Buying condo with HOA concerns

[Sam Foreman]

I'm very close to purchasing a condo in Austin Tx that would meet the 1% rule. I can purchase the condo at 95k and rent in the area is around 950 so it seems like a solid investment. However, the HOA for the condo is 245 monthly and this would make the condo cash flow negative for me.

I was planning on purchasing the condo to live in as a primary residence for a few years before moving to a house and renting the condo out. Now, I'm not sure whether this is a good investment or not. There aren't too many other condos in my price range at this time.

Background...this is my first purchase. I've been renting and am ready to get into a place that I own. This condo is in North Austin/Round Rock and I'm told will probably not appreciate very much over time. It's also a non-warrantable condo as the units in the complex are primarily owned by investors who rent the units out. I guess my confusion is that it doesn't seem like an overwhelmingly profitable investment due to the HOA but there are still investors snatching them up?

[Scott Pigman]

I'm in Austin and just starting out myself, so take what I have to say with a grain or two of salt, but I've been trying to understand the market so here's my thoughts.

1. There's a lot of crazy people paying crazy prices in Austin right now. I'm hearing of people paying 90%+ buying foreclosures on the courthouse steps which is not sane behavior.

2. Most of the people that are investing for buy-and-hold either (a) bought a few years ago. We're in our 44th month of appreciation right now, (b) are buying off-MLS properties from motivated sellers, (c) are buying things they can rehab or rebuild to generate value.

3. Buying a property that you know would be cash-flow negative from the start is gambling on appreciation. Which you've been told not to expect.

4. Property taxes take a big chunk. Make sure you account for them.

5. Given our tax rate and condo fees the 50% rule for expenses may not be conservative enough. 

-Scott