investing in condos vs single family - repairs cost

[Gil Ganz]

hey

not sure if this is the right subforum, excuse me if it's the wrong one.

i'm thinking about investing in a rental property, long term rentals. i'm having troubles deciding what is the best option, a condo or a single family house. 

a few relevant details 

- i will be buying the property 100%

- i will hire a property management company. worth mentioning also that i am not living in the us.

- just to give a sense of what kind of property i'm talking about, let's say the current plan is a 100k property in orlando fl.

 from what i understand, to pros of owning a condo is that most of the outside repairs are being taken care by the hoa, which means less troubles, downside is of course it will cost me 200-300$ a month (rough estimate, looking at the properties i checked so far) and from what i understand condos appreciation tend to go up less in time.

so my questions boils down to the difference in repairs cost:

- usually the rule i hear about allocating money to repairs is 1% of the house values. is that value the same for both condos and single family? shouldn't it be lower for condos because some repairs are being done by the hoa? 

- what kind of repairs are not being done by the hoa?

[Marcus Auerbach]

I'd like to meet the guy who came up with these % rules....

Your capex ("major improvements") budget is a function of the age, the condition and the replacement value of them home. It has nothing to do with rent.

The only correct way to estimate monthly reserves for capex is exactly what any professionally managed HOA does. They have a schedule for all expenses and then break it down to a monthly budget. Simple example: if you need a new roof in 10 years and you know it will be 10k, you know you need to set aside 1,000 per year. Same for kitchen, HVAC, front door, etc..

What I have learned from doing many remodels is that a house needs a complete makeover every 30-40 years. In Wisconsin you can use about $35-$45 per sqft. as a rough estimate.

Now, before you give up, remember: this does not all have to come out of your cash flow!

As you know, you have three sources of income/wealth: cash flow, appreciation and mortgage pay down. Of course appreciation is never guranteed and at times it can go backwards, but if you look at a 30 year timeframe it becomes a bit more predictable.

Think of it this way: when you buy a new house, you should have 30-40 years before you have to start spending (capex) money on it. By the time you have to, your tenant has paid off your mortgage and you own the house free and clear. (Even if it's still worth the same as when you bought it; 0% appreciation.) Now you can take out a small mortgage to pay for the remodelling.

If you buy a "used home" you have to ad the cost of improvements to your purchase price to compensate for the used condition. Most people on BP have forgotten about that investing is about finding a good balance between all three sources of wealth, not just the cash flow one trick pony. Once you understand this, you start to understand why it is important to buy a quality asset.