Considering getting another rental property but a condo?

Question

Hi, I currently own 2 homes. First one has been rented out and am currently staying at a new home.

I am considering purchasing another property as rental property, but have a few questions that maybe experts here can help?

1. Given the high interest rate, I am considering just buying the rental property out right (or with very minimal loan) is that a bit extreme?

2. Because of 1, I am really only considering condo or small houses on the east side. Is it silly to consider condo for rental property?  My end goal is basically property appreciation for a target of holding the property for at least 10 years.

3. Is there a one stop shop for me to work with that will handle most this (ie. evaluating if the property makes financial sense, helping with closing of property, setting up LLC to hold the property etc)

4. My previous home which I rented out, I basically posted that home on Zillow and am self-managing it so far. But I am also open to having a property management team do it. Is there pros and cons to either method? And would it matter if I start owning another rental property?

5. Does the existing mortgages on my current homes matter for getting another rental property?

Thanks again!

Jordan Moorhead · Answer

Just get a mortgage and refi when rates go down. I HATE condos for rental properties personally because you don't have control and special assessments can kill your investment.

Julien Jeannot · Answer

1. No right or wrong way to buy. If you are comfortable parking a lot of cash into a property and do not have any other investment lined up, then so be it. I would recommend having a plan lined up to pull cash out when needed. Refi or HELOC.

2. Condos can be good investments. Figures out my condos have had the most appreciation over the last 8 years. Personally, I can't wait to 1031x into a multi. I'm looking to regain control over what the HOA does and part of the HOA fees goes toward capital reserves which you do not get back if unspent when selling.

3. Not that I know of. A solid RE broker specializing in investments will can handle or coach you through most of it. Setting up LLCs is attorney territory.

4. Always pros and cons. Here is a few: trading your time to have an expert run the property who keeps on top of all the local law changes. However, no one will ever care as much as you do about your properties. Generally folks can handle 5-8 on their own with processes in place. However, if you have a demanding and successful career, you have to weight your time's ROI.

5. Yes it does. Best to connect with a broker lender for those details. If you connect with a RE Broker specializing in investments, they will have the right lenders for your needs & strategy.

Logan M. · Answer

I don't like condos unless it is a screaming deal, the problem is the HOA creates a huge unknown variable you don't have control over.

Alecia Loveless · Answer

@Bing Huan Chio Personally I’d go with a house over a condo any day. I think the opportunity for appreciation is greater and the end market for selling eventually is larger. Also I feel if upkept in a similar manner unless the condo just has super amenities the house will have the ability to get higher rent.  If the condo does have super amenities it will likely have a high HOA fee this eating into your cash flow.

As far as a property management company goes I personally feel that with only a few properties it should be fairly easy to self manage. I have 7 properties and 25 doors and usually spend about 2 hours a week on management which also includes a few trips to the bank during rent time plus 2.5 hours a week driving to visit all the properties on Saturday afternoon to make sure all the maintenance has been done and there’s no trash in the yards I need to pick up and to check two coin op laundry sites, etc. it would be much faster but the two properties the farthest away from each other are about a 50 minute drive away from one another.

My goal is another 3 more years with my W-2 and then going to work just on my rentals full time. In the meantime I’m willing to work 4-6 hours a week on them vs losing part of my cash flow to the mediocre management companies in my area.

Laura DenHaan · Answer

For appreciation I would try to get a house even if it means no cash flow with a loan initially. I bought a townhouse as my first investment 18 years ago. What I learned is that it is harder to differentiate your unit when vacancy is higher, and you have additional cost of HOA dues which you cannot control increases on, and appreciation is less with all else, like location, being equal. On the flip side, you have less expenses in maintenance but I dont think they offset each other.

As far as property management, it depends on how much time you have and what your time is worth. Even with a property manger, you need to monitor them to make sure they are doing their job. I made the mistake of not doing this and it cost me a lot of money. Its important to find a good one which is not easy.

Eric Gerakos · Answer

I have done very well buying condos in desirable areas as opposed to affordable areas. Properties and rents have doubled in the last 5 years and I have a waiting list for tenants.

Considering getting another rental property but a condo?

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