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Discussion Starter #1 (Edited)
This is from personal experience and is based only on my opinion and experiences. It is in point form. I haven't been posting much because I have been closing property in Phoenix, AZ.

This is what happened with one of the properties I purchased.

I work with a realtor and get access to FlexMLS that allows me to see details of the property, HOA fees, property tax, tax records, pictures, etc.

Hundreds (if not thousands) of properties available.

Focus on 1 or 2 bed condos. Cut out single family homes. Set upper price bound to $60K.

Approximately 500 properties pass.

Cross reference property crime and violent crime maps to find good ZIP codes to invest. Cross reference good ZIP codes with known concentrations of high meth drug use. Remaining ZIPs are then free of property crime, violent crime and meth drug use.

Approximately 50-100 properties pass.

Locate areas where there are more than one unit for sale (I want to buy multiples and it's easier for me and my property manager if they're all in the same place).

Approximately 10-20 properties pass.

Ask my realtor to visit the properties.

Apprioximately 10 properties pass.

I write up 10 offers to buy. The following is the story of one of these properties.

Owner was out-of-state "investor", purchased 830 sq ft, 2 bed 2 bath condo in Phoenix, AZ in 2006 for $145K. Listed it in 2009 for $50K. He has a tenant in there on a 1 year lease for $750 a month.

I offer $36K. He counters at $43K.

By act of God, Bank of America forecloses on a 830 sq ft 2 bed 2 bath condo in the same complex and lists it for $30K. I tell the owner that I want to pursue the BoA property first unless he agrees to $36K.

He agrees to sell at $36K.

I put in 'earnest money' deposit of $2K into escrow.

I run property inspection, termite inspection. All clear.

I tell owner that he has a tenant in the condo and that when the tenant moves out I will need to paint, change carpets and do other maintenance that will run $1K. I tell him to knock the price down to $35K.

He agrees to sell at $35K.

I sign a lot of documents outlining the aforementioned negotiations.

I contact Forex company to prepare to wire the rest of the purchase price into escrow.

Work with title company to run title search. Buy title insurance.

I establish home warranty and home insurance. I inform the Home Owners Assocation (HOA). HOA fees = condo fees.

I inform my property management company (I interviewed half a dozen of them). The costs are as follows:

$100 initial sign up fee
$300 per property reserve, held in trust, for maintenance
$50 monthly management if vacant
9.5% of gross rent monthly management if tenanted
$100 for lease renewal

Download and read Arizona landlord tenant act. Arizona is landlord friendly. No rent control. Delinquent tenants are in court 2 weeks after default and court/judge/constable throws tenant out 2 weeks after that. 1 month turnaround. Property manager represents landlord. Total cost to evict: $360.

I coordinate my realtor with the property manager to hand over condo keys, mailbox key, pool key, clubhouse key.

Settlement document passes the tenant's deposits (security deposit, pet deposit, etc.) and pro-rated rent for the month to me via escrow.

Closing day. Remaining purchase price wired into escrow. Realtor, HOA and property management company co-ordinate to hand over keys. Title company registers deed in my name.

Closing documents set to city for registration. Deed updated and copy sent to my home address in Canada.

Commissions to realtor: $2K. Flat fee. Absored by seller.

Purchase price: $35K
Monthly rent: $750
Home warranty: $34 per month
Home insurance: $40 per month
Property management: $71.25 per month (9.5% of gross rent)
HOA (condo) fees: $174 per month

I'm taking a break. I'm off to Mexico this coming Sunday for a week. Cheers!
 

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A few Q's if you do not mind:

Was part of your analysis the existing tenant themselves, how long they have been in the unit (when does the existing lease expire) and how many years they have been in the unit; i.e. to determine likelyhood of them skipping out next month vs being a long term tenant?

Also, do you look at rental vacancy rate in the area to see how much competition you will have when you do have to find a new tenant?

Is would seem like these would be important aspects in the equation when buying remote properties?
 

