Considering 7 Condo unit purchase

[Mark Waldrip]

Hello BP! My name is Mark and I live in beautiful Oklahoma City (GO Thunder!). Primarily a commercial property investor, but recently got into residential properties with 2 sfh rentals.

I'm negotiating with an owner of 7 condos, part of a 30 unit complex. Each 2br/1.5 ba, 1K sqft and renting avg $700/mo with $250/mo HOA fee each (mostly Sec. 8). Cost is $30K each (no agent), but want to beg for your wisdom and experience. I toured one empty unit he's redone, and it is very nice. I'm sure the rest are not as nice, as they have long term renters in place. Sale "as is" so what information should I request prior to closing (he wants to close in 2 wks)? I'm thinking copies of leases, proof of rental payments, info on tenants, etc. Should I also have inspection done on all units? HOA owns hot water tanks, but not the HVAC. I don't think he's trying to pull anything, but this is unfamiliar territory to me. I don't want to buy a "pig in a poke" (do they only say that in OK? haha).

Thank you in advance for sharing any advice!

[Michael Boyer]

I do some condo rentals (goes against conventional wisdom some with HOA, assessments, etc). So you have to be very careful. Maybe check:

1) Owner/rental ratio (what loan programs is the association approved for; this is so you can easily market and sell if needs be).

2) Section 8 and condos just does not line up for me fyi, so could you get market rate paying renters? The condo concept works best with owners and some renters (having section 8 is interesting to say the least)

3) Major capital expenses pending? This would be assessed to you x 7 here ...Do they have reserves?

4) Read all the minutes, rules, policies, financials, etc. The politics may be peaceful or even openly hostile with legal actions. Also, see if you can get a sense of the stance towards renters (problems, fees, limits, etc).

5) Can you exit, even if owner financing them?

Be thorough in DD and inspect them all, find out more about the association. It can be an extra layer to work with. Again, condos don't always make ideal rentals, but people make it work. There can even be ways to add value, for example, by eventually turning these into owner occupied units by selling (owner financing, then passing dues and management on to someone else). I would like it if I though I could owner finance them one by one for 50 K in the next ten years. Then you also get in good with the association with a long term plan to make these rentals (which many condo associations may not like) into vested owner occupied units. Also, with that many you may even want to get on the board if you end up buying as everything, (fees, dues increase, assessment, rule) applied to you in a multiple of 7!