First time buying a rental property for investment dilemma
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Randall AlanPro Member
Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votesQuote from @Jenny Kao:
Hi all, I'm a newbie to real estate! Currently, I'm looking to buy my first rental property. I'm looking at single family home (3B2B) or condo in either AZ or CO. However, most single family home price seems to be out of my range (low 300) and condos all have high HOA fee, which I'm not sure down the road if it's worth it. Should I be looking at other states instead? Seems like there are a lot of experts in this community, therefore just wanted to get some thoughts. Thanks!
Beyond the HOA fees, there is the HOA itself and their rules… many of which could stand in your way as a landlord. Many associations have limits and restrictions on renters in their community. From what percentage of Renters allowed to how long you have to wait to be able to rent (sometimes multiple years). Then there are the upkeep requirements that renters may not want to follow, followed by the potential of assessment for things way outside your apartment. I read a story recently where a high rise condo found out all their railings needed to be replaced. It was a $15,000+ special assessment per unit. That will put a dent in your P & L statement for a few years!
For reasons like those I avoid HOA communities in my portfolio. iIt is much nicer to have complete control of your properties!
All the best!
Randy
21 Replies
- Investor · Denver, CO · Member since 2016 · 42 posts · 29 votes3yMy first couple of investments were in condos. I currently have a couple here in Denver. I would recommend them as a way to get in the game and start accumulating equity.
Quote from @Jenny Kao:
Hi all, I'm a newbie to real estate! Currently, I'm looking to buy my first rental property. I'm looking at single family home (3B2B) or condo in either AZ or CO. However, most single family home price seems to be out of my range (low 300) and condos all have high HOA fee, which I'm not sure down the road if it's worth it. Should I be looking at other states instead? Seems like there are a lot of experts in this community, therefore just wanted to get some thoughts. Thanks!
- 3yRandall AlanPro MemberInvestor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Jenny Kao:
Hi all, I'm a newbie to real estate! Currently, I'm looking to buy my first rental property. I'm looking at single family home (3B2B) or condo in either AZ or CO. However, most single family home price seems to be out of my range (low 300) and condos all have high HOA fee, which I'm not sure down the road if it's worth it. Should I be looking at other states instead? Seems like there are a lot of experts in this community, therefore just wanted to get some thoughts. Thanks!
Beyond the HOA fees, there is the HOA itself and their rules… many of which could stand in your way as a landlord. Many associations have limits and restrictions on renters in their community. From what percentage of Renters allowed to how long you have to wait to be able to rent (sometimes multiple years). Then there are the upkeep requirements that renters may not want to follow, followed by the potential of assessment for things way outside your apartment. I read a story recently where a high rise condo found out all their railings needed to be replaced. It was a $15,000+ special assessment per unit. That will put a dent in your P & L statement for a few years!
For reasons like those I avoid HOA communities in my portfolio. iIt is much nicer to have complete control of your properties!
All the best!
Randy
- 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Jenny Kao
I’d buy a turnkey property out of state. Look up Norada or RoofStock. Some come with tenants in place and they cash flow from the start.
- 3yJeff WhiteBusiness MemberRealtor · Denver, CO · Member since 2016 · 278 posts · 371 votes
@Jenny Kao Hi Jenny, it is a great time to buy properties, competition isn't nearly as fierce as it would be if rates were under 6%, so that is good news for looking for a rental property.
The tough decision is deciding between two different states. Why CO vs. AZ? Do you live in one of those states.
It really goes back to your goals, you can easily find exactly what you are looking, but what are you goals? Cash Flow? Appreciation? A little bit of both? Do you care about location? Those are the big questions to ask yourself.
- Member since 2023 · 2 posts · 8 votes3y
Quote from @Jeff White:
@Jenny Kao Hi Jenny, it is a great time to buy properties, competition isn't nearly as fierce as it would be if rates were under 6%, so that is good news for looking for a rental property.
The tough decision is deciding between two different states. Why CO vs. AZ? Do you live in one of those states.
