?! Thanks Scott!
#2John GallJuly 17, 2010, 5:18 pm
Was this at Strawberry Commons?
#3Scott FicekJuly 18, 2010, 10:49 pm
LOL! Yup.
#4Chris LengquistJuly 31, 2010, 11:18 pm
It’s all about the math, isn’t it?
#5Scott GrantAugust 22, 2010, 9:43 am
This doesn’t seem that bad. Am I missing something? If you pay cash, in this example, your cashflow would be 90+146 per month, or 2832 per year, which is a 14.16% return on $20K, per year. This seems not too shabby to me, with few maintenance worries. I noticed that property taxes weren’t mentioned, but that could be in the association fees.
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