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It sounds pretty good and thanks for all the details.

The only thing I would ask is what are the property taxes like? And do you have any unpaid taxes to pay although it doesn't sound like it. Also are there any debts hidden against the property or does the title search deal with these issues.

These may seem like silly questions but I am a very untrusting person and feel everyone is trying to screw me over if they can. Also I don't know very much about buying property in the US so this is all very interesting to me.
 

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Sounds interesting. My worry would be that if property values are that depressed, that the entire building may be suffering. What happens if major repairs like roof or elevator are required? Do the rest of the owners have the ability to pitch in? What about maintenance fees -- are they being kept current? I would also be concerned just with the price in general. If you're buying at such a depressed price, it stands to reason that others are as well -- what will the quality of the fellow owners and or renters be like?

Could be that the price still makes up for any potential pitfalls. Just a few of the thoughts that come to mind.
 

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Discussion Starter #7 (Edited)
The only thing I would ask is what are the property taxes like?
$920 per year.

And do you have any unpaid taxes to pay although it doesn't sound like it. Also are there any debts hidden against the property or does the title search deal with these issues.
Title search covers it. Encumbrances (overdue HOA fees, etc.) must be cleared by seller before they are allowed to close.
 

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Discussion Starter #8 (Edited)
Sounds interesting. My worry would be that if property values are that depressed, that the entire building may be suffering. What happens if major repairs like roof or elevator are required?
Pheonix, AZ builds flat. The condo is not a high-rise condo that we are familiar with in Toronto. They are 2 bed 2 bath condos arranged like a row of Mississauga townhomes. No elevators.

Maintenance may be an issue if a large number of owners are delinquent in the HOA payments. All sales must have HOA dues made up at the time of sale or the sale cannot legally occur. If the property is owned by the bank, they keep the dues current.

Do the rest of the owners have the ability to pitch in? What about maintenance fees -- are they being kept current? I would also be concerned just with the price in general. If you're buying at such a depressed price, it stands to reason that others are as well -- what will the quality of the fellow owners and or renters be like?
I cannot speak for other condo developments because I don't know them. The HOA dues in my investments are being kept current.

I am not the first Canadian (nor will I be the last) to buy condos in this particular building. One snowbird couple bought one for their own use; but they paid $80K 1 year ago. Everybody is buying for their own reasons. I am buying to cash flow it.

If a tenant is paying $500 for a 2 bed 2 bath, you can be sure that they are "subprime". $700-$800 per month is "average". $1000+ is affluent (ie. Scottsdale rents). I found that when you screen away areas of violent crime, property crime and drug use, you just get renters who are down on their luck; bought a home, upside down on their mortgage, got foreclosed, need to rent. Lots of bad stories here - 70 year old couple buys $1M home with $400K down, market tanks, home now valued at $400K, foreclosure, couple now rent and work at Walmart (bad decision making). 35 year old woman buys home, market tanks, gets cancer, needs to sell to pay medical bills (bad timing).

It has never made sense to me why individuals are afraid AFTER a massive decline in prices; after the DOW went from 14K to 7K many of my colleagues were terrified. To be honest, I was more terrified when the market went from 10K to 14K. I bought thousands of shares when the markets fell. Unfortunately the market has corrected violently to the upside and cash was piling up. The only place I could find 'depression-like' prices was in U.S. RE.

What made the decision easy for me to buy in Phoenix, AZ is that I am fortunate enough to buy in cash. No mortgage. No LOC. No loan of any kind. The condos can be vacant for all I care and it wouldn't hurt me to carry it, but they're not.
 

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Discussion Starter #9 (Edited)
Welcome back, R9.
How much do you expect to flip this property for and when?
No plans to flip it at the moment. I am just going to pocket the cashflow for now.

For better or worse, I rarely sell an asset that I've purchased at a good price; which is why I still have the stock and RE that I purchased over 10 years ago shortly after graduating from university.

