DEAR NOAH: Is it a terrible idea to buy a condo/townhome as a primary?

Question

Dear Noah,I had a quick question regarding the current housing market. I would like to set myself up to start investing in real estate, but currently I don’t even own a primary. I have a downpayment saved up, and I’m trying to evaluate what to do with the current market. I’m living in Boulder, CO right now, so that really hurts the affordability, it's looking like most of the things I can afford here would be a condo/townhome. My timeline is probably 1-2 years as I believe the market is softening right now, especially with the high rates.I have two questions:

- Is it a terrible idea to actually buy a Condo/Townhome as a primary?- What are some good resources to start strategizing my next couple years to set myself up for being able to invest?Thank you, Luke, an aspiring investor from Boulder, COGOT A QUESTION FOR NOAH AND THE BIGGERPOCKETS TEAM? Submit it here.

Mindy Jensen · Answer

It isn't a terrible idea to buy a Condo or Townhome as your primary, but there ARE pitfalls to watch out for. First, look into the financial health of the Association. I have personally never owned a condo that DIDN'T have a special assessment - which happens when there is a repair needed but not enough money to pay for it.

Let's say it's a roof, and the roof has been on for 20 years and now needs replaced. In a healthy Association, they've taken into account that this will need to be replaced, and have planned for it, essentially charging everyone who has lived there over the last 20 years a nominal amount to be put toward the new roof when it's needed.

With an unhealthy Association, they try to keep HOA dues artificially low, and when a repair is needed, they levy a Special Assessment, which puts the financial responsibility on those who live there currently.

What you want to be on the lookout for is the Reserve Fund. While a low fund isn't an automatic red flag, it's definitely something to look deeper into. Perhaps it's low because they literally just paid for all repairs for the next few years. No worries. But if it's low because they don't charge enough, and there are repairs in the pipeline that will need covered, you could be looking at a Special Assessment.

Good resources to start strategizing? In addition to Noah Bacon's suggestion Start with Strategy by Dave Meyer, I'll give a shameless plug to the BiggerPockets Money podcast. The best way to set yourself up to invest is to be financially prepared. Every week, Scott Trench and I bring you two episodes where we share money tips and tricks, along with telling Money Stories of our guests. There isn't an episode we've made yet that you won't take away at least one tip!

Ray Williams · Answer

Luke, Ultimately Boulder is a very good rental market. I am in Denver, and if there were a choice I would go Townhome over condo. For many reasons. But mainly the HOA aspect because with a condo you do let go of certain controls when the HOA is in charge, like a condo. Not as many amenities with townhomes usually but as example the interest rates aren't any higher on a townhome compared to a condo. It may depend on bigger goals but even single family in the metro is expensive, so again it may go back to your longer-term goals. As housing gets more expensive, buyers may have to buy condos/townhomes as their first home so don't discount the future of your journey, now. One upside of Boulder is appreciation over time.

Tommy Ray · Answer

I bought a condo as my 2, 3, 4, 5, 6, 7th investments.  Being a military member I LOVED the idea that the expenses I specifically had to program money were limited to the paint / fixtures inward.  If the HOA maintains the exterior and yard- WIN.  That was what I thought and it matched my availability and asset sustainment needs.

Location location location--be somewhere where the state, city reinforce landlord v. tenant rights.

Location near jobs, tourism, or other attractions (like an airport).  Projecting the growth and thus desirability and central location near the local market prime drivers is an important consideration.

Make sure the CCRs/ governing documents do not put limitations on use. Some investment strategies like STRs may be barred or house-hacking even.

Condos may tend the limit "highest and best use" maneuvers.  In addition, they will limit LEARNING about investing but they will teach you more than you ever wanted to know about your fellow man.  Cash flow will be impacted and generally lesser if you are overly restricted or overly assessed/fee'd into the "red".

I hope this helps.  I invest across the US and have condos within my portfolio.  The investing and the tax code works for the LONG HAUL.  Incentives are generally for the long haul...  Be long minded in all things REI.  Here to help.  Good Luck!  Get'r Done

Tiamo Wright · Answer

Shameless plug but I would say read some of our BiggerPockets books in the bookstore. I read Set For Life before I even know what BP was. Also Dave's, Start With Strategy was really cohesive and really helped me understand what questions to ask even after I had already bought a few properties.

As far as condo/townhouse I would say watch the HOA and make sure you know how much, any deferred maintenance and any rules. Such as  issues with STR, or even renting it out long term. I have had friends buy a great condo and then didn't read the docs well enough to know that they limited how many units in the building could be rented out at a time.

Remember that there is no right or wrong way, it just depends on what path you are most interested trying out and feel most comfortable with.

Hector Perez · Answer

If its your primary home, it is not a bad idea, if you are comfortable with the monthly HOA fees.

The question I have is, what are you planning to do after 2 years?  are you planning to sell it or rent it?

If you are planning to sell it, are you buying a fixer-upper or paying retail? Is they are appreciating in value or remaining steady?

