why SFH and multifamily? why not condos?

[Bob S.]

i've had a really difficult time grasping why condos are a bad option for buy-and-hold investments. that's the feeling i've been getting from the forums - and even the Rental Calculator; it doesn't have an option for Condos... maybe i'm being too literal.

for example, if i buy a multifamily, i have to maintain the entire building and landscaping around it. if i choose to outsource the maintenance, i pay the premium for that.

if i buy a SFH, same deal as above.

if i buy a condo, i pay an HOA which, of course takes a bite out of my bottom line as well. i've read that condo associatons can be a mess and special assessments could happen - but of course i would do my own due diligence to research this ahead of time. nobody can always predict all possible issues.

however, the same can happen with a MF or SFH... a roof can go bad. siding. windows... etc. - capital expenditures happen.

so... how is this different than these potential issues with a condo?

i see this as "there is no perfect option" - but the best one that suits you. in my area, SFH and MF aren't affordable enough for me to start out with. i find condos as a good starting option (seeing cap rates of 6+% etc.) for me, and i can build on investments from there.

thanks ahead of time. i am sure i am misinformed in some ways and/or not understanding this appropriately.

[Anthony Gayden]

Originally posted by @Bob S.:

i've had a really difficult time grasping why condos are a bad option for buy-and-hold investments. that's the feeling i've been getting from the forums - and even the Rental Calculator; it doesn't have an option for Condos... maybe i'm being too literal.

for example, if i buy a multifamily, i have to maintain the entire building and landscaping around it. if i choose to outsource the maintenance, i pay the premium for that.

if i buy a SFH, same deal as above.

if i buy a condo, i pay an HOA which, of course takes a bite out of my bottom line as well. i've read that condo associatons can be a mess and special assessments could happen - but of course i would do my own due diligence to research this ahead of time. nobody can always predict all possible issues.

however, the same can happen with a MF or SFH... a roof can go bad. siding. windows... etc. - capital expenditures happen.

so... how is this different than these potential issues with a condo?

i see this as "there is no perfect option" - but the best one that suits you. in my area, SFH and MF aren't affordable enough for me to start out with. i find condos as a good starting option (seeing cap rates of 6+% etc.) for me, and i can build on investments from there.

The biggest difference is that you have control. If the HOA decides that it wants to use the most expensive contractor in town that costs double or triple what every other contractor costs, then you are stuck paying for it. If the HOA decides that certain rules apply that are very negative towards landlords or your tenants, you are stuck. You give up control when you are under a powerful HOA.

I evaluated many deals under HOAs in Phoenix before I decided to purchase my 4-plex that was not located within an HOA. The biggest issue I had was cost. HOA fees far exceeded the costs for water/sewer/trash, insurance, and maintenance. The swimming pool and other amenities offered did not translate into higher rents. The result was that two identical buildings, one within an HOA and one outside of it, had vastly different cash flow with the non-HOA property always coming out ahead.

Now 5 years later, the properties within those HOAs have not experienced nearly as much appreciation as my non-HOA property.