Condos? Good first time rental?

Question

Hello everyone. I'm a brand new investor and have started looking at homes for sale in my area. I see a number of relatively low priced deals in decent areas, but many of them are condos. I ran some of them through the BP calculators with very conservative numbers and the returns were still very good. They seem attractive to me because I can afford the down payment on many of these deals with my own money.

Is there a catch with condos? I know there is an association fee but is there anything else I should look out for? Are they a good investment in my situation or should I hold out on finding a good deal on a single family home? Thanks!

Alexander Felice · Answer

my first unit was a condo, it's been profitable and pretty easy to deal with.....and....I would never buy another nor would I recommend it.the HOA fee alone sucks. it builds no equity and you have little control over changes in price. and it cuts into cash flowthe hoa can put on special assessments (although I have never had one)the hoa can simply be a pain in the ass if someone living there is out of spec or they have restrictions that make renting trickiercondos generally don't appreciate (in my experience) like SFH because they have to appreciate as a whole, which is harder. not the worst possible investment, but since I have owned mine I have seen no benefit over my SFH and I have less control over it

Syed Hussain · Answer

Thanks for the words of wisdom everyone. I had a feeling those prices were too good to be true just wanted to find out the issues that can come with owning a condo. I will try to steer clear and focus on single families and small multifamilies for now unless I come across a fantastic condo deal.@Nicole W. I'm looking at investments in your area I may get in touch soon!

Mindy Jensen · Answer

@Syed Hussain, another thing to think about is if the condo is warrantable or not - basically can it be mortgaged. Lenders will only lend on condos when the mortgage can be sold on the secondary market. Non-warrantable condo loans can't be sold, so most lenders won't give you a loan for the property.There are all sorts of rules that make a condo non-warrantable - including percentage of owner occupants, percentage of units owned by one person, percentage of units behind in their dues, etc, so that should be your first question if you choose to pursue condo investments.I vote no. I lived in one condo for 4 years with a hefty special assessment each year - almost as soon as I moved in. I lived in another condo for a year which also included a special assessment. Never again.

Russell Brazil · Answer

Condos have many pluses and many minuses. Understanding the possible cons can help you negate some of the risk that they have. A few pros: Easier management, lower repairs, lower capital expenditures, quicker turnover between tenancies.A few cons: Special assessments (Not super common in our metro area in large condo projects), more sensitive to economic downturns, more turnover than sfh, rising condo feesI personally own several condos in my portfolio, and they are my easiest properties to manage. I use to own one in Laurel where you are actually, but sold it a couple years ago.

Nicole A. · Answer

The condo fees many times kill any positive cash flow you could have made (unless the condo is paid off).

Lynn McGeein · Answer

The biggest problem we have had with our condo was that we don't have time to be on the board and relying on the condo board to make good financial decisions just doesn't work out well. They are, after all, only owners, usually with their own agenda, and if you get one that wants to block future renters and can garner the support needed to change the condo rules, it won't end well. Our board just let our FHA approval lapse, right after we put it up for sale. Just not efficient management, even though they are using a condo management company. So we are selling, hopefully, and this will be my last condo. If you have time to actually be on the board to insure common sense prevails, it might be worth it.

Account Closed · Answer

@Syed Hussain I hated dealing with the HOA, and they did do a special assessment - and I was on the board LOL! I was the lone vote saying nay. Majority rules. So, even if you get on the board, you still can't reason with unreasonable people.First, find out if you can rent out the condo. And make sure that right is grandfathered in.Oh, and the same board, while I was on it, chose new paint colors for the complex. The colors at the time were neutrals and looked nice among the large old trees. The colors the board chose - against my will - were these bright awful southwestern turquoise and mustard yellow and a muddy red - oh save me. I sold it as fast as I could. Never again.

Cory Binsfield · Answer

Ask Josh Dorkin how he feels about Condos LOL!I'd stay away since you give up too much control to outside forces. I have a friend who barged his way into the association and then systematically made life hell for all the landlords. He used to brag about all the fines he was assessing on the landlords.Better to buy a single family. Better control and appreciation potential coupled with less hassle.

Syed Hussain · Answer

Thanks for the insight @Russell Brazil I won't totally eliminate condos from my radar but I will be cautious with them.

Ricardo Meza · Answer

One catch that may come up is if the the HOA is ever caught in litigation, this may hamper your ability to unload the condo at your convenience - it deters buyers and banks. Another catch may be if the condo needs, or ever will need improvements, you may be limited in your material choices. For example, if you buy an upstairs unit, and you prefer hardwood flooring, the HOA may put a kibash on it because it's written in their CC&Rs that this is a no-no - due diligence when reading those.