It really goes back to your goals, you can easily find exactly what you are looking, but what are you goals? Cash Flow? Appreciation? A little bit of both? Do you care about location? Those are the big questions to ask yourself.
@Jeff White
Hi Jeff, agree! Tho the rates are still a bit high, but I think it's not a bad time to buy properties. I currently live in Colorado, but the housing prices are higher than AZ. AZ is another state that I'm more familiar with. I think my goal would just be on appreciation and the cash flow can be fairly, but at min. cover the mortgage. Thanks
- Member since 2023 · 21 posts · 8 votes3y
Quote from @Jenny Kao:
Hi all, I'm a newbie to real estate! Currently, I'm looking to buy my first rental property. I'm looking at single family home (3B2B) or condo in either AZ or CO. However, most single family home price seems to be out of my range (low 300) and condos all have high HOA fee, which I'm not sure down the road if it's worth it. Should I be looking at other states instead? Seems like there are a lot of experts in this community, therefore just wanted to get some thoughts. Thanks!
Jenny, I am a realtor and investor. I have done conventional long-term rental (LTR) twice before and ended up selling both of those. We have owned a very successful short-term rental (STR) in CO for several years and are under contract to acquire another in New Mexico. Our net cash flow is far greater under the short-term strategy and we have a system that works for us. Focusing on vacation destinations without heavy-handed STR regulation is the key. Denver, for example fits that, however, they have some difficult regulations around STR, but many of the surrounding metro communities are more easy to work with. Do you have the tools to analyze potential opportunities when they arise? Are there specific markets in Arizona or Colorado that you're specifically considering? And, are you focused on LTR or are you considering STR also?
- Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes3y
Quote from @Jenny Kao:
Hi all, I'm a newbie to real estate! Currently, I'm looking to buy my first rental property. I'm looking at single family home (3B2B) or condo in either AZ or CO. However, most single family home price seems to be out of my range (low 300) and condos all have high HOA fee, which I'm not sure down the road if it's worth it. Should I be looking at other states instead? Seems like there are a lot of experts in this community, therefore just wanted to get some thoughts. Thanks!
If you are cash or have at least 70k, (seller financing )you can get a SF for about 100k in the Cleveland markets with 1300 in rent 100% hands off.
Good luck
- Investor · Fort Lauderdale, FL · Member since 2020 · 1k+ posts · 755 votes3y
I generally don't like HOAs as it can be difficult sometimes between the fees, assessments and rule. If Denver area is too expensive, what about other areas of CO/AZ? Something maybe 1-2 hours away from the city? It might be worth looking into those smaller or medium size towns. That way, you still have decent control and may not need a property manager right away if you get the right tenants and house well kept.
- Real Estate Agent · Scottsdale, AZ · Member since 2018 · 412 posts · 366 votes3y
Hi @Jenny Kao
As an agent in Metro Phoenix, I work with a lot of BP investors...for both LTR and STR.
Since you know the state, you probably know that our economic outlook remains strong, with new companies and new residents continuing to migrate here.
You have a lot of options, including lower-priced SFR in outskirt/commutable communities.
Best of luck in your hunt and let me know if you'd like to explore AZ more.
Melanie
- House Hacking Specialist · Denver, CO · Member since 2016 · 411 posts · 396 votes3y
@Jenny Kao If CO is where you are currently living, that is where I would invest... personally.
Even though it is a little more expensive you have a few things working in favor for you.
1. You can self manage. With todays current market conditions, it is very difficult to make numbers work when underwriting in property management costs. Even if it is just for a few years, self managing your rentals is very beneficial when first starting out. Self managing an out of state rental mad me realize that I am not a good OOS property manager. At the time, I could not afford to hire out the management but as rents increased I was able to hire our after 4 years of owning the property.
2. If needed, you can make the quick drive to your property.
3. You are able to attend in person networking events with other investors in your market.
Is $300k how much you were pre approved for or is that based on how much capital you have available for downpayment? If downpayment is an issue, ever consider house hacking? That is how I got my foot in the door.
