Condo as a First Investment?

Question

Hi everyone,

I am currently looking for my first investment property, most likely a SFR due to budget restrictions.  I am in the pacific northwest and prices here are high compared to some of the investing hotspots around the country.  My plan is to occupy the  property for a year (to utilize FHA), then rent it out and look for a new property. There are a couple of turnkey condo's in my area that are within my price range.

Would you buy a condo as your first investment or would you hold out for a SFR instead? Thank you!

Katie Smith · Answer

Hi Jason, I'd highly recommend checking with the sellers to find out if the condo is warrantable or non-warrantable. If it's non-warrantable you will not be able to get conventional financing on it so you may run into difficulty there. Also, make sure you know what the monthly HOA dues are as these can be pricey and make it difficult to make money off of the rental. Are you open to doing a few fix and flips first to build up your cash - THEN put it towards something long term?

Matthew Kwan · Answer

HI Josh,

Condos are nice and easy to manage, however this could limit you from expanding your portfolio in real estate, if you are trying to grow and have multiple rentals in the near future. Condos have HOA monthly fees (goes up every year) + cannot add value since sqfts is limited. The only time I would suggest buying a condo, if you are in a high appreciation market + the rental market demand is high in that area. Even if you move out, you can still cashflow +

As for single family or multifamily, you can always start off by house hacking meaning you live in one UNIT or ROOM and renting out the other vacant units/rooms to offset your monthly mortgage payment.

There are several ways to run and make sure you are maximizing your rental income while keeping your living expense as low as possible. Try looking into zillow/Redfin and see what your potential rents you can get near the neighborhood by filtering the bedrooms/bathrooms of the intentional property that you are planning to buy. This will allow you give a reference point on how much potential rent you can receive. (Max vacated rents - your monthly mortgage payment) = +/- net cashflow. Happy to connect and assist you in your real estate investing journey.

Happy to connect if you are interested to expand your portfolio

@Albert Bui @Carlos Valencia

Travis Main · Answer

@Jason Khoury To piggy back of @Katie Smith, Yearly assessments on condos, a common practice, can significantly impact property cash flow. While investing in a condo as a first investment isn't necessarily a bad idea, it's essential to be aware of potential pitfalls. I currently reside in a higher-end condo in Orlando, Florida, and obtaining a mortgage with a sub 3% interest rate was crucial for making it a feasible investment.

Allow me to share a personal anecdote that sheds light on the condo buying experience. When I was searching for a condo in Orlando, I encountered several challenges. The first hurdle was finding a warrantable condo, which proved to be a daunting task despite exploring over 20 different units. Subsequently, I found a reasonably priced unit and proceeded to secure it under contract. However, during an HOA board interview, I was informed by the HOA president about an impending $40,000 assessment per unit for major renovations. This revelation prompted me to reconsider the purchase, as it indicated financial instability and substantial building repair needs. This experience underscores the importance of thorough due diligence when buying condos.

Additionally, it's crucial to be aware of state laws governing condo ownership. For example, in Florida, there's no cap on how much HOA fees can increase annually. Therefore, prospective condo buyers should carefully consider these factors before making a purchase decision. While condos can offer attractive investment opportunities, cautious consideration and research are essential to mitigate risks.

Ryan Ruppert · Answer

Hi Jason. My wife and I owned a condo here in SoCal. We used it as a long term rental. There are lots of things I didn’t like about owning a condo.

1- assessments -expensive and hard to budget for

2- HOA - can be expensive and can be raised basically whenever the Association wants for whatever reason

3- there is nothing to force the HOA to get any actual work done. Building continue to look ratty. Pool unfixed for a few years. Washing machines constantly broken. (These are things that you would be able to control yourself with a sfr)

4- generally it seems that positive price appreciation affects sfr better than condos.

5- the association controls how you can rent out your property. Prolly no STRs allowed.

I had a bad experience with condos. I like to be more in control of my investments.

just my input. Good luck out there

Ryan

Malgorzata Sadowska · Answer

almost no condos in SoFla are FHA approved so might be tricky. Also, the few that are might have condo fees that will make the PITI monthly payments more than you think.

Would either buy an SFR or a Townhouse (fee simple allows fha) NOT a townhouse condo. Hope this helps!

Ray Hage · Answer

Condos are always a risk. You can't predict what the HOA fee will be next year, assessments and changes in rules. Unless the condo is extremely AND you can easily rent it out, I don't think it is worth taking the risk as a first investment. I bought a townhouse here in the Fort Lauderdale area. The HOA fee went from 275 when I bought it, the next year at 375 and then 450....and this year back down to 375. You can be sure I was not happy after two years of increases. So just be mentally and financially prepared.

Gaetano Ciambriello · Answer

I think condos are an awful investment, especially for your first property.

You have no control over your HOA and any special assessments.

I would start with a multi-family or single-family with an ADU. Leverage a low down-payment in a property that has higher cash flow opportunities.

Adrian Lammersdorf-Scioll · Answer

Another good tip is to ask the HOA how much they have any reserves, or if there is any special assessments coming up.  A lot of times when there's a big assessment coming up, owners will sell to avoid it.  A duplex/triplex may be a better option to offset the mortgage and avoid hefty assessments, or increases in HOA.  It's a lot easier to get small multifamily now with the competition not being as high as before.

Jonathan Greene · Answer

A condo can be a great first investment. There are mostly positives with HOA in terms of maintenance and development care that you don't have to worry about. But @Katie Smith has a great point because after the Miami apartments fell in on themselves, lenders are much tougher on condos and a lot more makes them unwarrantable which will negate an FHA and require a DSCR loan. If there are no issues, litigation, or assessment, and the reserves of the HOA are good, you are pretty solid. Lower appreciation, but great livability.

Condo as a First Investment?

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