Should Investors Stay Away from Condos

As real estate prices continue to slide investors are eager to find the next best deal. Usually when determining which property they should buy price and rental income become a big factor. Price and rental income usually translate to cash flow and this is the foundation of long term real estate investing.

Let’s look at the condo market and the pro and cons of buying them over other real estate options. The price point of a condo can be very low and investors can usually cash flow on them, but one area that needs consideration is the short term exit strategy. If an investor wants to sell their investment condo they should think about who is going to buy it and what loans are available to buyer to finance them.

Loans on condos are still available, but guidelines have changed that make it more difficult to finance condos with little or no money down. Condos as an affordable housing option for low and middle income brackets are great because of the low price, but a large group of these borrowers need low to no money down on their purchases. Many loans require 10% or more depending on the geographic region, borrower and the type of condo that is being financed.

Here are a few key questions to ask your mortgage professional in helping you with your exit strategy:

1. Is this condo FHA eligible?
2. Is this a warrantable condo?
3. Is this a non-warrantable condo?
4. Is this an ineligible condo?
5. Does one investor own more than 10% of the complex?

All of these questions relate to whether or not a bank will actually be able to finance your property and some have a higher down payment requirement.

Investors do you home work up front, have a well formulated exit strategy and anticipate the hurdles that your potential future buyer may have to over come.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.