Investment property, rental

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I'm considering buying a small investment property/rental in my city, Austin Tx.

I've done quite a bit of research, thinking of my needs/wants, but would appreciate feedback from others at this point.

Interested in others take on what the better property would be.

Background:
My goal is to have a property that I can currently rent out. At some point I would live in it for a short term, like a year or less when I decide to sell my current home and buy a place that meets my needs, and then rent out again after that for extra income.
While making some rental income is very nice, and welcome, it's in second place in my needs and wants.

I would live in it while the house I put the house I currently own, free and clear, goes on the market.
I want to be out of the way, not living in the house while it is selling.
Most importantly, I don't want to get caught up in the chain of "I can't buy something else until this sells" I don't want to be rushed out. I want to be able to take my time getting it ready for market, and not be in the middle of it. Less stress is key.

So there. That's out of the way.

I'm considering 2 properties, which is where I'd appreciate feedback, points of view, etc.

Both these places are small 1 bedroom, 1 bath, and for the Austin market are at the low end price wise, but still nice. I'd be putting 20% down on either one.

I've determined the price and value for each is appropriate for the market.
I'm just starting to work with a realtor, and will be seeing the 2 units today.
I am already pre-approved for the amounts.

Even though one property is selling for $28K more, the turn around time to get my down payment back through rental is the same. Like 3 years.

HOA fees are similar.

Both, after all the rental deductions would provide exactly the same amount of profit each month. I've carefully run all the numbers on this and other comparable properties.

If either of the properties were not rented for a bit, I could, with my free lance income that is separate from needed household income, afford to pay the mortgage. Especially with still being able to take the rental deductions as the places would be on the market to rent.

As far as landlord duties, I would have a property manager to take care of rent collections, problems, etc. I would deal with them, not the tenant.

Property #1
$162K
400 square feet.
Built in 1964
This place, 2nd story, is in arguably the hippest part of the city.
It was hip 30/40 years ago, 20, 10, 5 and there is no question it will maintain it's cache for many people in the future.
It's basically the mecca for avocado toast at brunch eating, groovy vintage shops of every kind, electric scooter communter, "I'm young and fabulous" and want to see and be seen crowd.
It's not a bar scene. It's a restaurant, latte "look, I'm wearing a hat" area.
$500K plus condos are being built, and are selling fast.
I would say most of the people who rent in that area are mid 20's to mid 30's, no kids, have a job that supports them.
Crime? Looking at records, the little there is, is of the non violent, opportunistic kind. Stealing a bike, breaking into an unlocked car, etc.
The complex the condo is in has a open parking area, but you must access the living areas via locked doors/gates.

The unit is currently being rented out until April of 2020. I'm going to find out today how long that persons been there. Nice to have continuity.

On the tax appraisal site, the value of the land (it's a condo, so basically not a factor) has been steady, but in the last 2 years the value of the unit has decreased by 1.5% in 2018, and 6.5% in 2019.
The current owner bought it in 2012.

I have more or less seen this happening for a lot of properties over a certain age, including my house. I have a feeling next year the land values will be going up.

Property #2
$190K
500 square feet
Built in 1973
Is about a mile and a half West, a few blocks in on a street off a main road. Because of this, the only traffic, in cars or on foot, are people who live around there.
The neighborhood is mainly single family housing, very nice, middle class, established neighborhood.
On the crime map, it's considered basically crime free.
When I drove by the place, I saw a kids bike out front, so at least some families living in the complex.

It is currently empty, and I'll have to get data from the realtor about rental occupancy.
Honestly? There's not much to say about this one. Your standard living space.
It is close to all the fun stuff you'd want to do, shops, groceries etc.

On the property appaisel site, the land and units value has remained the same for years.
The current owner bought it in 2006.

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Overall, because of the small size of both, renters would either be single, or maybe a couple.

I'm going to see both of them today, actually leaving in a few minutes.

From the pictures, it does look like either one needs any work to have someone move in.

Thoughts?

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@chai2,

I like property one, sounds like it has more appreciation potential and more potential for you to raise rents in the future.

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@chai2,

to me the first one seems the safer bet. Tried and true in a sense - a little less risk. The apartment seems to fit the neighborhood so more likely to be able to be rented. You can't argue against current success with it being rented -

The one issue I see with this one is - you living there. Would you be able to boot the person currently renting it, when you want to live in it?