Condo investing- HOAs can get a bad rap but not the worst thing in the world. Yes, HOA fees suck but you have much lower insurance costs (typically half the costs of single family home) and if there are any utilities baked into HOA fees, those can be billed back to tenant. Tenants covers all utility costs. Be sure to look into the bylaws, b/c as others have mentioned, there can be some rental restrictions.
To help point you in the right direction and understand if CO is a market that fits your goals, I will send you some case studies we ran on actual properties in todays higher interest rate environment.
Best of luck
- Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes3y
I think it's still a great time to get into the market and properties are likely not going to get cheaper in most areas. As entry level price points get pushed up, cash flowing rentals will be more difficult to come by.
Here are a few things to think about:How are you planning to finance the property? If you are taking out a mortgage and the property doesn't cashflow, this could hurt your debt to income ratio down the road if you plan to buy additional properties. With investment rates easily over 8%, you may need to plan to put down a large down payment to cashflow with a mortgage.
Condo HOAs aren't the worst, but they can be unpredictable. I'm talking to a seller right now that has seen his condo HOA fees double over the last 3 years without any improvements or new amenities. They were $200/month when he purchased the condo in 2021 and they are set to increase to $500/month this summer. We've also seen several condo boards recently decide to push anti-landlord policies requiring a lot of red tape to rent out properties. Unless you can get a condo with strong enough margins to make up for possible HOA shenanigans, I wouldn't want a condo in this environment.
Are you 100% sold on the Colorado and AZ markets? There are many markets where you can buy a new construction home for less than $300k. Just as an example, I'm based in the OKC market. Our average sales price for a single family home is around $270k. You can pick up a basic builder grade 3/2/2 1200 sq ft new construction home for just over $210k and rent it out for $1400-$1500+/month.
I think it's worth expanding your search if you aren't finding deals that make sense in your market. Between face time and weekend trips, you can invest out of state pretty easily with today's technology.
Ultimately, look at your long term goals and decide what makes sense for you! - 3yMichael SmytheBusiness MemberReal Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
You might want to follow the "Deep Dive" series we're doing on our BiggerPockets blog about Metro Detroit cities, City of Detroit Neighborhoods and comparing Metro Detroit to other hotspots investors usually consider:
https://www.biggerpockets.com/member-blogs/3094/99854-deep-dive-into-metro-detroit-cities-ecorse
(BP search feature can be problematic, so we’ve also added links @ our website under View Cities & Neighborhoods We Service)
Doubt you'll find this much info for any other market in the country. So, why would you invest remotely anywhere else?
Logical Property Management4.9454 Reviews - Rental Property Investor · Fargo, ND · Member since 2017 · 129 posts · 107 votes3yI have two investment properties that are apart of an HOA and they are both by far the ones that require the least amount of time and headaches. It awesome to have exterior maintenance/insurance taken care of!
Quote from @Jenny Kao:
Hi all, I'm a newbie to real estate! Currently, I'm looking to buy my first rental property. I'm looking at single family home (3B2B) or condo in either AZ or CO. However, most single family home price seems to be out of my range (low 300) and condos all have high HOA fee, which I'm not sure down the road if it's worth it. Should I be looking at other states instead? Seems like there are a lot of experts in this community, therefore just wanted to get some thoughts. Thanks!
Don't let the HOA be an automatic deterrent! Make sure to confirm that the HOA will allow non-owner occupied... if they do, the HOA can be well worth it!
- Investor · Honolulu, HI · Member since 2017 · 187 posts · 108 votes3y
I'd look out of state. Where I'm from, the majority of properties fall under an HOA and sometimes the HOA fee is more than the mortgage itself. Best to look outside of your hometown to see where you can get good cashflow and/or appreciation with as minimal financial angst as you can.
- 3ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
Hi Jenny, it may be of your best interests to also look in other states. Don't stop looking where you are now, but maybe add on some cities. I have experienced, at least in Cincinnati/NKY, SFH that cash flow are around 140k-180k. So average of 160k. I know that isn't a lot of info but let me know if Cincy interests you and how I can help!