Let's say the property doubles in price. I still won't sell. I don't need the money. I would sooner refi (more accurately - slap on a mortgage), take whatever money out that I need, keep the cashflowing property, and have easily covered interest payments that are tax-deductible.
 

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The condos can be vacant for all I care and it wouldn't hurt me to carry it, but they're not.
What will hurt if it is vacant is:

Home warranty: $34 per month
Home insurance: $40 per month
Property management: $50
HOA (condo) fees: $174 per month
Property tax: $76.67 /month

Total: -$374.66 / month

+ re-lease fee when it does get re-rented. ;)

I do see the + side of your purchase, but I also see potential issues, like possible high vacancy rates.

Given how much the prices have dropped, more people will be buying like you to rent, so more rental competition (= lower average rent likely). The % of renters will also likely drop because now locals can also purchase places for 40K or so. I have now looked at some real estate sites for the area you mention and like you correctly pointed out, there are 100's if not 1000's of places for sale (pre-filtered). 100's below 100K it seems.

I'm not trying to be overly negative about the idea, just trying to be balanced IMO.
 

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Ontario Evictions

N-4 wait 15 days
L-1 file after the 15 days is up. If you fax it in 4-6 days to process pay $170
Landlord & Tenant Board date 1-2 months away
After Board Date the Board issues an order which takes 2-3 days plus mailing the tenant has another 11 days to pay or stay.
Go down to the sheriff's office bring an original copy of the order. Pay up to $380 for eviction. Wait two weeks then if the tenant is still there they will give you a date this during this week sometime.
Sheriff comes then people still have 72 hours to remove their stuff.

Time frame is about 4 months or more.

This is a straightforward eviction !!!! If there are maintenance issues, or reschedulings or appeals it is even longer because you have to wait for another Board date. Not to mention that the board is very booked up so if your tenant brings up a maintenance issue it is put to the very back of the list for that day.

I'd buy these properties all day long if I had the cash. Did you go down and inspect the properties yourself?

What made you select Phoenix AZ?
 

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Wow, this actually sounds very interesting.

Like you say Rickson, whatever the reason (I'm thinking for personal use), the cost is ridiculously low.

I have to admit, I'm sheep, I'm slow to react. I'd be interested in looking into this for my own use, but then picking up additional units if prices remain depressed for upwards to a year.

Thanks for the great post!
 

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Discussion Starter #14 (Edited)
Ontario Evictions

N-4 wait 15 days
L-1 file after the 15 days is up. If you fax it in 4-6 days to process pay $170
Landlord & Tenant Board date 1-2 months away
After Board Date the Board issues an order which takes 2-3 days plus mailing the tenant has another 11 days to pay or stay.
Go down to the sheriff's office bring an original copy of the order. Pay up to $380 for eviction. Wait two weeks then if the tenant is still there they will give you a date this during this week sometime.
Sheriff comes then people still have 72 hours to remove their stuff.

Time frame is about 4 months or more.

This is a straightforward eviction !!!! If there are maintenance issues, or reschedulings or appeals it is even longer because you have to wait for another Board date. Not to mention that the board is very booked up so if your tenant brings up a maintenance issue it is put to the very back of the list for that day.
I talked to the president of the property management company I hired about Ontario's landlord tenant act and the aforementioned items. He just looked at me in shock. He kept saying "No rent for months? Why would anybody want to be a landlord in Ontario?"

We then went over something similar to this:
http://www.keytlaw.com/leasinglaw/azevictions.htm

He concluded that unfortunately, although it doesn't happen often, he has to go to court and evict the tenant a few times, but the law is very much against the tenant if they are delinquent. He says the longest he has ever taken to evict in his last 10 years as a property manager was 45 days.

I'd buy these properties all day long if I had the cash.
I'm still shopping there. It's as close to free money since the stock market crash of 2008.