The second option - on the surface seems more difficult to rent because of the location - that may not be true but just sounds that way on the surface. Also seems to be a more stable - as in historically value hasn't changed. Might be more difficult to sell in the future, etc.

The other thing to consider is you are not too worried about renting it for financial reasons as it sounds you can afford to go without renting it. So you might want to consider instead is - which one do you like? Which one would you prefer to live in? Which one would be easier for you to move in when you need to?

From an investment feel the first one sounds better - but your situation is not all about investment - so unless you feel the second would cause you to lose money, I would side with which one you like better to live in. Especially if you think you will live there a length of time - you want to be happy while you are there as well.

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Thanks engineer & Linkat.

I viewed both today, and very much preferred the first property.

Other pluses are that the tenant in place has already had his lease extended (don't know how long that extension was for. Whether it was for a year, or less.)
Found out there is already a property manager taking care of that tenant, so Woot!

Even though it's small, the layout is efficient. No wasted space.

It must be a single guy living there. When I glanced into the surprisingly room (but narrow) walk in closet, it was full of clothes that one would find in an employed mans (not a students) closet.

He must have a dog, and a big one judging by the size of the food and water bowls.
The place did smell doggy, but that his business. That's what cleaning services are for when/if he moves.
As I mentioned before. There are tons of cafes, coffee shops and other eating places within easy walking distance.

The 2nd place? There isn't really anything to say about it. Just a place. I found out it too has a property manager, so my question is why is it empty?

Gonna mull it over tonight and in the morning, but I'm pretty sure I'm going to make an offer.

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@chai2,

Oh, linkat, regarding the booting someone if I wanted to move in.

I'm going to try to negotiate for 6 month extensions with the tenant.

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Moving into a condo with an HOA, Id want the realtor to gather up the latest financials , including whether they have a Reserve Fund and if there are any lawsuits against the HOA. You don’t want an additional assessment surprise waiting in the wings. Find out if there’s an active Board and when the next annual meeting is. Be sure to read all governing documents - CCRs and bylaws. I’ve heard good and bad things about living in a condo.

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@PUNKEY,

Already saw the financials
They are fine.

The tenant has been fine living there, so no problems.
I would live there temporary, then rent it back out.

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@chai2,

chai2 wrote:

Already saw the financials
They are fine.

The tenant has been fine living there, so no problems.
I would live there temporary, then rent it back out.

Ah I missed the part that you would rent it back out again - I think I wrongly assumed that you were going to sell it after you moved out. Not sure why I assumed that. So this is for a very long time --- then I definitely like option 1 from a high level as more an investment property overall.

But yeah the HOA can be a deal breaker but if you say you have all that history already and the condo association has been a success - but you do have to watch for potential large assessments if these happen. But if the association has been around for a while you can look at this historically and like punky said make sure they have a reserve fund that is added to regularly. If something unforeseen happens even with a good association you can have a big assessment dumped on you.

Had that happen to us years ago - out of no where the fire department said that the condo buildings oil tank had to go - out of no where and after having the set up for decades, the decide we could no longer have it that way. Fortunately we had a good association -building was small enough we were able to work together with the best solution financially and longer term. We were able to make one larger payment and then have our monthly fee increased so that it did not hurt anyone financially.

But like a home, you can have something unexpected happen - the downside to a condo is that you might have limited control on how to handle it. I have heard of nightmares where a few controlling members took the most expensive route where some people within the association just were not in the financial situation to handle it. The upside if you have a good association is that you share the expense among many others so typically it would cost you less.

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There may also be a limit on the number of units that can be rentals. This would be found in the CCRs. If it’s an older complex, it may be in the bylaw amendments. Investors bought up a lot of bankrupt condos during the recent “crash.” The HOA will make the owner, not the renter, be responsible for maintenance issues ( like parking, garbage, etc)

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@PUNKEY,

Here we go with the age old problem you have of not reading what was written.
Stop that.

Did you not hear me say, Twice at least, that the unit is already rented, and has been for quite some time?
There is already a property manager in place that the current owner is using, and I would take over that contract and pay them for managing the day to day aspects.

Did I not say that I already thought of and have seen all this stuff you're posting about?

