I previewed some real estate listings today that I wouldn’t own for free. These were condos in SE Austin priced in the $30Ks range. I’ve seen these listings online and I know the area, but curiosity finally got the best of me so I went and had a look to see just how bad a listing has to be to be priced in the $30Ks.
I don’t like condos in the first place. Yes, condos have their place in the spectrum of real estate product, but I don’t like owning or managing units with shared walls. I’m especially averse to not having control over water leaks from above or the sides. If a tenant calls and reports a leak coming from the ceiling in a single family home, I make 1 phone call to my roofer or HVAC guy, depending on the type of leak, and the problem is solved.
With a condo leak, I have to deal with the HOA and/or find out who owns the unit above and hope they make the proper and permanent fix to the problem. I don’t like that scenario because my action choices don’t have defined outcomes. I have to rely on someone else to cooperate in a competent way. There are also the issues and disputes with neighbors over parking and noise, neither of which come about with houses.
Nonetheless, how bad could it be that I would say “no thanks” even if (hypothetically) someone offered one of these condo units to me for a purchase price of zero? One word. Exposure. Exposure to risk. I don’t like certain types of risk.
Rather, I should say, I don’t like exposure to unpredictable risks associated with variables I can’t influence or control. I don’t like the sort of risk associated with owning a condo unit in a complex with obvious, visible and chronic problems with the foundations, siding, balconies, sidewalks and overall general condition. Such was what I observed at this complex. No thanks.
Upon arriving at the first unit, I noticed that the bottom of one side of the base of the stairway doesn’t even touch the ground – until you stand on the bottom step – because the sidewalk has settled and fallen away. Yikes! Also, the iron handrail to the stairs was rusted and broken off at the bottom step and just flopping when grabbed. Double Yikes! Ascending the steps revealed them to be slightly wobbly and “jellowie” (for lack of a better term). They had the wavey sort of shimmer you feel when walking up steps that don’t have proper lateral support, so they bounce and sway slightly, like walking on a stairway made of jello. Imagine hauling a heavy couch up this set of steps? Dude, you better have the emergency room address pre-programmed into your GPS.
The interior cosmetic appearance of the unit itself was ok, like lipstick on a pig. The entry door jamb was so far out of plumb I had to put a shoulder to the door to shove it open, and pull it shut with a hard slam when I left. The balcony seemed as unstable as the stairs, and when I opened the attic access and looked inside, there were no firewalls separating units, meaning I could have crawled through the attic and gone into another unit through it’s attic access. (Hello, just came over to borrow some milk). I don’t want to own a unit with this sort of security issue. Also, the insulation was falling and missing in most of the areas, further illustrating the degree of deferred maintenance present in the building.
In short, this mid-1980s set of structures is a disaster from stem to stern. That means that eventually there could and probably will have to be special assessments to the condo fee to cure chronic issues of safety and structural soundness. That’s the exposure any prudent investor should walk away from at any price.
Of yeah, there were mostly older model cars in the parking lot, young men loitering around the parking lot entrance, and mattresses and trash piled near the dumpsters. Through in a swimming pool along with its liabilities and expenses, and the entire proposition of owning one of these puppies is just a non-starter in the biggest sort of way. Really. I didn’t even go inside the other 2 units for which I had printed MLS listing info. I wouldn’t touch these units with a 10 foot pole.
Sometimes, the expected ongoing costs and risks of owning investment real estate are so heavy and/or unpredictable that the purchase price really doesn’t matter. Some risk should not be assumed at any price, not even zero.
Older 25+ year old condos in Austin Texas are, for the most part, very poorly constructed, hard to rent and difficult to maintain for the HOAs that are brave enough to attempt HOA management duties. Some were built as apartments and later converted. Many of these complexes, this one included, are not FHA approved, meaning it’s very difficult for a potential buyer to get a loan, making an investor’s exit from the property much more difficult than from a bread-and-butter 3 bedroom home in a plain vanilla subdivision.
Many of these ill-advised investment decisions were made made by California
idiots “investors” chasing what appeared to be better cash flow and a cheap, low cost investment. I’ve preached the hazards of buying “spreadsheet result” properties for many years, and this is another prime example.
In this particular complex, almost 40% are owned by Californians. Of those with deed dates 2005 or later, over 50% are Californians. Of the 87 listings in this condo complex that have entered and departed the Austin MLS since 2007, 11 have successfully sold and 76 have expired or been withdrawn. That’s an 87% failure rate for sales attempts. Work that into your exit strategy, right next to the “on paper” positive cash flow. I want to call these type of investors and ask “how’s that better cash flow working for you?”
So, would I take one of these condo units off an investor’s hands for free? No thanks. Should you pay $30K for one? No way. Don’t do it.