Sam McCormack Realtor - Real Estate Agent · Columbus, OH · Member since 2023 · 161 posts · 217 votes3y
Hi @Jenny Kao,
For a first investment, I always recommend buying in your local market, but that may not always be an option. If the numbers are not working in AZ or CO, I would also recommend looking out of state. I personally focus my investments in Columbus, Ohio. You can find a turnkey, cash-flowing single-family in the 100K's. Not to mention, the city is expected to see great appreciation with many developments coming soon and creating jobs. Intel alone is spending billions on a new branch creating over 7K construction jobs and 3K long-term jobs!
- 3yRemington LymanBusiness MemberReal Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
Quote from @Jenny Kao:
Hi all, I'm a newbie to real estate! Currently, I'm looking to buy my first rental property. I'm looking at single family home (3B2B) or condo in either AZ or CO. However, most single family home price seems to be out of my range (low 300) and condos all have high HOA fee, which I'm not sure down the road if it's worth it. Should I be looking at other states instead? Seems like there are a lot of experts in this community, therefore just wanted to get some thoughts. Thanks!
Ohio has a lot of affordable rentals if you are looking for something in a lower price range
- 3yJimmy LieuBusiness MemberReal Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
Quote from @Jenny Kao:
Hi all, I'm a newbie to real estate! Currently, I'm looking to buy my first rental property. I'm looking at single family home (3B2B) or condo in either AZ or CO. However, most single family home price seems to be out of my range (low 300) and condos all have high HOA fee, which I'm not sure down the road if it's worth it. Should I be looking at other states instead? Seems like there are a lot of experts in this community, therefore just wanted to get some thoughts. Thanks!
Hi Jenny, I recommend that you look into Columbus Ohio and you can definitely find amazing SFH or condo within your budget. As someone who works with a lot of out of state investors - there's so many catalysts for why you should invest here. Specifically, there's job growth (Intel, Honda, Amazon, Nationwide, etc) and the population is growing (unlike Cleveland or Cincy). I really see Columbus Ohio as an extremely safe bet for the next 10-20 years. Plus, there's still so many positive cash flowing and 1% deals here in Columbus Ohio. As a local investor and agent here in Columbus, let me know if you have any questions or want to connect!
Jimmy Lieu, Red 1 Realty4.9120 Reviews - Real Estate Agent · Columbus | Toledo · Member since 2019 · 608 posts · 768 votes3y
Quote from @Jenny Kao:
Hi all, I'm a newbie to real estate! Currently, I'm looking to buy my first rental property. I'm looking at single family home (3B2B) or condo in either AZ or CO. However, most single family home price seems to be out of my range (low 300) and condos all have high HOA fee, which I'm not sure down the road if it's worth it. Should I be looking at other states instead? Seems like there are a lot of experts in this community, therefore just wanted to get some thoughts. Thanks!
Ohio has multiple affordable markets you should consider, such as Toledo. It's a very affordable, cash flowing market.
- Lender · Seattle, WA · Member since 2022 · 482 posts · 768 votes3y
HI Jenny,
Perhaps Texas, FL, OK could also be an option. First step is actually to speak with a lender and get pre approved and discuss your strategy for investing. What is it exactly that your trying to accomplish with your next investment property. Are you trying to buy it as an owner occupied? Non-owner occupied? is cashflow important or are you looking for more appreciation overtime? There's still many questions to ask. The best way to answer these questions is by getting pre approved and if possible with a lender who also works with many investors and invest as well as they will be the most knowledgeable when it comes to what loan programs may best fit your scenario. Once you figure out the loan product your using and how much you prequalify for then you can speak to a realtor to help you find a good deal. Hope this helps.@Carlos Valencia @Albert Bui
- Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes3y
I feel like condos with an HOA fee get a bad rap!! As a new investor with a limited amount of time to perform maintenance and coordinate pest control, pool cleanings, landscapers, etc…..I am more than happy to pay an HOA fee and make zero phone calls to maintain my property.
Now obviously you need to find the right condo that's not facing disrepair or a massive assessment/increase history. That said…lean into the HOA as a newbie.
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