Yes, obviously as the owner I would be responsible for maintenance issues. What would make you think the renter would be paying the extra money for that?
That is such an incredibly weird thing to say, or even think.

I would own the place. Someone else just pays me money to use that space.

That's why when figuring what rent you are going to charge, you take all that into consideration. What the current renter is paying does that.

I am responsible for the mortgage, HOA fees, any additional problems that come up, etc. etc. You think I, or anyone else, does not realize that?

As I already stated in my first post, the side money I make from gigs, which is beside what is brought in as household income, is sufficient to cover my mortgage and HOA fees, including property taxes, mortgage interest, home owner insurance and everything else. Even if there was no one renting the unit.
Even if I didn't have these side jobs, I could make it work.

With a renter in place, and all the deductions I can take (the above, plus depreciation of the cost of the living space over 27.5 years), I will realize a tidy profit over a year. Which more than likely will just accumulate for future use when I buy a nicer place than this investment property for myself after my current house sells in years to come, for furniture, painting to my taste, etc etc. I'd then still keep the investment property for some rental income.

Punkey, give it a rest.
My initial invitation was for input of which was the better property to choose.

Posters opinions went with my gut, and that's the place I've made an offer on.
Just waiting to hear if it's accepted, or if they are countering.

I offered a little below list price. If they counter with the actual list price, I'm fine with that.

Honestly wasn't looking for a lesson in all the things that could go wrong. I could get hit by a meteor in the next few seconds, but I'm not worried about it.

If/when I live in this place for the time it would take my current home to sell, and looking for another one, I would be of absolutly no interest to the HOA.

I come in, park my car in my designated spot, go in the unit and lock the door, watch some Netflix and go to bed.

I doubt any of that will arouse their ire.

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You are going to buy a condo that is currently a rental.

Then,
''At some point I would live in it for a short term, like a year or less when I decide to sell my current home and buy a place that meets my needs, and then rent out again after that for extra income."

So you will have a condo that is now renter occupied, then be owner occupied, then back to renter occupied, and lastly, maybe back to owner-occupied.

It was very clear to me.

I have a friend who bought two condos. She lived in one and rented out the other. Then she moved and the HOA said she could not rent out her current one because the HOA had reached its threshold for rental condos (rentals cannot exceed 10% of the total number of homes)

Just giving you some info.

No need to get nasty about it. Oh, wait, you are nasty. I forgot.

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@PUNKEY,

I just don’t suffer fools gladly. Don’t have time for them.

I don’t think you were just “giving information”. Especially when I thought I made it clear I had the finances of it under control, and understood how HOAs work.

I’m not into listening to third hand information about some unknown friend.

I refuse to get bogged down in the “What if’s“ as 99% of the dire pronouncements held over me as threats have never come to pass. More importantly, the negative stuff that has happened have been confronted head on, given the attention needed and life continued.

I refuse to live life afraid of things like a parking lot is due for repavement or the air conditioning system needs replacement.

I have the same expenses being a sole homeowner. Nothings free.

And no, you didn’t get my game plan correct, because you don’t keep straight what you read.

Not that it’s any of your business, but my end game is to live in Mexico 1/2 the year in a home I own free and clean down there, and the other half in the US in a nice, new modern home paid for in cash with the proceeds of selling my current home. I would be exempt from property taxes capped at what my current homes property taxes would have been (if I had to pay them) at the time of f the sale cost of the house. The small condo would be kept for some rental income, or sold. Whatever suits me at the time. Honestly? No idea why I’m telling you any of this as you’ll not get it straight.

In any event, you saw what my original ask for opinions was. You simply like sticking your nose in and making up a reason to make random unrelated statements.

Nasty? Well, to you yes. Don’t like you, never have. Wish you’d get that through your skull.

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Your reactions are disproportionate to most discussions. I’ve seen your nasty remarks to LOTS of people. So I don't take this personally.

You really need to get your hormone levels checked.

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@PUNKEY,

Well then, f*cking stop addressing me weirdo. Put me on ignore. Please. Then I won't bother you anymore.

You consistently step into it, and seem surprised when I keep telling you to bug off. Don't give a sh!t what you think of how I address anyone.

What else can I say? You came on a thread and addressed me with your "let's think of all the minutae of what can go wrong. Stuff that any intelligent person would have considered.

I didn't come looking for you. You sought me out.

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