Is buying a condo an intelligent investment?

Question

I'm young (22 years old) and married with a 2 month old daughter. We currently rent one unit in a duplex, and we want to be done renting. I can't stand the thought of throwing out cash every month all while having zero equity. I've probably spend upwards of $18,000 in rent since my wife and I got married 2 years ago. ANYWAY, we recently moved to Coeur d'Alene, Idaho to shake up our lives a bit, and so we are just getting on our feet. I have a pretty low income currently, so qualifying for a mortgage on a real house here isn't currently an option. Is buying a condo a wise thing to do? It would seem smart to me because we could build equity in a property for the time being instead of just paying rent. Is there something I am missing here?

Thank you all in advance!

Michael Garofalo · Answer

I 100% agree with @Kevin Dean. I too live in Washington DC, a condo made sense for me due to the following reasons:

1) Close to work-$0 in transportation costs as I walk every day

2) Fair and modest fees--they have not been increased since 2006-2007, no risk of special assessments or fee increases, as level of reserves is currently extremely high

3) Principal pay-down

4) Property Tax and Mortgage interest write-offs

5) Minimal CAPEX (only responsible for appliances and systems within the unit itself)

I purchased my unit in a B-class building, but in an A-class neighborhood. This allowed me to buy at a small discount, because I wasn't going after the over-priced shiny new construction. Within 1 year of purchasing I saw a 15k bump in equity (I made some minor interior improvements). I then took out a HELOC against said property to continue investing and purchased a second condo roughly 15 months later.

People bash condos all the time, but it really boils down to knowing your market and the dynamics of the HOA association. I agree with many others that you as an owner you will have less control over your investment, and for that reason I am starting to move away from condos to diversify my portfolio. That being said, I have no plans to sell these first two anytime soon. If possible, I will likely hold them for decades and sit back to watch both rent and price appreciation snowball.

Ron Gallagher · Answer

@Zach Simpson I also agree buying a modest condo with low condo fees is preferable to paying rent. You will build equity and gets you "in the game" with an owner occupied loan. Then in a year or two you buy a house or small multifamily with another owner occupied loan and rent out the condo behind you.  This is exactly what I did (also in DC like @Kevin Dean ) but the mistake I made, that I would recommend you trying to avoid, is I bought a condo with a high condo fee, the condo cash flows now but only after owning it for 20 years. When buying your condo look for one that will cash flow if you were to put it on the market today as a rental.  Meaning that you would take market rent for the condo and subtract PITI and condo fee (repairs and capex are usually really low for a condo so I don't really worry about them too much for a condo) and still have money left over. If you buy a condo that would cash flow or at least break even now even if you are going to live in it for a while, it will be more likely to be a cash flowing rental in a year or two when you move out and rent it out.

Tom Parris · Answer

Hi @Zach Simpson,

The best thing you can do is just get started. A condo would be perfect for you, it's small, low maintenance, something you can grow out of (so you can move onto the next property) and what you already know, they're cheaper so you can get into the market quicker.

However, you should be educated on condos beforehand. So I recommend finding a local agent, and a lender that are experts in condos. They can educate you with the risks associated with them. Almost all the risks that condos come with are found up front before you even buy it. It's all in the structure of the association, the funds they collect, where those funds are allocated, the rules and regulations of the association, the history of the building, etc. You have a right to those documents when you go under contract on a property. The good agents and lenders will know which buildings to buy in, and make recommendations. They will also know how to collect and analyze that info to make sure the condo is fit for your intentions.

Good luck!

John Barrett · Answer

@Zach Simpson I would start by mapping out what you think the next few years are going to look like for you and your family.  Depending on what you think the future will hold (additional moves, job changes, family, etc.) will help you to determine what your next step should be.

While owning is most people's preferred option, it may not actually be the best choice for you if you think you might move in the next couple of years.  Renting provides you with the greatest level of flexibility.  I often think the best thing to do for people starting out is to first get your income up and start building up your savings.  Additionally, start networking with local agents, brokers & investors via meetups and other forums. Taking these actions will open up additional opportunities that may not be apparent or available to you at this time.

Best of luck with all your investments.

John

Kevin Dean · Answer

@Zach Simpson this is a great and tough question to answer. I struggled with this same issue as I am 24 years old and in a high cost market (Washington, DC).  While House Hacking a duplex would be more than ideal, it may not be realistic yet, as is my case in this market. The next best option for you, as you have mentioned, may be owning an affordable condo that is close to where you work in order to minimize your travel expenses while building equity.

The thing that keeps many investors out of condo's are the HOA fees. There are however benefits to the HOA fees, so I wouldn't let these completely deter you. A well run condo association can be worth the fee.

Despite not being able to house hack a duplex yet, the question you can ask yourself is...

Is it better to continue to rent, or is it better to buy an affordable condo with a fair condo fee?

There are arguments to be made for both. I developed a back of the napkin type excel model which allows you to change various inputs (purchase price, HOA fees, down payment, PITI, what your rent would be, etc.) and determine if, long term, it is better to rent or to buy the condo.

PM me and I will get you that spreadsheet!

Ashutosh Kale · Answer

@Zach Simpson Another point to consider is whether the HOA allows renting the condo. Assuming you wish to rent it out later on.

Cassidy Burns · Answer

Every market has a different price point of entry.  In Washington, DC the  condo market is what allows first time buyers, house hackers, and 203k buyers to get in with a 3-5% down payment due to most of the time down payment is the limiting factor.  As long as the numbers work, condos are still a great investment.

Is buying a condo an intelligent investment?

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