First time investor: Out of State Investing & Condo/Townhouse

[Michael Mabrouk]

Hello,

I am thinking about the idea of looking to invest in a townhouse/condo in either the Dallas or Orlando/Tampa greater areas for a buy and hold rental property that I would like to move into down the road. Areas mentioned would be out of state for me so I wanted to see if anyone has recommendations for:

A. For first time investment property, if out of state investing might not make sense or if anyone has had success with it?

B. Experience with buying a townhouse/condo and renting it out with success? Or is single family home the real best way to go?

Reason I am looking more for townhouse/condo is maintenance for the property I do not want to deal too much with as I will be out of state so I'm not really looking for a fixer upper or a house where I will have to worry about taking care of lawn etc. if/when there is not tenant renting. 

Any general thoughts would be greatly appreciated!

Thanks everyone!
 

[Bruce Lynn]

@Michael Mabrouk Congratulations on your investment. In most cases I would say do not buy a condo or townhome in either location, unless you just find a home run deal and that is probably fairly unusual these days. Just way too many issues with condos and townhomes that cause them to often be much more of a headache than you would think. Normally the HOA dues will kill your returns, so the numbers almost never make sense....that's usually the first problem.

Other problems are:

1. Financing....so many have lost FHA approval now and while they just changed the rules to allow spot approval again, this can take so long, and may not even qualify, they can be difficult to resale depending on where you buy.

2. Lots of restrictions on renting in many places....we just passed a law here in Texas for example on September 1st that limits HOA approval of tenant. Before some condo associates had implemented rules that they needed to approve your tenants, board only meets once a month, so to get a tenant approved might take a couple of months. How many tenants stick around with you for a couple of months to see if they get approved. What if they don't get approved and you start over and takes another couple of months. That makes it tough on landlords...well at least that rule is prohibited now. There are other frustrations though...HOA can limit the # of rentals....AFTER you buy...so you may rent it for X number of years and then they change the rules that allow 10-20% rentals only. So many things out of your control with condos and townhomes.

3. There can be issues with tenants following the rules, where to park, what day to put out trash, no storage on the balcony and on and on and on.  Just living close to others can cause issues.

4. You can also have maintenance issues out of your control.  What happens if it is one up and one down...upstairs bath leaks into your unit.  It's also a rental and you can't find the owner to fix.  You can fix your unit, but doesn't solve the issue.

5. Another issue that is tough to resolve...many HOAs have a tough time spending money...put out a vote to increase dues and it gets turned down.  That kicks the maintenance issues down the road...and then you end up with the Miami disasters.  Board has been trying to raise money for years evidently to fix structural issues and no one wants to pay.   Probably 100s of buildings like that in Florida.   In Texas or in DFW area I can go into a building and almost 100% tell you if the majority of owners are residents or tenants.  Deferred maintenance usually gets worse and worse the more investors there are.

Plenty more issues, that's just the start.   What maintenance issues do you think you'll have on SGF that you wouldn't have with a condo?   What comes to mind for me is roof, paint, yard card.  Roof is hopefully every 20-30 years.  Maybe more often in Texas with hail storms....so maybe every 8 years.   That's normally pretty easy process.  You file insurance claim and get bids and get it done...you never have to be here.  Condos...well the board takes care, but you may often have a special assessment to cover that.  Why doesn't reserve for replacement take care of that?....even take care of the deductible?  Because the board was never able to get the dues raised to have enough money in the fund to pay for the new roof or deductible.    Paint...minor touchups ever 3 years probably, major paint every 10-12 years probably in Texas...so that's a fairly minor process, same thing you don't have to be here.   Last issue is landscaping....tenant should be responsible, but they almost never care like a homeowner would.   I'd get a task rabbit or your PM to take a picture outside every month to help ensure the yard is maintained...watered, weeded, cut.   Call the tenant if it isn't.  Keep after them.   Most of that you can automate too.  If you need the yard cut while it is vacant, hire online, have them take a picture when complete.  Pay when you see results.