Buy old condo, somewhat old condo, or build new?

[Casey Randall Lenz]

I'm searching my first buy to rent out, and there are a few options in my town. The first option is a cheap condo in a pretty sorry part of town, (45,000 i think?), very large rooms, needs some updating. Second option is a condo in a good part of town, right beside a major college, for 85,000, built in 1984 and part of a HOA that maintains it. HOA fee is 170 per month, and with the college its pretty well guaranteed to rent. Or I could build my own, although coming up with the 30,000 for a lot here might be tough, I only have 9,000 at the moment, but the thought of very little maintenance is nice. Each has some ups and downs. The cheap one would probably have faster profits since its cheap, although being old, I would probably be dealing with problems with it, and being in the bad part of town, might find a meth lab in the bedroom with how that area is. The middle one is very well upkept, and is maintained by the HOA, and will definitely rent. Although at 900 per month rent, and 170 per month HOA fee, and insurance, there is basically no profit in it until it is paid off. The new build would be the least problematic, but 30,000 for the cost of a lot that I have to pay for up front every time I build is kind of high. What do you look for or go after when you are looking at town homes or condo's to keep and rent?

[Thomas S.]

Non of the above, investing in condos is a mistake. Each of your three options are bad for different reasons.

You also need to study more on investing and the management of money. You suggested one would not cash flow till it was paid off. As a investor you need to understand that the opportunity value of cash will always far exceed any mortgage interest rates which means having equity in a rental property reduces cash flow it does not increase cash flow as you pay down the mortgage.

This is a very common misunderstanding by novice investors. Leverage increases cash flow, equity reduces cash flow.