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Ask Me A Question, Get 12 In Return

A client (in NY) e-mailed me to ask if I “thought there was any merit in buying a few bank owned condos in a suburb outside of Miami?  The units are selling for about $30k now but were about $200k a few years back.  I can afford to hold a few years before selling.”  Here are the questions I asked in response to her question:

Where is this money coming from?  If I am assume “a few” is three, that’s $90,000 plus closing costs*.  Are you going into debt, borrowing from your retirement, depleting your emergency funds, or is this just extra money you have available to invest?

*Unless you are doing financing on three units.  If so, can you rent the units to defray all costs and expenses, or are you prepared to run at a deficit each month?

Where will the carrying costs for taxes and condo common charges come from each month/year?  Will these expenses cause you to charge other monthly necessaries and incur credit card debt?

How long are you prepared to hold the units if they are empty?  If they’re ccupied but generating less than expenses?

Does the condo allow rentals?  A lot have re-written their rules & regs in light of past problems with investors walking away.

If you have tenants, how will you address their complaints when you are about 1,000 miles away?  Will you hire a manager, and have you budgeted for this service?

Are the majority of units owner occupied now?  How many are empty?

I concluded:  “As you can see, these questions are meant to generate a conversation as to whether this investment has merit.  The price reduction is irrelevant to me, as these units aren’t a bargain if they bankrupt you. And fair warning:  when you answer my questions I may have plenty more before I give you my opinion.”

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