Did you go down and inspect the properties yourself?
Yes. My wife and I had a great time in Pheonix, AZ. We had the property inspector report with us. The properties are a lot nicer than we had feared. I was shopping for RE and my wife went shopping at Fashion Mall in South Scottsdale :p

We have an outstanding bid on a bank-owned 1 bed 1 bath condo with new black appliances, stacked washer/dryer, granite counter tops, new dark wood cabnetry, burber carpet...for $21K. LOL!

What made you select Phoenix AZ?
Price. No rent control. Landlord friendly; fast evictions. I can carry 2 condos with every 1 condo that I purchase with an existing tenant.
 

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Have you set up a corporation to buy these or did you buy them personally?

Are you using leverage at all or are you just paying cash?

It is a good idea to buy in one location to minimize costs.
 

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Rickson9 - Thanks for the great post, it was very informative. I was also looking at condos in Phoenix a couple of months back but sort of chickened out because it felt so "foreign" (i.e. I wasn't really sure what I was gettign in to with a US real estate investment, logistically speaking). Your post has certainly resparked my interest.

Would you be willing to refer me to the agent and the property management company you are using? It would be very much appreciated. Like you, I'd be looking to pick up a condo and have it rented.
 

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Discussion Starter #18 (Edited)
Rickson9 - Thanks for the great post, it was very informative. I was also looking at condos in Phoenix a couple of months back but sort of chickened out because it felt so "foreign" (i.e. I wasn't really sure what I was gettign in to with a US real estate investment, logistically speaking). Your post has certainly resparked my interest.

Would you be willing to refer me to the agent and the property management company you are using? It would be very much appreciated. Like you, I'd be looking to pick up a condo and have it rented.
I'm off to Mexico tomorrow morning. Contact me in a week or two. In the meantime, I would read about the City of Phoenix here:

http://phoenix.gov/

The section on "Crime statistics and maps" was important to me:

http://phoenix.gov/POLICE/cristat_maps.html
 

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Discussion Starter #19 (Edited)
Great strategy.

Unfortunately FHA's new guidelines on Lending in condo complexes will limit your appreciation.

The time to buy condo's in my opinion is when FHA reverses the current restrictive guidelines for Condo financing.
I already understand this. I posted on the REIN forums about this awhile back. When the FHA reverses direction, it would be unlikely that I could buy at the prices that I'm buying at. It is fortunate that the FHA is restricting lending on condos - it keeps prices down; and for cash buyers, that's priceless.

The FHA should further tighten guidelines on lending in condo complexes - or even eliminate condo lending altogether. I would strongly support that. Less competition and lower prices for me.

I'm not sure why I would dislike an artificial mechanism that keeps prices down. I'm a Buyer, not a Seller...
 

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Under the new Federal Housing Administration rules that took effect October 1, 2009 any FHA loan for a condominium complex must meet these guidelines:
1. Project must be primary residential.

2. No more than 25 percent of the floor space can be commercial use.

3. No more than 15 percent of the units can be 30 days or more past due on the HOA payments.

4. No more than 10 percent can be owned by any one investor.

5. At least 50 percent of the units must be owner-occupied or sold to intended owner-occupants.

FHA has lost a lot of money on condo complexes and have instituted these new rules so they can effectively stop loaning money on condo sales.

With the information I know about Condos in Toronto in buildings who have rules like this improve and preserve their value over time.

For instance to cite specifics in buildings in which I manage some rental units. In Sherway Gardens no owner is permitted to own more than one unit in each building. The building is great.

Remember what I said earlier about how owners like to own more than one unit in the same place to keep costs low?

Well the fact is that owner occupied building are cleaner, safer and nicer places to live in and rent in. By limiting the amount of renters this makes your building better.

So Rickson I'm not sure what is bad about this legislation long term. Obviously buildings will take a while to comply with these rules and then values will go up.

In case anyone was wondering there was a building here in Toronto that could no longer get building insurance and you must pay cash for units there.

2 bedroom for $55,000

http://www.realtor.ca/propertyDetails.aspx?propertyId=6526706

I used to manage a unit there too :)
 
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