If you are planning to rent it, what would be your cash flow after expenses? Based on current rates

You have to answer yourself this questions to make a decision

I have bought multiple condos over the years to rent or fix and sell, and it depends on the area, value, rents, etc.

Mu biggest issue is dealing with HOA. Sometimes if you are renting the unit and it is not insulated properly, then you hear footsteps and conversations from next-door units, so tenants complain a lot, but there is not much you can do.

Also, one time the unit above mine leaked water into my unit, and the HOA said I needed to talk to people living above mine to fix the issue and they didn't have the fund to fix the bathtub from leaking into mine, so I had to pay for the repairs.

Sometimes working with HOA and is painful, but other times is easy if the unit does not have problems

Account Closed · Answer

I was in a similar situation when I wanted to start investing but didn't have a primary yet and lived in unaffordable Denver...I ended up investing out of state. Bought a few places that cash flowed in Kentucky, then came back to Denver later when I had more creative options to get a primary and make it affordable. We bought a primary in Littleton last year with an ADU that we Airbnb and it does really well so far. It's in an "unincorporated" county so we have no STR restrictions which was a really nice surprise. We also had the seller buy down our rate which helped.

Scott Trench · Answer

Every market offers opportunities, and every market comes with drawbacks.

I'd bet that for the last 50 years, investors looking at Boulder have felt it was unaffordable, and that the numbers don't work for investors. And, for the last 50 years, Boulder, CO has offered investors and homeowners some of the fastest rising rents and prices in the country.

Boulder's superpower is it's politics - they don't allow construction at any magnitude in the city, limiting supply long-term. Further, the proximity to the mountains, being home to CU, and the booming tech scene all contribute to long-term demand.

The result? Sky high prices that continually rise, and a constant supply of wealthy / high income people willing to pay those prices. I see no reason this won't continue for the next 30 years.

While this makes it hard to "house-hack" in a traditional sense, it offers other opportunities for those in it for the long-haul. In particular, I would be willing to bet that for the bold, a "Live-In-Flip" strategy in Boulder, CO could be as lucrative an investment as one might find anywhere in the country. On average, the profits from such a strategy might be higher in Boulder than all but a select few markets in the country (maybe certain parts of SoCal offer slightly better opportunities?).

I'd also suspect that as an owner-occupant, one might be able to skirt strict STR laws, and rent out a primary in an extremely in-demand market, especially in the near-term (think collecting huge fees seasonally around CU football games the next few years).

This kind of creativity (or a massive pile of cash) is what's needed to "Cash Flow" in the near-term with a Boulder investment, but unless Boulder dramatically reverses course and halts the NIMBYSM that stops new construction in it's tracks, those who hold on for the long-term are likely to be highly rewarded.

Noah Bacon · Answer

Hey Luke!

Great questions, and awesome job having your downpayment ready!

• I wouldn't be completely turned off from the idea of buying a condo/townhome as your primary. I bought a condo in 2021 and a townhome in 2022, both as primary's in Colorado Springs. I was priced out of small multifamilies, and single family homes did not make sense to rent out with a higher price point. What I have learned very quickly owning these properties is that you can make these work on paper to convert them into rentals when you do your analysis today, but HOA increases are unexpected and completely out of your control. My townhouse has had subtle increase YoY ($15-$25 increases), and my condo HOA fees jump over 100% YoY basically crushing my cashflow. Numerous insurance providers have pulled out of CO in the last few years and I know a lot of investors (myself included) hurting right now! Cashflow aside, I have still seen great appreciation and I'm sure Boulder will continue to have a strong market if/when rates start to come down.
• 
• Shameless plug to @Dave Meyer's Start with Strategy, but I wish I had read this book before I started investing. (Thanks for releasing it 3 years late, Dave🙄). This will show you various strategies and the risk tolerance associated with each of them. If you haven't checked out house hacking yet, I could not recommend it more highly especially if you are looking to get into your first primary. Many of us started out using this strategy, and have continued to implement it with numerous nuances: House Hacking with an STR in your basement, renting by room in a SFH, and most traditionally in a small multifamily property where you take one unit to yourself.

Jana Crum · Answer

Hey Luke, everyone has given you some great advice! I'd like to add another perspective I don't think has been mentioned yet. By being in Boulder, you have the perfect opportunity to take advantage of the college rental market & rent out your extra rooms to college kids in the area. Now, this is dependent upon you being willing to have roommates, but it's a great way to take advantage of the condo/townhome market & house hack. Most college students (even grad students) are used to living in condos/townhomes with roommates & you can even get plugged into the university's "off-campus" housing list to market your rental. Plus all apartment complexes that rent to students offset the lack of tenants for 3 months during the summer by putting a premium on their rents. You could do the same & set yourself up for a great house hack/first investment property.

DEAR NOAH: Is it a terrible idea to buy a condo/townhome as a primary?

Most Popular Reply